Following Vladimir Putin’s declaration of war on February 24, Russia has now launched an invasion of Ukraine by land, air, and sea, which is the largest attack on a European state since World War II.Vladimir Putin’s refusal to halt the invasion of Ukraine continued to isolate Moscow on Tuesday. Before a vote this week to isolate Russia, the UN General Assembly’s 193 members began discussing the problem.
According to the Kremlin, Russian President Vladimir Putin informed French President Emmanuel Macron that a Ukraine settlement was only feasible if Kyiv was neutral, “denazified,” and “demilitarized,” and Russian rule over occupied Crimea was publicly recognized.
Western allies increased arms transfers in support of Ukraine, and Britain advocated for such transfers to be expanded. Finland agreed to ship 2,500 assault rifles and 1,500 anti-tank weaponry. Prime Minister Justin Trudeau announced that Canada will provide anti-tank weapons and improved ammunition.
Vladimir Putin authorized a “special military operation” in the east of Ukraine, and Russia has now launched a full-scale invasion of the country. Russia launched the attacks on Thursday after weeks of diplomatic efforts failed to dissuade Putin, who had amassed anywhere from 150,000 to 200,000 troops around the Ukrainian border.
As the Soviet Union disintegrated in 1991, Ukraine, which had been a part of Russia for generations, gained freedom. It has made a concerted effort to distance itself from Russia’s imperial past and strengthen connections with the West.As a result of Viktor Yanukovych’s refusal to sign an association agreement with the European Union in favor of tighter ties with Moscow, he was impeached as Ukrainian president in 2014.
In retaliation, Russia annexed Ukraine’s Crimean Peninsula and backed a separatist uprising in eastern Ukraine. Russia has been accused by Ukraine and the West of sending troops and weaponry to support the insurgents. Moscow strongly refuted this, claiming that the Russians who joined the rebels were doing so voluntarily.
Russia’s foreign ministry stated that individuals who sell lethal weapons to Ukraine will bear responsibility if they are utilized during Russia’s military campaign.
According to the UN, over 500,000 people have fled Ukraine to neighboring nations since Russia’s invasion began.
How did the invasion break out?
On Monday, Putin declared Donetsk and Luhansk to be separate regions of Ukraine and ordered the deployment of peacekeepers, a move the West interpreted as the commencement of an invasion.
On Wednesday, the rebels appealed to Moscow for help in stopping purported Ukrainian aggression — allegations the United States dismissed as Russian pragmatism.
Immediately following Putin’s announcement that he had authorized military action to protect Russia from what he claimed were threats from Ukraine, Russia launched a full-scale invasion on Thursday.
There were reports of columns of troops crossing the border into the eastern Chernihiv, Kharkiv, and Luhansk regions, and arriving by sea in Odessa and Mariupol in southern Ukraine. Russian missiles hit multiple Ukrainian cities including Kyiv.
Zelenskyy imposed martial law and called to world leaders for all possible sanctions on Russia, particularly on Putin, who he claimed was trying to destroy Ukraine.
What happens next?
Initially, it was not obvious what the Russian military intervention entailed.
Kyiv will supply guns to anyone willing to protect the country from Russian forces, Zelenskyy said in a call to arms, urging civilians to step forward.
The United States has estimated that a Russian strike on the Ukrainian capital of Kyiv may result in up to 50,000 civilian deaths, as well as thousands of Russian and Ukrainian soldiers. Ukrainian refugees are expected to escape Europe if an assault takes place in Ukraine.
US Vice President Joe Biden, who has vowed he will not deploy American forces in Ukraine, said that Putin has chosen a deliberate conflict that would result in “catastrophic loss of life and human suffering.” He pledged to speak with the G7’s leaders and that Russia will be held to account.
Borrell also vowed the most severe financial fines ever applied by the EU, as well.
In the case of a serious military escalation, Washington and London have discussed imposing personal penalties on Russian President Vladimir Putin.
Cutting Russia out of the SWIFT network, which transfers money between banks worldwide, would be one of the most difficult financial acts they could take, which would have an immediate and long-term impact on Russia’s economy.
More than 40% of Russian revenue comes from oil and gas output, and Russia’s move might cut it off from most international financial operations.
A major financial weapon against Vladimir Putin is the US’s ability to deny Russia access to the U.S. currency. Tsunami of dollars are traded around the world every day thanks to the dominance of the currency.
America is mulling export limits, which may cut Russia off from high-tech products like those used in warplanes and passenger aircraft as well as in smartphones and tablets.
With more than $600 billion in foreign exchange and gold reserves, Russia has the resources it needs to keep the ruble stable and withstand sanctions.
As the global economy was still reeling from the pandemic, the prospect of war and sanctions affecting energy and commodity markets constituted an urgent threat. Gold and the currency surged, while stocks plummeted in value. For the first time since 2014, Brent oil surpassed $100 a barrel.
What does Russia want?
What Russia doesn’t want is the real issue. NATO membership is not on Russia’s list of security demands, which it sent to the United States last December. NATO exercises near Russia’s border were among the demands. NATO should also be withdrawn from Eastern Europe, it adds.
When it comes to giving weaponry and conducting joint exercises, Moscow has fiercely criticized the United States and its NATO partners, arguing that such actions encourage Ukrainian “hawks” to take the rebel-held areas by force.
And Vladimir Putin, Russia’s president, is concerned about plans by NATO countries for military training centers in Ukraine, which he has referred to as a “red line” in the past. A military footprint in the region even if Ukraine doesn’t join NATO, he claims.
