One year on: How Russia's war changed the global economy | Business Beyond

Summary

The Russia-Ukraine conflict has significantly impacted the global economy, prompting a reassessment of geostrategic risks. It has strained energy and food supplies, leading to inflation and highlighting vulnerabilities in defense capabilities. The war has accelerated the energy transition and renewable investments, while also forcing Europe to compromise on climate goals. It has also led to new alliances and trade relationships, emphasizing the need for diversified supply chains and local production.

Takeaways

• 🌍 The Russia-Ukraine conflict has significantly impacted the global economy, highlighting the importance of geostrategic risk in business and policy decisions.
• 🏠 Countries are reevaluating their energy security, with a focus on diversifying energy sources and accelerating the energy transition.
• 📈 The war has exacerbated food price inflation, leading to higher global food costs and potential shortages, particularly affecting poorer countries.
• 🛑 Sanctions on Russia have been implemented by Western allies while trying to mitigate their own economic repercussions.
• ⛽️ The United States and Germany have taken steps to reduce dependence on Russian energy, such as releasing oil reserves and building LNG infrastructure.
• 🚢 The EU has prohibited seaborne crude oil imports from Russia and, along with the G7, has instituted a price cap on Russian oil.
• 🌱 The conflict has spurred a push for renewable energy, as countries seek to diversify their energy supplies and reduce reliance on fossil fuels.
• 🌡️ The mild winter of 2022 helped prevent a更严重的 energy crisis, but future weather patterns could challenge energy security.
• 🌾 The war has disrupted global food trade, with Ukraine's grain exports stalled and alternative suppliers like India unable to fully compensate.
• 🔫 The conflict has exposed vulnerabilities in the defense industry's ability to supply weaponry and弹药, prompting a rethink of military preparedness and supply chain resilience.

Q & A

What was the immediate global economic impact of Russia's invasion of Ukraine?

The invasion sent tremors across the global economy, highlighting geostrategic risks and causing concerns about energy and food supplies, exacerbating inflation, and creating gaps in essential sectors like ammunition.

How did the invasion affect energy demands and supplies?

Countries were afraid they wouldn't meet their energy demands, leading to efforts to diversify energy sources and accelerate the energy transition towards renewables.

What measures did the United States take in response to the energy crisis caused by the invasion?

The United States released two million barrels of oil from its strategic petroleum reserve to mitigate the energy crisis.

How did Germany respond to the energy supply issues post-invasion?

Germany rushed to build liquified natural gas infrastructure to reduce dependence on Russian energy, albeit slowly.

What sanctions and measures were implemented against Russia's oil and gas industry?

Since December 2022, seaborne crude oil imports from Russia to the EU were prohibited, and the EU and G7 instituted a price cap for Russian oil.

How did the war impact food prices and global food security?

The war in Ukraine, known as the bread basket of the world, made already-high food prices climb even higher, sparking fears of food shortages.

What was the role of the Black Sea Grain Initiative in alleviating food supply concerns?

The Black Sea Grain Initiative, brokered by Turkey, helped restart stalled Ukrainian exports, providing some relief to global food prices.

How did the war affect the production and trade of fertilizers?

There was a lack of exports from Russia and Belarus, and the impact on natural gas supplies to Europe caused a spike in the cost of producing fertilizers, nearly shutting down 70% of fertilizer production in Europe at one point.

What are the implications of the war on military equipment and defense production?

The war has highlighted vulnerabilities in the capabilities of weapons-producing countries in the west, with the United States and European allies struggling to ramp up production of defense materials.

How has the war influenced global trade relationships and economic ties?

The war has created new alliances and galvanized existing ones, while entrenching differences, leading to a rethink of previous arrangements through the lens of geostrategic risk.

What are the potential long-term effects of the war on global economic behavior?

The war might ensure that the lesson of closer trade and economic relations not leading to peace sticks, leading to more cautious investment, more local production, and less reliance on fragile supply chains.

