Introduction
The great power competition between Russia and NATO has led to the first major conflict in the 21st century. Russia- Ukraine war started in February 2022, marking the end of non-contact conflict and the start of state-to-state warfare between the two former Soviet Union countries. The Russia- Ukraine war shocked the world due to its geopolitical ramifications and far-reaching consequences as it is poised to alter the global economic and geopolitical order. The Russian Federation was hit by massive economic sanctions that raised the risk of economic fragmentation for trade. The impact of this conflict will flow through higher prices for commodities, disrupted exchange, and higher investor uncertainty due to the interconnectedness of the global economy. The war in Ukraine has affected international trade in terms of energy security and inflation due to the world’s dependence on Russia and Ukraine’s export commodities.
Energy Security in Europe, Indo-Pacific Region, and Africa
Russia- Ukraine war will change the global energy landscape and geopolitics significantly. Russia is the second-largest producer of natural gas and the third-largest oil producer globally (McBride, 2022). For several decades, the world has been reliant on Russian energy sources, including natural gas and oil, as it’s the largest exporter of energy resources to global markets. More than two dozen European Union nations, such as Germany, Netherlands, and Italy, import oil and gas from Russia. Countries in the Indo-Pacific ring, such as India, China, Japan, South Korea, and Vietnam, have direct energy relationships with Russia and thus are directly impacted by the ongoing war (McBride, 2022. African leaders hypothesize that sanctions against Russia pose an imminent danger to African economies importing oil, the most significant imported product on the continent. Russia has been exploiting these export supply concerns for political leverage since the Soviet era (Sullivan & Northam, 2022). The allure of cheap Russian energy sources is the primary reason many countries depend on the country for their energy products.
The world’s dependence on Russian energy sources has created a significant supply issue due to the economic sanctions on Russian oil companies. Russia violated international law due to its unprovoked incursion into Ukraine’s territory, thus leading to sanctions mainly from western nations. The removal of Russian oil from global oil supplies due to sanctions will pressure the oil supply-demand curve leading to increased oil and gas prices. The international oil price surged to roughly $115 per barrel after spiking above the $100 threshold in the immediate effect of Russia’s invasion, the highest since 2014 (Phoumin, 2022). The increased prices favor other oil-producing countries as it increases revenue reserves due to increased sales due to its high demand. The world must deal with concerns regarding the sanctions and rethink its reliance on Russian energy sources.
The most pressing challenge facing countries dependent on Russia is how to server their reliance on Russian energy while continuing the fight against the climate change crisis. The war has seen major oil companies, including BP, Shell, Equinor, and ExxonMobil, exit the Russian market abandoning billions of investments (Zhang, 2022). This energy restructuring is sweeping across countries that rely on Russia’s energy sector as they seek to ban or cut energy imports. The sanctions on the Russian energy sector have a detrimental effect on climate change, a major issue for the 197 nations within the United Nations Framework Convention on Climate Change (UNFCCC) members who have signed the Paris Agreement to reduce emissions and the impact of climate change (Nevitt, 2022). These countries will turn to coal as an alternative source to Russian energy, increasing the impact of climate change due to greenhouse gas emissions (Nevitt, 2022). Disruptions to the flow of natural gas will compound other supply chain and climate issues, thus drive-up gas prices. Energy security is derived from diversification; thus, these UNFCCC member nations must find replacements for their energy sources to reduce their dependence on Russia’s oil imports.
The shortage of cheap energy from Russia will increase energy costs due to fossil fuels, thus reducing efforts toward long-term decarbonization. According to Marsh and Chambers (2022), there is no viable way to sever ties with Russian oil in the short term, a concept that leads to loopholes in the tough economic sanctions on Russia. The Russia- Ukraine conflict has highlighted the need for these countries championing climate change to have secure renewable energy sources. The decreased reliance on Russia’s energy sources may lead to the restoration of the Iran nuclear deal, which offers Iran relief from financial sanctions in return for reducing its nuclear activities. The conflict is a major opportunity for Latin America and Middle East oil producers to position themselves as oil suppliers keen on environmental sustainability.
Inflation in Food Prices Worldwide
Global markets are still reeling from the supply disruptions of the two major food suppliers worldwide. Economic sanctions and trade restrictions have led to an increase in the price of essential commodities. The reduced supply of Russian and Ukraine exports has driven the prices sharply, seeking to threaten the world food supply. The COVID-19 pandemic led to an imbalance between essential products’ supply and demand, leading to increased prices. The Russia- Ukraine war has exacerbated the situation as the region is one of the largest breadbaskets in the world.
