TRADE AND ECONOMIC DEVELOPMENT:

MAIN ECONOMIC CONSEQUENCES OF

THE RUSSIAN-UKRAINIAN WAR,
PARTICULARLY IN DEVELOPING
COUNTRIES

CARLOS VALLEJO MAROTO

SUMMER SEMESTER 2022/23

What are the main economic consequences of the war in Ukraine, particularly
for developing countries?
The Russian-Ukrainian conflict has affected a global economy already deteriorated
(although recovering) by the pandemic. The list of consequences is huge, but we can
highlight the effect that the conflict has had on international trade, basic goods’
prices (leading to a food crisis), energetic crisis or growth forecasts.
- International trade: sanctions imposed to Russia, added to the tension
between Western and Eastern block, have limited the access to markets and
created trade barriers (prohibition of investment in Russian companies and
restriction to the access to SWIFT system), affecting negatively to exports
and supply chains. A logistics crisis has developed from this, as regular lines
of containers in the Black and Baltic Seas have paralised because of Russian
attacks and Russian airspace is closed to 35 countries, while Ukrainian is
avoided because of the conflict. On the other hand, the European Union
imposed the prohibition to Russian airplanes to fly over European airspace,
Russian vessels to use EU seaports and the entry of Russian transportists by
road.
- Food crisis: conflict has pushed upwards the price of food, as both countries
are big suppliers worlwide: 53% of seed oils, 27% of wheat, 23% of barley
and 14% of corn. Ukraine is a high quality farmland, feeding around 600
million people, while Russia is a major producer of barley, oats, wheat, fish
and chicken meat. Price has raisen up a 36,7%, being African countries the
most punished ones, as one third of their wheat comes from Russia &
Ukraine.
- Energetic crisis: Russia owns the biggest gas reserves worlwide and provides
the EU with around 40% of their gas, showing a big dependence on Russian
gas. Prices has raisen up considerably, increasing up to 81,6% in Germany,
the most dependent one. Price increases also have reflected as increases in
the cost of life and production processes, worsening inflation. The European
Union prohibit coal and oil imports from Russia, but did not the same with
gas because of the enormous dependence on it. As a result, Russian exports
decreased in favour of the United States´, Algeria´s or Norway´s gas, being
the United States the major supplier.
Those crisis exacerbated the slowdown of the global economy along with high
inflation, with the threat of a recession.
- Consequences: 9,6% average inflation rate, which carried to implementation
of monetary policies, such as the raise of interest rates, depreciation of Euro
against the US dollar, raise of external debt, fall of the stock market and raise
of the risk premium.
The conflict has had a significative impact on the both participant countries and
neighboring countries:
- Ukraine: has received the worst part of the conflict, as it has been developed
on Ukrainian territory. It has supposed enormous damage on infrastructure,
loss of human lives and population displacement, at the same time that
production processes stopped. The result has been a 35% GDP fell, with a
18% inflation.
- Russia: Sanctions did not work as expected: GDP fell a 4% against the 35%
expected, as Russia found new commercial allies to sell petrol. EU continued
buying the same amount but more expensive, so Russia is getting more
benefits.
- Baltic countries: Lithuania, Latvia and Estonia, members of NATO and EU
that make border with Russia, had suffered an increase in tension and
security measures as a result of the conflict.
- Poland: has received the most part of Ukrainian refugees and have increased
security measures, as a response to Russian threats of occupying Polish
territory.
- European Union: the conflict worsens the expectations, averaging a 2,7%
GDP growth and a 8,7% inflation rate. The almost null growth along with the
high inflation rate threats to end in a recession.