Outlines

00:00

🌐 Geopolitical Impacts of the Russo-Ukrainian War

The script discusses the global economic repercussions following Russia's invasion of Ukraine, emphasizing how it has become a wake-up call for policymakers and business leaders about the enduring nature of geostrategic risks. The war has raised concerns about energy supply and demand, food security, and the need for new alliances. It has also exposed deficiencies in critical sectors such as energy and defense. The economic ties are being restructured, with an emphasis on new economic relationships that Russia might forge with countries in Asia, Latin America, and Africa. Despite the human cost, the response has been a mix of sanctions against Russia and efforts to protect economies from the fallout of these sanctions. The IMF suggests that global conditions are improving, but the ongoing war poses a continuous threat to the world economy.

05:00

❄️ Energy and Climate Challenges Post-Invasion

This section delves into the energy crisis triggered by the war, with a focus on Europe's scramble to secure alternative energy sources and the acceleration of renewable energy initiatives. The mild winter of 2022 provided some relief, but the potential for a harsher winter and increased global energy demand could strain supplies. The war has also affected climate goals, with countries like Germany turning to Liquefied Natural Gas (LNG) and the EU reclassifying natural gas as green energy. The discussion highlights the tension between energy security, affordability, and sustainability, and the possibility of Russia's hydrocarbons making a comeback in Europe.

10:03

🌾 Global Food System Disruptions

The paragraph highlights the impact of the war on global food systems, with Ukraine, known as the 'bread basket of the world,' experiencing export blockages that led to soaring global food prices. The script discusses the failure of India to fill the export gap due to a smaller-than-expected harvest and subsequent export ban, which further spiked prices. The Black Sea Grain Initiative helped resume Ukrainian exports, but the effect on global food costs has been limited. The war has also affected the production and cost of fertilizers, leading to potential reductions in fertilizer usage and impacts on the next agricultural season. The script emphasizes the pre-existing frailties in the global food system, with the war exacerbating these issues, particularly for poorer countries.

15:09

🛡️ Defense and Military Supply Chain Struggles

This section examines the war's effect on military equipment and the defense industry. It points out the strain on the US and European defense industrial bases due to the need to supply Ukraine and the potential for their own conflicts. The war has underscored the vulnerabilities in weapon production capabilities in the West. The discussion includes the example of the US sending a significant number of Javelin anti-tank missiles to Ukraine, equivalent to years of production, and the challenges in ramping up supply. The script also considers the implications for countries that rely on Russia's defense industry, suggesting a shift towards seeking alternative sources due to underwhelming performance.

🌉 Rethinking Global Economic Relationships

The final paragraph synthesizes the discussion on energy, food, and defense, emphasizing how the war has forced a reevaluation of global economic relationships through the lens of geostrategic risk. It suggests a shift towards more cautious investment, local production, and a reduced reliance on fragile supply chains. The script notes that while established global commerce chains are unlikely to be completely dismantled, new investments may be redirected. The war has challenged the belief that economic interdependence prevents conflict, and the script concludes by suggesting that the end of the war and a focus on solving smaller, manageable problems could be a way forward.

Keywords

💡Geostrategic risk

Geostrategic risk refers to the potential negative impacts on a country's or organization's strategic goals due to geopolitical factors. In the video, this concept is highlighted by the Russia-Ukraine conflict, which has caused policymakers and business leaders to reconsider their reliance on certain regions for energy and food supplies, thereby reshaping global trade relationships.

💡Energy demands

Energy demands refer to the total amount of energy required by a country or region to meet its industrial, residential, and commercial needs. The script discusses concerns about not being able to meet these demands due to the conflict, which has led to efforts to diversify energy sources and accelerate the energy transition.

💡Food price inflation

Food price inflation is the increase in the cost of food over time. The video mentions that the war exacerbated food price inflation, making feeding the world more difficult and highlighting the fragility of global food supply chains.

💡Sanctions

Sanctions are measures imposed on a country to make it comply with international law or global norms, often in response to acts of aggression. The script discusses how Western allies have imposed sanctions on Russia while trying to protect their own economies from the repercussions.

💡Renewables

Renewables refer to energy sources that are naturally replenished on a human timescale, such as wind, solar, and hydroelectric power. The video notes that the fear of not meeting energy demands has spurred efforts to ramp up the use of renewables worldwide.

💡Liquefied natural gas (LNG)

Liquefied natural gas is natural gas that has been cooled to liquid form for easy transportation and storage. The script mentions Germany's efforts to build LNG infrastructure to reduce dependence on Russian energy supplies.

