How the Russia – Ukraine conflict will impact the World. All you need to know – a ReferencePepper

In case you’re dismissing this event as just another classroom brawl then you're mistaken. The ripples will be felt across the globe and India’s economy will also be affected.

Apart from the Stock market crash (which almost always seems to serve as a Barometer giving an early indication of any such event or crisis), there's much more damage this war will bring to the world.

While the world is still not completely recovered from COVID outbreak which lasted for almost 2 years and doesn't seem to go away anytime soon, Russia has initiated an attack on Ukraine. The world is watching, eyes wide open, at the superpower’s blatant display of its muscle power, surprised at the fact that such an event could even take place in 2022.

Lives, money, time will be lost which is heart breaking to even think of but it will have a wide spread economic impact on countries and people around the globe who have absolutely no part to play in this.  

It’s not only a personal tussle between 2 Nations with differences and a case of a bully neighbour trying to expand its territory. So in case you’re dismissing this event as just another classroom brawl then you're mistaken. The ripples will be felt across the globe and India’s economy will also be affected.

Let’s have a look at the possible impact globally and on India and why!

When we talk about economic crisis in countries apart from the warring nations, these are the direct and indirect effects:

(let’s refer to Russia as R and Ukraine as U)

How will Russia impact the world. Some key facts:

As per 2020 report, Russia has been the major exporter of 

1. Mineral fuels including oil: US$141.3 billion (42.1% of total exports)
2. Gems, precious metals: $30.4 billion (9%)
3. Iron, steel: $16 billion (4.8%)
4. Cereals: $9.5 billion (2.8%)
5. Machinery including computers: $8.3 billion (2.5%)

apart from wood, fertilizers, Copper, Aluminium and fish

• Russia is the European Union's biggest oil trading partner (Source: Eurostat)
• Europe gets approximately 40 percent of its natural gas and 25 percent of its oil from Russia and is expecting a spike in electricity bills, which by the way, are already high and the cold weather will be still around in Europe for a few weeks. 
• Seventy percent of Russian oil supplied to Europe comes through pipelines that cross through Ukrainian territory.
• Russia is the world’s largest exporter of wheat in the world as per 2020 data.
• Germany procures 65% of its natural gas from Russia, Poland 50%, Italy 43% and other smaller countries like Czech Republic, Hungary and Slovakia almost completely rely on Russia for natural gas.
• Russia has about 10% of global copper and the second largest palladium reserves and is a major producer of platinum. Copper is used in electronics manufacturing and construction of homes. Palladium, used in mobile phones, automotive exhaust systems and dental fillings, has gone up as the world fears scarcity because of the R & U conflict
• The U.S. chip industry heavily relies on a number of elements critical to the manufacturing of semiconductors, jet engines, automobiles and medicine.
• Nickel, another major export of Russia, is a key raw material used in electric vehicle batteries. The price of nickel, used to make steel and electric car batteries, has gone up.
• Wheat exports from Russia will be either disrupted or the grain prices will be increased. Either ways this essential food grain will become expensive.
• Russia will stop exports to countries imposing sanctions on them (we will come to this part later in the article) and countries supporting Ukraine.

Pandemic started the disruption in the food supply chain across the globe and now this war, if prolonged, could further worsen the supply of essential food grains. Turkey and Egypt could be worst affected as they have a very high reliance on the two warring nations for their wheat imports, especially Turkey as it is already facing an economic crisis. 

There are varied opinions though. “Russia is incredibly unimportant in the global economy except for oil and gas,” said Jason Furman, a Harvard economist who was an adviser to president Barack Obama. “It’s basically a big gas station.”

But even if we ignore all the other exports and assume the world will source the essentials and survive, gas/ fuel itself is going to cause a major turmoil globally. 

And How?

As we mentioned above, Europe gets approximately 40 percent of its natural gas and 25 percent of its oil from Russia.

Oil consists of around 25 per cent of India’s total imports. India imports more than 80 per cent of its oil requirement.

Primarily due to the fear of supply disruptions, crude oil price which averaged $74 per barrel in December has already crossed the $100 mark.

