Ukrainian War: What Economic Impact?

Russia’s invasion of Ukraine affects the world economy, especially the prices of raw materials, but also the potential exclusion and economic isolation of Russia from the Swift Network. Russia. The consequences are even more serious as it may be the most important conflict in European soils since the Balkan Wars in the 1990s.

For Ansophia Alsif, Chief Economist of BDO France and professor at the University of Paris Pantheon Sorbonne, economic sanctions do not affect the continuation of military operations, but “Catastrophic impact on Russia“And the impact on the world economy, especially the prices of raw materials.

raw materials

Vladimir Putin has chosen to launch an attack at dawn on Thursday, February 24, 2022. Around 5 am, Russian soldiers entered Ukrainian territory. The market was still asleep. At the opening, the prices of raw materials soared.

The Russian economy depends on the export of raw materials. This sector accounts for 60% of Russia’s exports. Russia is the world’s largest producer of wheat (Ukraine is fifth) and one of the largest oil exporters, supplying about 40% of Europe’s gas and producing large amounts of metal. The country is the first producer of palladium, especially used in the construction of catalytic converters for automobiles, the second largest producer of aluminum and nickel, and the seventh largest producer of copper in the world. Ukraine, on the other hand, is the largest producer of corn in the world.

Oil barrels exceeded $ 100 a barrel, tons of wheat reached record levels of € 344 per ton, and natural gas prices rose 40% in a single day. “”Paradoxically, this is an advantage for Russia. This is because we have not stopped importing Russian raw materials so far.“Mr. Alsif explains, but economists say this is true in the short term. For example, Germany relies heavily on Russian liquefied natural gas. An alternative to Russian raw materials Once found, this excessive economic dependence inevitably opposes the country.

But now it is difficult to do without Russian raw materials, especially gas. According to the president of the oil group TotalEnergies, Patrick Pouyann spoke at the forum of the National Federation of Public Works in Paris.If Russian gas does not come to Europe, we have a real problem with European gas pricesIn other words, Europe currently has no immediate solution to replace gas imports from Russia.

Isolate Russia and make Putin an exile

One of the sanctions considered is the exclusion of Russia from the Swift network. Swift is an acronym for “Society for Worldwide Interbank Financial Telecommunication”. Founded in 1973, it is a Belgian private company with over 11,000 banks worldwide within its own secure messaging network. Financial transactions. This network is especially used. Last year, in 2021, the network sent about 11 billion payment orders.

Excluding Russia from this Swift communication network would make financial transactions difficult and costly for Russian companies. This will affect Russia’s exports of raw materials, especially gas, which can indirectly lead to higher energy prices. Some members of the G7, especially Europeans, are afraid of this price increase. Another concern for G7 member countries is working with China to build a US dollar-free rival payment system.

If Russia is economically isolated in international affairs, the result will be felt primarily in the price of raw materials. But diplomatically, the stated goal of US President Joe Biden is to make Vladimir Putin an “international paria” by making the country pay economically and strategically. Indeed, the United States has already imposed restrictions on the sale of US defense technology to Russian companies if it does not want to be involved in the military for the time being.

Yes, it is isolated from the western world, but not from the other side of the country. Since 2016, Russia’s major trading partner has been China. In 2014, shortly after the invasion of Crimea, Vladimir Putin also signed a record gas supply contract of 400 billion over 30 years. Since then, the two states have approached conducting joint military exercises in the Sea of ​​Japan in 2021. The Chinese government remains relatively cautious about the invasion of Ukraine. “”So far, China is paying attention for several reasons. First, they are looking at Taiwan, and second, they don’t want to alienate the West, so they are waiting to see the scope of sanctions.“Develop Anne-Sophie Alsif.

Economic sanctions that have no substantial impact on the conflict?

“”I am worried that sanctions may have a very strong economic impact on the country without affecting military operations, as the economy does not seem to be a priority for Putin.“Ann Sophie Alsif says. Indeed, even before the crisis, the country’s economy was not in good shape. It was the eighth largest economy in the world in 2013, but Russia is now. It ranks 11th and its growth rate declines every year for 10 years.

However, the outlook for new economic sanctions did not prevent Vladimir Putin from launching an attack on Ukraine. If new economic sanctions are implemented, Russians may suffer directly. Instead of ending the conflict, new sanctions could make Russia poor without forcing the country to put weapons on it. After that, Russia said,Very strong depletion“, According to economists, he adds:”I’m not saying that sanctions are useless, but for Putin, the economy is really secondary at this point.“. A war that could put the already poor Russians in poverty and destroy Ukraine, a democracy since 1991.