💡Price cap

A price cap is a limit set on the price at which a good or service can be sold. The video discusses the EU and G7 instituting a price cap on Russian oil to limit its tax revenues from oil and gas exports.

💡Defense industrial base

The defense industrial base refers to the companies and infrastructure that supply a nation's military with the weapons, equipment, and materials it needs. The script highlights the strain on the US defense industrial base due to the need to supply Ukraine with military equipment.

💡Fertilizers

Fertilizers are substances added to soil to make it more fertile and promote plant growth. The video discusses how the war has impacted the export of fertilizers from Russia and Belarus and the spike in fertilizer prices globally, which will affect agricultural production.

💡Deindustrialization

Deindustrialization is the process of decline in a region's industrial activity. The script raises the concern that energy crises could lead to deindustrialization in Europe if severe weather revives fears over energy supply and security.

💡Trade relationships

Trade relationships refer to the economic connections between countries based on the exchange of goods and services. The video discusses how the war has led to a reevaluation of these relationships, with countries seeking to diversify their trade partners to mitigate geostrategic risk.

Highlights

Russia's invasion of Ukraine caused global economic tremors and raised geostrategic risk awareness.

Countries faced challenges in meeting energy demands and feeding the world due to the conflict.

The war highlighted gaps in essential sectors such as full-fledged systems and ammunition.

New alliances were created and existing ones were galvanized, while differences were entrenched.

The global economy has been impacted, with a focus on how geopolitical risk is remaking trade relationships.

The human cost and scale of suffering cannot be framed in purely economic terms, but financial considerations did influence the response to Russian aggression.

Western allies have been balancing sanctions on Russia while protecting their own economies.

The International Monetary Fund reported improving global conditions as inflation starts to slow.

The United States released oil from its strategic petroleum reserve following the invasion.

Germany rushed to build liquified natural gas infrastructure to reduce reliance on Russian energy.

The EU prohibited seaborne crude oil imports from Russia and instituted a price cap.

Sanctions and measures may have acted as a drag on Russia's tax revenues from oil and gas.

The war has accelerated the push for renewable energy sources globally.

The war forced compromises in European climate goals, such as recognizing natural gas as green energy.

The fear of not meeting energy demands has led to efforts to diversify and speed up the energy transition.

The war in Ukraine has made grain stuck in ports, leading to higher global food prices and fears of shortages.

The Black Sea Grain Initiative helped restart Ukrainian exports, but had a limited effect on global food costs.

The war's impact on fertilizers has led to a global spike in prices, affecting this season's usage.

The war has led to alternative trade corridors and supply-diversifying measures in agriculture.

The global food system was already broken before the war, and the conflict has added an additional layer of failure.

The rise in food prices has disproportionately affected poorer countries.

The war has necessitated the use of military equipment, highlighting vulnerabilities in the capabilities of weapons-producing countries.

The war has forced a rethink of previous arrangements through the lens of geostrategic risk.

The established chains of global commerce are unlikely to be easily undone, but investment is becoming more cautious and local.

Semiconductors have been identified as particularly strategically important for localization.

The war might ensure that the lesson about economic dependency not leading to peace is learned.

The war has put paid to the notion that mutual economic dependency unites countries.

The war in Ukraine has shown that a world at war is a world divided into camps, making solving global problems more difficult.

Transcripts

Russia's invasion of Ukraine sent  tremors across the global economy. 

It brought home to a lot of  policymakers and business  

leaders that geostrategic risk is here to stay.

It left countries wondering how  to power homes and industries.

We were very afraid that we won't  be able to meet our energy demands.

And made feeding the world harder.

We were in an extended period of food price  

inflation and the war really  exacerbated a lot of that.

It highlighted gaps in essential sectors.

From full-fledged systems to ammunition, that  capacity is actually not there right now.

It created new alliances and galvanized  existing ones - while entrenching differences.

If we think about a multi-year  

war, it's going to be interesting to think  about the sort of new economic ties that  

Russia builds to certain key countries  in Asia, in Latin America and Africa.

We will look at what one year of war in Ukraine  has done to the global economy so far - and  

how a rude awakening to geopolitical risk is  remaking trade relationships around the world.

