Russia Ukraine war that began on February 24, 2022 has lingered for eleven months now. The war has writ huge loss to both the countries in terms of life and property. The economic losses to both the countries are unprecedented. Their economies have lost billions in business revenue apart from destruction of infrastructure, especially on the Ukrainian side. The war has now turned into a humanitarian crisis due to huge migration estimated to be in excess of 1.5 million people from war ravaged area of Ukraine. Even from Russia people are moving to safer places due to uncertainty about future caused by war.
Why the war began?
Ukraine was once the part of Soviet Union, which fell apart in 1989 and broken into 15 nation states. Since then nationalists in Ukraine felt that Russia is not allowing them to have their own state and foreign policies which are not subservient to that of Russia. On the other hand Russia feared that Ukraine might turn out to be a close ally to its geo-political rivals, especially the NATO. The new Ukraine government expressed its desire to join NATO, which Russia saw as a strategic threat, the danger of getting encircled by NATO allies from the Northwest in the Baltic Sea to the Southeast in the Black Sea, the area which give access to Russian ships in the Atlantic Ocean and Mediterranean sea respectively.
Despite Russia’s concerns and urging President Zelensky of Ukraine continued to insist on joining NATO as well as the EU, which Russia seas as strategic rivals.
In February and March 2014, Russia invaded and subsequently annexed the Crimean Peninsula from Ukraine. Later On 30 September 2022, Russia, also unilaterally declared its annexation of areas in and around four Ukrainian oblasts – Luhansk, Donetsk, Zaporizhzhia and Kherson., which was although part of Ukrainian territory, had substantial Russian ethnic populations. Russia uses this pretext to call that Crimea is a part of its territory while demanding that Ukraine government gives more autonomy to Luhansk and Donetsk and makes Russian the second official language. Ukraine has declined so far.
In early 2014, pro-Russian Ukrainian president Viktor Yanukovych was ousted from office as a result of the pro-European Euromaidan and the Revolution of Dignity. Shortly after Yanukovych’s overthrow and exile to Russia, pro-Russian unrest erupted in Ukraine’s eastern and southern regions. Simultaneously, unmarked Russian troops moved into Ukraine’s Crimea and took control of strategic positions and infrastructure, including government buildings. Russia soon annexed Crimea after a highly disputed Crimean status referendum. In April 2014, pro-Russian separatists in Ukraine’s eastern Donbas region proclaimed the establishment of the Donetsk People’s Republic and the Luhansk People’s Republic with considerable but clandestine support from Russia.
Volodymyr Oleksandrovych Zelenskyy, former comedian and actor turned politician, was elected as the sixth and current president of Ukraine in 2019. He won election by defeating Petro Poroshenko by positioning himself as an anti-establishment and anti-corruption figure. Poroshenko, a Ukrainian businessman turned politician served as the fifth president of Ukraine from 2014 to 2019.During his presidential campaign, Zelenskyy promised to end Ukraine’s protracted conflict with Russia, and he had attempted to engage in dialogue with Russian president Vladimir Putin. His administration faced an escalation of tensions with Russia in 2021, culminating in the launch of an ongoing full-scale Russian invasion in February 2022.
Economic Implications of Ukraine war
Economist writes, “Past decade intensifying geopolitical risk has been a constant feature of world politics, yet the world economy and financial markets have shrugged it off.
Russia’s invasion of Ukraine is likely to break this pattern, because it will result in the isolation of the world’s 11th-largest economy and one of its largest commodity producers. The immediate global implications will be higher inflation, lower growth and some disruption to financial markets as deeper sanctions take hold. The longer-term fallout will be a further debilitation of the system of globalised supply chains and integrated financial markets that has dominated the world economy since the Soviet Union collapsed in 1991.
Impact on the Global Economy
According to the World Bank’s update in October 2022 The ongoing war in Ukraine has dimmed prospects of a post-pandemic economic recovery for emerging and developing economies in the Europe and Central Asia region. The report said that economic activity will remain deeply depressed through next year, with minimal growth of 0.3% expected in 2023, as energy price shocks continue to impact the region.
The global economy continues to be weakened by the war through significant disruptions in trade and food and fuel price shocks, all of which are contributing to high inflation and subsequent tightening in global financing conditions. Activity in the euro area, the largest economic partner for emerging and developing economies (EMDEs) of Europe and Central Asia, has deteriorated markedly in the second half of 2022, due to distressed supply chains, increased financial strains and declines in consumer and business confidence. The most damaging effects of the invasion, however, are surging energy prices amid large reductions in Russian energy supply.
Effect on Ukraine
Ukraine’s economy is now projected to contract by 35% this year although economic activity is scarred by the destruction of productive capacity, damage to agricultural land, and reduced labor supply as more than 14 million people are estimated to have been displaced. According to recent World Bank estimates, recovery and reconstruction needs across social, productive, and infrastructure sectors total at least $349 billion, which is more than 1.5 times the size of Ukraine’s pre-war economy in 2021.
Impact on Russia
The West decided to exclude Russia from SWIFT to cut off Russian financial institutions from the international financial system after February 24, 2022. SWIFT provides a trusted messaging platform that enables banks to send their counterparts instructions very fast on fund transfers.
According to independent analysis by the World Bank, the International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development (OECD), in 2022 Russian GDP was anticipated to drop by at least 3.4% in the best case scenario.
A major part of the negative effect on Russian GDP is being attributed to its exclusion from the SWIFT. A European Council report alleges that figures are proving that economic sanctions are yielding results.
Would War End Any Sooner?
There is less likelihood for the Russia- Ukraine war to end any sooner despite the efforts from Turkey and clear and repeated suggestion from India that this is not an age of war and disputes between the two countries should be resolved through discussion and negotiations.
In fact in the beginning the two countries initially seemed inclined to resolve the dispute through a bilateral security arrangement addressing each other’s concerns.
But all the efforts to stop the war have not yielded any result. It is mainly due to added complexity in the war due to involvement of the NATO allies and and other EU countries in a context of hegemony with Russia by adding fuel to war through military and humanitarian assistance worth $50 billion so far. Humanitarian assistance is being appreciated but sending arms, ammunitions and equipment are flaring up the war.
Ukraine is being sandwiched in this battle of hegemony by choice exercised by Ukraine President Zelensky. The Western pretext of fighting a war for democracy and global security could not hide their intention to isolate Russia and bog it down by sanctions and military might. For Russia this isolation is not new. But Russia needs introspection why Russia is being depicted as a villain despite having a genuine strategic concern on Ukraine’s plans of joining NATO. The west also needs to introspect on how to come out of a mindset of hegemony of Cold War times. Today’s world is so interconnected that the US cannot remain unaffected from the consequences of Russia-Ukraine war. The sceptre of recession is looming on the US and the EU as much as on the rest of the world. Already many companies of the US including Amazon and Google have started cutting jobs.
The stopping of war is the need of all the stakeholders to save their economies and people from rising energy prices, food shortages and spiralling inflation, there are no signs at least for the present for the peaceful resolution of the issue.