Political and Economic Repercussions of the Russian Intervention in Ukraine
The Russian invasion of Ukraine was quick and dramatic, but the global economic consequences would be much slower to come and less dramatic. However, unlike Ukraine, Russia is likely to be the biggest long-term economic loser from the conflict, and the lack of a military response from the West to Russia so far is a logical act, with a lot of intelligence behind it.
The essay discusses the most important political and economic repercussions that the Russian invasion of Ukraine is likely to produce.
First: The Political Repercussions
The long-term consequences are still difficult to assess in the current crisis, but "at least in parts of Europe, the post-1990 order appears to be in ruins - particularly, for countries that are not already part of NATO or the European Union."
The rivalry among the great powers of the world is something natural, the Almighty says: “And if it were not for Allah checking [some] people by means of others, the earth would have been corrupted, but Allah is full of bounty to the worlds." (Al-Baqara 2: Verse 251)
Signs of a global trend towards new axes from the regional and international poles and the features of change in the structure of the global system and the balance of power in it are becoming clear. This does not mean that the strengths of the United States and Europe tend to weaken as much as the rebalancing of power in the new international order, so where is the position of the Arabs from this rivalry.
Russia's victory in Ukraine will put an inspiring global symbol in front of the new poles (such as China, India, Indonesia, Brazil, South Africa, etc.) and countries affected by the policies of the United States and the West, and invite them to join the new systems that may arise after the Russian-Ukrainian war. To set a new feature that would constitute a new world order that many countries affected by the sovereignty of the United States and its Western allies over the United Nations institutions, the Security Council and international organizations. Especially since the foundations of this alliance are embodied in the BRICS bloc.
This will also constitute a pressure factor on the Eastern European countries surrounding Ukraine to reach an understanding with Russia not to be a threatening factor for Russia, especially if the Europeans disagree about the concept of strategic security and the impact of economic sanctions on the Western economy.
This will likely mean that European countries will once again, as in the Cold War, become more dependent on the United States for defense. There is also the risk that Russia's provocation of the international system could have a destabilizing effect in other parts of the world where crisis regions are held together by fragile agreements and guarantees from other powers. This resounding "victory" of Russia will eventually lead to major defeats for Russia, which will negatively affect Russia in the long run. It seems that the West has deliberately pushed Russia to go in this direction.
Starting from the day after the "victory", the situation will not be in favor of Putin's Russia, especially since the West has worked to reduce the costs of its confrontation with Russia as much as possible by not engaging in direct military conflict with it.
American experts have predicted this happening now since the mid-1990s. Clinton was warned that an Eastern expansion of NATO would lead Russia in an unpleasant direction.
And even if Putin occupied Kyiv, and Zelensky was arrested, or Zelensky fled out of Ukraine, and a new pro-Russian government was formed, this government would be more helpless, more isolated and hated by Ukrainians, than the government of Yanukovych (the pro-Russian statesman who was overthrown at the beginning of 2014).
Second: Economic Repercussions
The conflict between Russia and Ukraine will affect the global economy through three main channels: financial sanctions, commodity prices and supply chain disruptions. There is no doubt that European and American economic sanctions will affect the Russian economy, but in return there will also be repercussions for these sanctions on Europe and the United States. The conflict between Russia and Ukraine will have only a minor and temporary economic and financial impact. After all, Russia accounts for only 1.7% of the global economy (and Ukraine is much less).
1- Impact on the Economy
The global economy is still suffering from the effects of the Corona pandemic,. The Russian war will enhance the direct global repercussions of high inflation, low growth and some turmoil in the financial markets with the imposition of harsher sanctions. since the collapse of the Soviet Union in 1991.
• The Effect on Energy Prices:
These increases in energy prices will negatively affect the global economy. Europe is particularly vulnerable, as it has done little in recent years to reduce its dependence on Russian gas, and in some cases - notably Germany, which has abandoned nuclear power - has exacerbated it. Especially if Europe agrees with the United States that the Nord Stream should be postponed. The Nord Stream 2 is a Western-invested pipeline to transport natural gas from Viborg, Russia, to Greifswald, Germany, with no definite time limit.
As the European Union’s imports of Russian gas currently reach 40%, and will increase with the operation of Nord Stream 2, but if sanctions are imposed on Russia, or as a Russian response to besieging Europe, energy prices, “gas in particular” will rise significantly and will affect all European countries. The rise in energy prices, in addition to the inflation experienced by the countries of Europe and America, will lead to a decrease in the results of growth on both sides, and will therefore affect global growth.
As for the oil-importing countries, they will face headwinds from rising prices. The United States is more hedged: since its oil production equals its oil consumption, the more expensive oil is roughly GDP-neutral. But higher oil prices will hurt American consumers while helping a more limited segment of companies and workers associated with the oil and gas industry. Higher prices will also increase inflation, which has already reached its highest levels in a generation in the United States, Europe and other advanced economies.
• The Effect on the Prices of Food Grains:
Russia and Ukraine are among the world's largest producers and exporters of wheat in the world. Global grain markets, specifically wheat, are closely monitoring what is happening in Ukraine. Kiev is one of the largest exporters of wheat and corn in the world. Prices may witness a sharp rise in the coming months if the crisis takes bloody curves.
Ukraine is known as the breadbasket of Europe, and the forecasts of the World Grain Council indicate that it will be the second largest exporter of grain this year. Wheat and corn this season.
