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The Economic Impacts of Geo-Political Events: The Russia-Ukraine War

The Russia-Ukraine conflict has been ongoing since February 2014, escalating to full-scale war 8 years later with Russia’s invasion of Ukraine in 2022. The Russia-Ukraine war has impacted millions of people, affected relationships between countries including those not directly involved in the conflict, and has had significant repercussions for the economies of Ukraine and Russia alongside the world economy. ( For further reading about specific events: https://www.britannica.com/event/2022-Russian-invasion-of-Ukraine)

The events of February 2022 severely affected the global economy, especially given the backdrop of covid. While the EU had forecasted a GDP increase of 4.3 percent for 2022, the EU actually experienced less than, eventually achieving only 3.5 percent economic growth, whilst inflation skyrocketed to 9.2 percent, the highest level ever measured by the EU. As many countries continue to suffer from a post-covid cost of living crisis, most central banks turned to raising interest rates to ease inflationary pressure, with a significant number of countries still battling to bring inflation under control (interest rates are currently at 5.25 percent in the UK and 5.25-5 percent in the U.S.).

As the Strauss Center reports, the ‘European Union is the largest energy importer in the world’ with a significant reliance on Russian natural gas (24.4 percent of the EU’s gross available energy before the war). Therefore, when Russia disrupted the supply chain by cutting 80 billion cubic metres of pipeline gas that was destined for Europe, a major energy crisis was created, leading to unforeseen hikes in energy prices. As a result of the war, the EU had also imposed many sanctions on Russia, thereby losing one of their main trading partners, leading to the RePowerEU initiative, decided at the informal meeting of the European Council in Versailles in March of 2022. However, COVID-19, and the hot and dry summer of 2022, meant that demand for energy was soaring, and, despite the policy announcements, the rate of inflation began to rapidly increase.

https://www.europarl.europa.eu/legislative-train/theme-industry-research-and-energy-itre/file-repower-eu-plan-legislative-proposals

During the past two years, in which the war has been ongoing, Russia has made increasing attacks in the form of sabotage attempts on civilian infrastructure and military bases across Europe. In addition to the increased tension between Russia and Europe, the brewing issue seems to be if and how the EU, and consequently NATO, will respond. The recent warning issued by Norway’s Chief of Defense that Russia could be ready to launch an attack on NATO in the next two to three years, poses a significant threat not only to the EU but also to their economy and in turn the world’s economy given the EU is ranked third in the world behind the United States and China. A further concern for the Ukrainian economy is the Biden administration’s intention to provide a $50 billion USD loan to Ukraine. Ukraine already has almost 80 percent debt to GDP ratio, as of December 2023, so the impact of increased debt levels on a struggling economy can not be discounted.

Ending on a positive note, 2024 has seen a modest slowdown in the rate of energy price increases across the EU, however prices remain significantly above pre-sanction levels. Despite Europe’s determination to accelerate the shift to renewable energy and alleviate its energy crisis, it is still experiencing a cost of living crisis that continues to be ‘fueled’ by the Russia-Ukraine war.