Russia and Ukraine are among the major global food producers; thus, the region plays a vital role in maintaining food products’ supply and demand curve. There are six breadbaskets in the world that control 70% of global agricultural products. Russia and Ukraine control 30% of global wheat exports and 65% of sunflower oil (Ellyatt, 2022). The interconnectedness of these food baskets creates a global market where a slight disruption in supply leads to price adjustments. The UN Food and Agriculture Organization (FAO) has stated that the war increased food prices, a situation that will only worsen. Prices for commodities such as wheat, vegetable oil, corn, and grain have risen, threatening food shortages and hunger crises in recent months. For example, Egypt, which imports 80% of its wheat from Russia, has seen bread prices skyrocket, thus leading to price controls to avert hyperinflation (Kammer et al., 2022). The food price index maintained by FAO, which tracks monthly adjustments in international prices for essential commodities, recorded its highest level since its development in 1990.
Russia and Ukraine have extensive regions which account for most of the world’s global exports; thus, a disruption in the supply chain between the two nations leads to ripple effects in terms of prices. The war is directly responsible for the increase in grains and vegetable oils prices due to the high cost of sunflower seed oil, whose main producers are Russia and Ukraine (Treisman, 2022). The Russian blockade exacerbates the supply issue preventing Ukraine from exporting its grains and wheat. Port closures in regions such as Odesa and Mariupol significantly limit exports from Ukraine, which will remain in effect for the rest of the year. The continued war will create a whiplash effect that will affect food prices in other major food producers, including Brazil, Argentina, and the U.S (Farge, 2022). The immediate impact of this global disruption on supply will entail reduced imports and higher international prices. This is due to the lack of access to fertilizers as Russia is the leading global exporter. The cost of fertilizers has increased drastically, highlighting that food prices will increase throughout the year.
The inflation has been triggered by the financial conditions set by the sanctions against Russia. These sanctions have decreased capital outflows in emerging markets already grappling with soaring food and fuel prices. The financial fragility risk has led to high debt ratios that have derailed post-pandemic economic recovery. The increased debt due to the pandemic response spending has made countries reliant on food and oil imports and on the brink of an economic shutdown.
Increased food prices have led to the indirect consequence of food shortages in the Middle East, Africa, and Asia arraigning fears of hunger. These countries rely on affordable grain supplies from Russia and Ukraine through subsidy programs. However, most governments worldwide used debt to finance the pandemic recovery period and thus cannot subsidize the already inflated commodities prices. Russia-Ukraine war ripple effects on inflation in other countries will lead to a default on international debt due to the loss in value of a domestic currency based on the rapid changes in exchange rates, such as the Sri Lanka government default on all foreign debts. Sovereign debt default leads to higher inflation, affecting interest rates and domestic stocks.
Countries that default on international debt due to inflation may face further political instability and government collapse fueled by unrest due to the rising cost of living. This was the case in Sri Lanka, where inflation led to limited accessibility of food and medicine culminating in government overthrowal. The UN World Food Programme (WFP) sources half of its grain supply from Ukraine; thus, the raging war will significantly affect food prices for the foreseeable future (Farge, 2022). An increase in food prices leads to more significant market uncertainty, affecting production inputs such as fertilizers. The increasing cost of living mainly affects people in impoverished regions whose large proportion of their income is on food.
Conclusion
The conflict highlights the dangers of global interconnectedness as one country can have a massive impact on global trade. Because of the world’s reliance on the commodities of Russia and Ukraine, the war has had an impact on global trade, energy security, and inflation. The world has been reliant on Russian energy sources leading to volatility in case of disruptions. The oil supply-demand curve will be under pressure as a result of sanctions removing Russian oil from the world’s oil sources, which will raise the price of gas and oil. How to continue combating the climate change catastrophe while maintaining their reliance on Russian energy is the biggest challenge facing nations who purchase oil from Russia. The cost of necessities has gone up as a result of trade restrictions and economic sanctions. Being two of the world’s largest producers of food, Russia and Ukraine are essential to preserving the supply and demand curve for food items. The supply chain disruption has led to an increase in food prices globally, affecting millions of people.
References
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