Second: the Impact on the Financial and Banking Sector
The ruble hits the lowest record, dropping as much as 30% against the dollar, while the Russian Central Bank more than doubled interest rates to 20%.
The investments of many companies have been affected by this crisis, in addition to the banking sector and remittances, which pose the risks of repaying Russia’s bank loans to Western banks, and the events during the last period have caused confusion in the bond and currency market of the two countries, and the risks of poor performance for them may increase. All countries of the world will be exposed to the effects of this crisis, and it may increase in some countries than other countries due to economic ties, which increases the volume of insurances due to the lack of clarity of vision and the increase in the degree of risks, and the lack of hope for a solution to the crisis soon.
This was directly reflected in causing major losses in global stock exchanges, which may be a harbinger of the formation of new global economic, military and political blocs that change the map of the world.
The Swift system
SWIFT means: an abbreviation for the Association for International Financial Communications between Banks. It is a non-profit cooperative organization that provides a correspondence service for financial payments at a high level of efficiency and at an appropriate cost. The idea of ??"SWIFT" arose at the end of the sixties with the development of global trade, and the organization was formed in 1973 and headquartered in Belgium And its activity began in 1977. This system aims to provide the latest scientific means in the field of linking and exchanging messages and information between all capital markets, through the banks responsible for implementing this in various countries, thus enabling the subscriber to meet the needs of foreign and local customers as well. Banks use the "SWIFT" system to send unified messages about transfers of funds between themselves, transfers of funds to customers, and orders for purchase and sale of assets.
According to the latest statistics issued by the "SWIFT" organization, the number of financial institutions and banks participating in it exceeded 11,507 subscribers, until the end of March 2020, distributed over more than 200 countries around the world.
According to the Russian National Association "Rossvit", Russia is the second largest country after the United States in terms of the number of users of the "Swift" system, where about 300 Russian financial institutions belong to the system, that is, more than half of the Russian financial institutions are members of "SWIFT".
Experts believe that the exclusion of a large country such as Russia, which is a major exporter of oil and gas to global markets, could push Moscow to accelerate the development of an alternative transportation system, with China, for example.
Third: Repercussions for the Arab region
Despite the passage of all this time since the war, and the increasing Western rivalry with Russia, the Arabs did not resort to their political or economic institutions to discuss the effects of this war on their peoples and their future.
The most important effects of this war are the economic effects, and the disruption of food chains in the first place. The most important commodities of life are oil, gas, and wheat (energy and food), both of which will be reduced in supplies, their prices will rise, and their supply will be delayed.
This interruption will directly affect many Arab countries. The Arab countries are on two levels, producing and consuming energy, and importing and producing wheat.
Countries such as Egypt are the largest importers of Russian and Ukrainian wheat by 50%, and they will not be able to buy wheat at the new price, as Russia and Ukraine are the largest exporters of wheat, and Russia is the number one global exporter of gas. Yemen is also the largest country that will be threatened by the disruption of food chains, especially wheat, in light of the current plight and war, as it obtains half of the requirements of grain from Ukraine.
Syria considers the "Russian Protectorate" obligated to buy Russian wheat for its needs. With the decline in Sudan's cash reserves, it is also threatened, Algeria is coming to be the second consumer of wheat in Africa, and the United States will benefit from selling its wheat at new prices.
As for the energy-producing countries, they will benefit from the high prices and be able to overcome the high prices, but they will be subjected to Russian, European and American pressures in order to provide the necessary quantities to cover the deficit of energy resources (oil and gas), and this will make them pay high costs of commitment (Qatar apologized for its sufficient capacity, and Saudi Arabia Refused to raise oil production under American pressure).
In conclusion, there is no doubt that before entering the war, Russia studied the consequences of the economic boycott and took measures to reduce the economic effects of US, European and international economic sanctions.
Russia is considered a source of the two most important commodities in the world, gas and oil on the one hand, and wheat on the other, which is the world's most important needs (energy and food); Thus, it can be replaced through the barter system without SWIFT, and Russia can benefit from the high prices of oil, gas and wheat in its revenues to deal with the effects of these sanctions.
In the long run, Russia is likely to be the biggest economic loser from the conflict (after Ukraine, whose losses will far exceed what can be measured in national accounts). The Russian economy and the well-being of its population have been stagnating since the Kremlin's annexation of Crimea in 2014. The repercussions of the current large-scale invasion will almost certainly be more severe over time. Sanctions will take their toll, and Russia's increasing isolation, as well as heightened uncertainty among investors, will further weaken trade and other economic ties. In addition, Europe can be expected to reduce its dependence on Russia's fossil fuels.
The long-term economic consequences for the rest of the world will be much less dire than they are for Russia, but they will remain an ongoing challenge for policymakers. There is a risk, albeit relatively unlikely, that higher short-term inflation will become embedded in increasingly unconstrained inflation expectations, and thus persist. If that happens, the already difficult task of central banks will become even more complicated.
Dr. Muhannad Hameed Mahidi
University of Anbar/College of Law and Political Science/Department of Political Science
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2- Jawad al-Anani. On the Economic Effects of the Ukraine Crisis (alaraby.co.uk)
3- Economic Repercussions of the Russia-Ukraine Conflict: Stagflation Ahead. https://www.coface.com/News-Publications/News/Economic
4. Medhat Nafeh. The Economic Repercussions of the Russo-Ukrainian War. https://www.shorouknews.com/columns/