That’s all coming up on Business Beyond.

First things first. The human cost and the scale  of suffering that Russia wrought when it attacked  

Ukraine a year ago cannot be framed in purely  economic terms. But financial considerations  

did figure heavily in how the community of  nations responded to Russian aggression.

Their balancing act was to advance sanctions on  Russia while protecting their own economies from  

the consequences of punishing a key trading  partner and a major food and energy supplier.

Fast forward to today and Ukraine’s Western  allies say that has been working - to a  

degree anyway. The International Monetary  Fund said global conditions are improving  

as inflation starts to slow - a  far cry from initial fears that  

the war in Europe would plunge the  world into a prolonged recession.

In 2022, the world got a little bit lucky.  There was a comparatively mild winter, which  

meant that the energy demands weren't as high as  they could have been. The world dodged a bullet to  

some extent in that some of the most negative  effects that could have transpired didn't.

But the war is ongoing. And that the world  economy isn’t struggling as much as it could  

have - doesn’t say that much about the level of  struggle still to come. While some of it can be  

addressed through policymaking - not everything  can. But let’s look at what HAS been done.

Following the invasion - the United  States released two million barrels of  

oil from its strategic petroleum reserve.  Europe’s biggest Russian energy client,  

Germany, rushed to build out liquified  natural gas infrastructure in a bid to  

wean itself off the now problematic supply -  albeit slowly. Since December 2022, seaborne  

crude oil imports from Russia to the  EU have been prohibited. For Western  

shippers still trading Russian oil, the EU  and the G7 have now instituted a price cap.

Some analyses point to these sanctions  and measures and say they’ve acted as  

a drag on Russia's tax revenues from  oil and gas - even as Europe continued  

to import Russian energy in the  months following the invasion.

But Russian aggression also established the  need to find additional energy sources - and  

is therefore helping to ramp up  renewables use around the world.

The fear of not being able to meet our energy  demands has really implied an enormous effort  

both to diversify, so find providers elsewhere  and speed up the energy transition. Now,  

the first is not necessarily part of the green  transition because we're still consuming fuels  

that are not renewable. But the second is  and you really see that the investments that  

are made in the European Union but also  worldwide are really being accelerated.

The war also forced compromises in European  efforts to achieve key climate goals. Like  

Germany’s rush to forge ahead with new LNG import  infrastructure, and the EU deciding to recognize  

natural gas as a form of green energy -  even if it’s technically a fossil fuel.

Would Europe have put natural  gas in the green taxonomy in  

the absence of this war? I do think that  particularly when it comes to natural gas,  

I think that there had been a lot of debate in  the west when we thought about our climate goals,  

whether natural gas played a role in the  transition. And I think this is now settled.

But not everything is. Remember when we  said earlier that some things might be  

beyond policymakers’ control? If a mild  winter in 2022 helped keep energy demand  

in check and reserves full, more  severe weather ahead could revive  

fears over energy supply and security….also  depending on where that severe weather is.

I think it's going to be very challenging.  With China reopening in particular. One of  

the things that Europe benefited from was also  you had warmer winters in Asia. There were  

volumes not needed in Asia. If we do see,  for example, more Chinese demand for gas,  

what does that do in terms of supply into Europe? If you do get a colder winter, I think it's going  

to be much more challenging. And all  the conversations that we were having  

about potential deindustrialization  of Europe because of an energy crisis,  

those type of concerns may materialize  again if these factors come to play.  

Some say those supply concerns could  even herald the comeback of Russian  

hydrocarbons to Europe. Speaking at the  Atlantic Council’s Global Energy Forum,  

Qatar’s minister of State for Energy Affairs  expressed difficulty imagining a world without it.

I don’t think some of the countries that  were depending on 100 percent or, you know,  

a very large percentage on Russia will  not go back to 100 percent or 80 percent  

or maybe 50 percent. They will diversify  and they’ll learn from that situation,  

and probably have a much bigger diversity.  But the Russian gas is going to come back,  

in my view, to Europe. Is it next year?  Is it in five years? I don’t know.

A colder winter - an increase in energy demand  around the world - could threaten to take the  

discussion back to where it was a year ago, when  the war started. And the longer the conflict  

persists, the more people’s willingness to  live with high energy costs will be tried.