According to Putin, Russia is seeking assurances “that would exclude any further NATO moves eastward and the deployment of weapons systems that threaten us in close proximity to Russian territory”.
The West has criticized several of these ultimatums as non-starters.
According to reports, Putin has also said that the country of Ukraine is an artifact created by Russia’s adversaries, a claim that Ukrainians find startling and incorrect.
Al Jazeera reported in January that Russia’s goal was to “defeat the Ukrainian armed forces in the field, inflict a crushing military defeat, humiliate the Ukrainians and by extension create concern that the backing Ukraine has from its allies in Western Europe, such as the United States and United Kingdom, is insufficient.”
Secretary-General Stoltenberg in December rejected Russian attempts to retract a 2008 promise that Ukraine will one day join NATO.
NATO partners, particularly the United States, are reportedly reluctant to increase their military presence in the region for fear of endangering their relations with Moscow further.
When asked about Ukraine joining NATO, US President Joe Biden was more equivocal than Secretary of State Antony Blinken.
Economic Effects of the Russia vs Ukraine War
It was quick and dramatic, but the global economic consequences of Russia’s invasion of Ukraine will be much slower to materialize and less dramatic. In spite of this, Russia is likely to suffer the most in the long run from the conflict.
While Russia’s invasion of Ukraine has been swift and dramatic, the economic consequences will be more gradual and less dramatic in their manifestation. First and foremost, the war in Ukraine is a tragedy for the Ukrainian people, but it is also a tragedy for Russia and the global order. A morality play where all the bad consequences, including economic ones, play out equally dramatically is what we expect when something like this happens. However, this is not how the economy works.
Russian invasion news sparked an immediate reaction from financial markets. Leading global equity index MSCI All Country World Index fell to its lowest level in nearly a year. European natural gas prices initially rose by nearly 70% as oil prices soared above $100 per barrel in Europe.
The global economy will suffer as a result of these price rises in oil and natural gas.. Since Europe has done little in recent years to minimize its dependence on Russian gas, and in some cases has even exacerbated it, it is particularly susceptible.
Higher oil prices will have a negative impact on oil-importing countries. Compared to the rest of the world, the United States is more insulated from the effects of rising energy costs since its oil production is equivalent to its consumption.
Higher oil prices, on the other hand, will affect US consumers while benefiting a smaller group of businesses and workers in the oil and gas sector.. The price spike will also add to inflation, which is already at its highest levels in a generation in the US, Europe, and other major nations.
But some perspective on these immediate effects is in order. At $100 a barrel, oil is nearly one-quarter below its inflation-adjusted price between 2011 to 2014. Moreover, prices for oil futures are lower than spot prices, suggesting that the market anticipates this surge to be temporary.
Central banks may therefore largely see through events in Ukraine, neither holding off on tightening nor speeding it up in reaction to greater headline inflation. And worldwide financial markets are still up over the last year.
Russian stock prices have plummeted, but Western sanctions are unlikely to have a big impact on the country’s economy right now. sanctions rarely work; they are just not the economic equivalent of Russia’s ongoing bombing campaign in Ukraine.
In addition, Russia is more resilient to sanctions than most others. The government has accumulated record foreign exchange reserves of $630 billion, enough to fund imports for nearly two years while running a massive current-account surplus. But Europeans are also reliant on Russia for their oil and gas, which may be much more difficult to replace in the short term.
However, in the long run, Russia stands to suffer the most economically as a result of the conflict (after Ukraine, whose losses will go well beyond what can be measured in the national accounts). Since the invasion of Crimea by the Russian government in 2014, the economy and general well-being of the Russian people have remained stagnant.
The long-term consequences of the current, massive invasion will very definitely be worse. Russia’s growing isolation and increased investor anxiety will have a negative impact on trade and other economic ties. Furthermore, Europe’s reliance on Russian fossil fuels should be reduced.
The long-term economic ramifications for the rest of the globe will be far less severe than they are for Russia, but they will still be a constant problem for policymakers. Even while it’s unlikely, increased short-term inflation could become buried in ever-more-unanchored inflation expectations and last for longer than previously thought. To make things even more difficult for Central Banks, this could happen.
Furthermore, in light of the increasingly perilous global scenario, defense budgets in Europe, the United States, and possibly other countries will rise. Because resources allocated to defense are resources that cannot be used for consumption or investment in education, health care, or infrastructure, GDP growth will not be reduced. However, well-being will be reduced.
The invasion of Ukraine by Russia will have short- and long-term effects on the global economy. Already, Russia has made a horrible decision by entering. Sanctions have been imposed by the United States, the European Union, and other countries, but it is unclear how Russia will respond or whether additional penalties will be imposed.
Russia will bear the brunt of the increased expenditures, but so will the rest of the world’s economies if sanctions and counter-reactions continue to grow.
The main policy rate of the Russian central bank has more than doubled. Following the issuance of tit-for-tat airspace bans by the European Union and Moscow, airlines were bracing for possibly protracted disruptions to critical east-west flight corridors.
BP, HSBC, and AerCap have joined a growing list of corporations that are looking to leave Russia as Western sanctions continue to tighten their grip on the country.
Russia’s growing isolation will take away a tiny positive from global economic connections. Uncertainty is bad for the economy in general.
GDP concerns, on the other hand, pale into insignificance while the world continues to react to the Russian invasion. Creating a world where individuals and countries feel safe is more vital than anything else. Even more than the world’s leaders have paid so far is necessary to ensure that.