(1 Barrel=158.987 Litres)

How will Ukraine disturb the economy. Some key facts:

While Russia is the world’s largest exporter of wheat, Ukraine holds the No. 5 position as per 2020 data. Apart from wheat, Ukraine’s major revenue is from export of sunflower-seed, corn, iron ores and semi-finished products made from iron or non-alloy steel.

Ukraine’s top 5 exports accounted for 75.8% of the overall value of its global shipments.

1. Cereals: US$9.4 billion (19.1% of total exports)
2. Iron, steel: $7.7 billion (15.6%)
3. Animal/vegetable fats, oils, waxes: $5.8 billion (11.7%)
4. Ores, slag, ash: $4.4 billion (9%)
5. Electrical machinery, equipment: $2.5 billion (5.2%)

Apart from these approximately 4% is machinery and computers, oil seeds, animal fodder, wood and iron and steel products for the rest of the major exports.

Ukraine ships more than 40 percent of its wheat and corn exports to the Middle East and Africa. Lebanon, already facing its worst economic crisis, imports more than 50% of wheat from Ukraine. You can imagine what a temporary supply chain disruption can do to the Lebanese people. And if the war is prolonged, recovery for such struggling nations seems impossible. The only hope is that the harvesting season of wheat is still a few months away and this war would end before that.

Did you know that India imported wheat from Ukraine as well apart from Australia and France?

Impact on India:

India’s main exports to the European country are pharmaceutical products, mechanical appliances, oil seeds, fruits, coffee, tea, spices etc. A war between the 2 nations and unrest in Europe will disrupt India’s transport movement to Europe.  Ukraine itself is a major buyer of Pharmaceutical products from India and in terms of value of goods , India is the third largest supplier to Ukraine. 

Wheat, experts say, in India might not be a problem for a few countries like India and China as India could manage exports from Australia in case Ukraine supplies are temporarily halted. And China wouldn’t care as it is the largest producer of wheat.

India could benefit from exporting wheat to many countries at a higher price who had been otherwise relying on Russia and Ukraine for the same. India could also increase steel and engineerings equipment to the European Union.

It’s the crude oil prices which will see the surge in India, like most of the countries. Crude oil price increase will lead to increase in fuel prices which will have a dominoes effect on everything that relies on it.         

Why did India choose to be neutral?

As its largest arms supplier, Russia accounts for nearly half of India’s hardware – and even refused a request from China to halt weapons sales to India as both the countries were locked in a stand-off at their border since May 2020.

During Mr. Putin's visit to Delhi in December for a meeting with Mr. Modi, the two agreed to renew their “special privileged strategic partnership” and signed a number of agreements to improve cooperation in sectors like space, energy, science, technology and defence production.

But yesterday, Prime Minister of India, Mr. Narendra Modi expressed his concern over the invasion and appealed for “immediate cessation of violence” in Ukraine.

How is the world reacting?

“I have decided to conduct a special military operation ... to protect people who have been subjected to bullying and genocide ... for the last eight years. - Russian President Vladimir Putin

"Russia treacherously attacked our state in the morning, as Nazi Germany did in the WW2 years" - Ukaranian President Volodymyr Zelinskiy

"President Putin has chosen a premeditated war that will bring a catastrophic loss of life and human suffering." - US President Joe Biden

"He (Putin) is endangering the lives of countless innocent people (and)... the peace order on our continent. For all that there is no justification. This is Putin's war."" - German Chancellor Olaf Scholz

"The events of last night mark a turning point in the history of Europe". "We will respond to this act of war without weakness, with cold blood, determination and unity." - French President Emmanuel Macron

"Our mission is clear: diplomatically, politically, economically and eventually militarily, this hideous and barbaric venture of Vladimir Putin must end in failure," - British PM Boris Johnson

"You are using a typical Western media question method of using the word 'invasion'. "China is closely monitoring the latest situation. We call on all sides to exercise restraint to prevent the situation from getting out of control." - Chinese Foreign Ministry spokesperson Hua Chunying

“The moment that other countries put in place strong and severe sanctions on Russia, we will be in lock step with them.” - Australian Prime Minister Scott Morrison

"The latest Russian invasion shakes the foundation of the international order, which does not permit unilateral attempts to change the status quo" - Japan's Prime Minister Fumio Kishida