To me this is a question about how  do you manage the energy trilemma,  

which is sustainability, affordability and access.  

And I don't think we've really had a test  yet. Like, if we do face significant energy  

shortages next year, I think you can see European  consumers saying, well, the most important thing  

for me is access and price. And so, I think that's  always going to be the challenge for governments,  

is how can you deliver reliable, affordable energy  at the price that consumers are willing to pay?

The war’s impact on the affordability  of energy has fed into another,  

already complicated access  issue - the cost of food.

Russia’s invasion of Ukraine - known  as the bread basket of the world - made  

already-high food prices around the world  climb even higher - as grain sat stuck in  

Ukrainian ports….sparking fears of food shortages.

Early hopes that India would step in  and fill the export gap with its own  

wheat failed to materialize. That’s after a  record-breaking heat wave made for a smaller  

crop than expected - and the Indian government  instituted an export ban. Triggering even more  

price spikes. But a measure of relief came  when the so-called Black Sea Grain Initiative  

brokered by Turkey between Russia and Ukraine  helped restart the stalled Ukrainian exports.  

But that’s had a limited  effect on food costs worldwide.

We're in a particularly in wheat particularly  

tight period and we sort of measure that as  your ending stocks divided by your total use,  

particularly among major exporters. So that's  at the tightest period it's been since 2008,  

I believe. So, you have this as a backdrop. That's  why prices are elevated. So, if you have a weather  

problem, on top of that, you'll see, you know,  anywhere from 20% to 40% increases in price.

The Food and Agriculture Organization’s  cereal price index shows a decline from  

post-invasion heights. But there’s even more  reason to assume these levels will not hold.

The other big impact of the war that hasn't even  been fully realized is the impact on fertilizers.  

So, you both had a lack of exports from  Russia and Belarus as well as the impact  

on natural gas supplies to Europe causing a big  spike in the cost of producing fertilizers. So,  

there were those stories that nearly  70% of fertilizer production in Europe  

at one point was shut down. But the main  point is that you had this huge spike in  

fertilizer prices globally and that's going  to impact fertilizer usage for this season.

As with energy - the war has led to alternative  trade corridors and supply-diversifying measures  

in agriculture. And as with energy,  Russia’s status as a supplier for  

fertilizer and agricultural products has become  a liability in a changed geopolitical landscape.

Brazil, for example, wants to institute a policy  of being much more self-sufficient in fertilizer  

production. They were exposed and very concerned  about their ability to import from Russia. Another  

example of a change in policy was China importing  corn from Brazil. They hadn't ever previously  

imported corn from Brazil. They had imported from  the Ukraine and the US. And when the Ukraine was  

cut off from them, they panicked, and they've  become a structural, very large importer of corn.

But amid all the shifting of grain supply - it’s  

important to remember the global  food system was already broken.

The impact of the war in Ukraine is  an additional layer to existing long  

standing failures in the global food  system. / /The rise in food prices  

has hit several poorer countries  harder than the global average.  

For example, in Ethiopia, food prices have  increased by 44% and our colleagues in Syria  

are telling us that food prices have increased  by 92% over the last year in the country.

Before the Ukraine war started, almost a 10th  of the global population did not have enough  

food to eat. A hunger situation in places like  the horn of Africa already made dire by climate  

change - has been compounded by a war that’s  made food more expensive on global markets.

Having looked at how food and energy resources  around the world have been changed by the war,  

there’s one resource whose use is actually  necessitated by it - military equipment. Per  

one estimate, Ukraine is firing more than 5000  artillery rounds every day. And the war has  

highlighted vulnerabilities in the capabilities  of weapons-producing countries in the west.

The ability for the United States as well as  European allies to really ramp up production  

of defense materials from full-fledged systems to  ammunition, that capacity is actually not there  

right now. And what we're seeing is considerable  strain in the US defense industrial base  

in terms of being able to really produce  the kinds of systems and materials that  

the US. Military would need in a  conflict of its own, for example.

The Stockholm International Peace Research  Institute has highlighted this point as  

well - giving the example of 8, 500 Javelin  anti-tank missiles the US has sent Ukraine.  

