Sample Expository Essay: The Global Economic Effects of the Ukraine-Russia Crisis
The conflict between Ukraine and Russia has apparent effects on the social and economic conditions of both countries. Armed conflicts and bombings will lead to infrastructural damage and human casualties. This will minimize business operations and prevent the stable movement of goods. The economic activities in both countries may further suffer from international sanctions and limited foreign trade. However, the economic effects of the Ukraine-Russia crisis do not only encompass the two countries but also the global economy. The crisis has led to a significant increase in energy and commodity prices, consequently creating varying effects on global suppliers and consumers.
Overview of the Ukraine-Russia Crisis’ Economic Effects
The Ukraine-Russia crisis began a few months before Russia’s invasion on February 24, 2022. During this time, until currently, most countries are still recovering from the economic effects of the coronavirus pandemic while regions like Hong Kong have improved their economic conditions . Since 2020, the pandemic has led to high inflation and unstable financial markets (Holland et al., 2022). With the economic threats from the Ukraine-Russia crisis, recovering countries may face additional issues to maintain their already compromised economies. Since Ukraine and Russia are active players in international trade, the crisis will lead to risks to growth and require consumers to find alternative suppliers.
The most significant factor regarding the crisis’ economic effect is Russia’s position as Europe’s main oil and gas supplier. Since the U.S. and some European countries have released sanctions that limit their transactions with Russia, they may lose a major energy supplier which will increase the price of oil and gas (Holland et al., 2022). Additionally, the conflict can lead to damages to major gas pipelines, which already happened as per the reports from The Associated Press. Since energy supply is a significant economic factor, other goods like commodities will also experience price hikes. These economic effects will benefit some countries that supply the products but will negatively affect consumers.
Since Ukraine is the setting for the conflict, the country's economy will experience adverse effects due to damages and casualties. Following the February 24 attack, the armed conflict between Ukraine and Russia has led to collateral casualties. According to Yee & Jozuka’s (2022) report, Russian missiles have hit two non-Ukrainian sea vessels. One of the vessels is a Japanese-owned cargo ship while the other is a Moldovan ship carrying fuel oil and diesel. The missile attacks injured some crew members but there were no fatalities. These events will limit foreign trade activities around Ukraine’s borders, thus, worsening the economic condition of the country.
Economic Effects on Other Countries
Effects on the United States
The United States took action against the Ukraine-Russia crisis even before the February 24 attack by warning Russia from invading Ukraine. When the crisis escalated, the U.S. released sanctioned to Russia which targeted four Russian banks and limited international trades with Moscow (Biden Unveils, 2022). While the U.S. established the sanctions to penalize Russia for its actions, it will also affect the United States’ economy. As mentioned earlier, Russia is a major supplier of oil and gas. According to Ed Markey’s (2022) website, the U.S. purchased $17.4 billion worth of oil barrels from Russia in 2021. The sanctions limiting trade with Russia will significantly affect U.S.’s 2022 oil supply.
This limited access to energy supplies will then lead to increase prices in the U.S. According to Bloomberg Economics, the outcome of the crisis will lead to energy price hikes in the U.S. with the worst-case scenarios leading to an inflation of around 9% (cited in Holland et al., 2022). Cyberattacks that target financial systems are also threats to the U.S. economy since U.S. lenders can potentially lose money from liquidity hoarding and insolvencies. From these scenarios, the U.S. stock market may become volatile, commodity prices will increase along with energy, and businesses may potentially lose Russian consumers.
Effects on China
China, the world’s second-largest economy, faces economic threats from the Ukraine-Russia crisis since the two countries are significant players in its economy. The crisis will lead to possible disruptions in Chinese-European international trades which can lead to a further increase in commodity prices. According to Ether Yin (2022), China may suffer from inflation along with commodity price hikes as the crisis continues (cited in Jakubec, 2022). This is due to changes and disruptions in trade routes, the cancellation of significant European orders, and the existing economic challenges in China.
However, other Chinese economists state that the Ukraine-Russia crisis will have minor economic effects on the country. According to Xia Le (2022), a BBVA economist, China can easily find alternative energy suppliers if the conflict escalates, however, the strong relationship between China and Russia will ensure continuous trade (cited in Jakubec, 2022). This, along with China being a top exporter, implies that the country can mitigate or minimize the economic impact of the crisis. Still, due to the current high commodity price in China, consumers may experience some of the negative effects of the crisis as the prices continue to increase.
Effects on Other Asian Countries
Similar to the U.S., other Asian countries have released sanctions on Russia, limiting their international trade with the country. Tokyo, Japan announced to strengthen their sanctions on Russia while South Korea will cooperate with the international community regarding sanctions on Moscow (Jakubec, 2022). Due to this, these countries will have limited access to energy supply from Russia leading to higher inflation and high energy prices. Furthermore, the crisis also led to the decline of the Japanese stock market and derivatives market as well as high Yen demand after the imposition of Western sanctions (Kajimoto & Komiya, 2022). This puts Japan in an awkward economic position as the government oversees the local and international markets.
Top importer countries, such as India, will also experience economic shock from the crisis. Since India is the world’s third-largest oil importer, the high price increase of oil will adversely affect the country’s consumption (Nguyen, cited in Jakubec, 2022). The sanctions on Russia may also affect the country’s access to oil which will contribute to the price increase. Other countries, such as Singapore and Indonesia, are already preparing for high price increases in oil and commodity. For Indonesia, however, the crisis may benefit commodities export businesses since consumers will pay more for the products (Jakubec, 2022). This is true for other countries as well that export commodities internationally.
Effects on African Countries
Some parts of Africa, such as South Africa, are economic allies of Russia which puts them in an awkward position due to the sanctions on the country. However, South Africa, East Africa, and other African countries have expressed their concerns and condemnation of the armed conflict. The Ukraine-Russia crisis has resulted in an all-time high in oil prices since 2014. While this benefited oil suppliers, such as Nigeria and Angola, consumers will experience the effect of the commodity price increase (Ukraine Crisis, 2022). Russia and Ukraine are Africa’s main commodity suppliers while Russia is a top consumer of Kenya’s tea products, worsening the economic effects (Ukraine Crisis, 2022). While Africans may suffer from high commodity prices, the region may still benefit from countries looking to find alternative oil suppliers.
Effects on the Middle East
The increase in energy prices will greatly benefit the Middle East since many of the top oil exporters are in the region. According to Aydintasbas e al. (2022), Qatar is a main alternative energy supplier since it is the world’s second-largest liquefied natural gas producer. Countries like Saudia Arabia, Riyadh, and UAE can also benefit from the crisis, however, their relationship with Russia may limit their efforts to take advantage of the current oil market. There is also Western pressure to increase oil supply to mitigate the price increases and manage the global economic effect of the crisis.
The Ukraine-Russia crisis has led to the increase of the global energy price which resulted in commodity price hikes. As the crisis developed; the U.S., European countries, and Asian countries released sanctions on Russia that limited its international trade activity. These sanctions led oil and gas prices to increase significantly affecting the price of commodities in many countries. Other factors, such as international relations and current economic conditions, either magnified the effects or minimized the economic damage. As the Ukraine-Russia crisis continues, the global economy will also continue to experience price hikes and limited international trading.
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