That’s equivalent to at least four years  of production - and ramping that up takes  

time - with supply issues - especially in  raw materials - slowing down the process.

Suffice to say, the Russian invasion has made  especially the US and Europe think about not  

just their ability to support a war effort  like Ukraine’s - but also their capacity  

to adjust to a situation where they might  themselves embroiled in conflict elsewhere.

I think what that would mean then, of course,  is that the United States would redirect its  

production of defense goods for the war that the  United States would ultimately be fighting. So  

that would have significant implications  for Ukraine's ability to defend itself,  

particularly given the state of  Europe's defense industrial base,  

which is probably in an even more precarious  position than that of the United States.

Beyond the West, however - the war is  being closely watched by clients of  

Russia’s defense industry. Who are  deriving conclusions of their own.

If you think about a country like India,  for example, which has been a very key  

defense partner with Russia, I think Indian  defense planners are probably very concerned  

about what their military kit is actually  capable of. Ultimately, there's a lot of  

countries around the world that were buying  Russian military equipment. I think they'll  

be looking to other sources because  so far, the performance of the Russian  

military and its military equipment  has not been particularly impressive.

Let’s take stock. In determining how  the war has changed the global economy,  

we’ve looked at energy, food and defense  - and we’ve seen a few commonalities. But  

perhaps the one that’s most striking  of all, is that it forced a rethink  

of previous arrangements through  the lens of geostrategic risk.

If before, you could generally go where economics  said is the most profitable place to be and let  

the politics be the politics. Now, firms have  seen just how quickly traditional trade flows  

can be disrupted by geostrategic risks  and suddenly they are thinking about//  

What are governments going to do to protect  and insure themselves against future tensions  

with their rivals? And all of that is coming  together to make investment more cautious,  

more local, less willing to roll the dice  on a far flung and perhaps fragile supply  

chain. And all of that has implications,  of course, for real people and real jobs.

That said - the established chains of global  commerce can’t and won’t be easily undone.  

And this newly urgent sense of caution is more  likely to apply to some sectors more than others.

You probably won't necessarily see mass  movements of existing production, but you  

might see diversion of where new factories  were going to get built or expansions are  

going to go. Just because the cost involved in  moving some of this stuff is staggeringly high.  

It depends on the types of production you're  looking at. So already several industries have  

been identified as particularly strategically  important. So semiconductors it is very clear  

that the US and the EU are going to throw  considerable resources and regulatory muscle  

behind trying to make sure that they have  localized strength in semiconductor manufacturing.

The lesson that closer trade and economic  relations might not ultimately lead to  

more peace - and that those ties  can in fact be weaponized - was  

a hard one to learn - but the war  might ensure it is one that sticks.

There used to be an aphorism in international  trade that no two countries in the world with  

a McDonald's have ever gone to war  with each other// This was like one  

of these cliches in international relations.  Well, I've eaten at the McDonald's in Kiev,  

and I've eaten at the one in  Moscow, so we can park that one now.

A world at war is a world divided into  camps. And fragmentation brings with it  

difficulties in terms of solving global problems.

Especially if there is a disappearing baseline  for what counts as acceptable behavior between  

sovereign nations - and disagreement as  to how transgressions should be addressed.

The number of countries that is actually not  necessarily against Russia when it comes to the  

war. Ratio is actually quite big in population  terms. It is only 35% of world population that  

is actually sanctioning Russia. The rest is  either neutral or is even with Russia. Now,  

this is important as far as the effectiveness of  sanction is concerned because the potential for  

sanctions leakage, namely trying to help Russia  to bypass the sanction, is actually quite big.

But if the war in Ukraine has put paid to  the notion that mutual economic dependency  

unites countries and forces them to abide  by the same set of rules - which guiding  

idea would then take its place? The longer the  war goes on, the bigger this question becomes.

First, the war needs to come to an end.  Everybody will see the benefits of that  

war coming to the end. And then maybe we can  take it. We can take it from there. Small wins,  

small gains, small successes is what  I would go for. Try and solve small  

problems one at a time and solve them with as  many countries around the table as possible.

And that’s it for this edition of Business  Beyond. If you want to see more of what we do,  

our recent video on whether China  is ever going to be the world’s  

biggest economy is a good place to start.  Thanks for watching and see you later.