The Bloody Business of War (Part I)

The Social and Economic Impact of the Russo-Ukrainian Crisis

In an attempt to redraw the map of Europe in a conflict that is well on its way to becoming the most devastating since the Second World War, on February 24, 2022, Russia’s president Vladimir Putin launched a “special military operation” into Ukraine. This invasion - though the Russian Government refuses to call it this - seems to be the culmination of skirmishes between Russia and Ukraine since early 2014, with Russia aiming for the “demilitarization and denazification” of Ukraine - a democracy of 44 million governed by a Jewish president. Government buildings have been bombed, hospitals have been destroyed, hundreds of civilians (including children) have been killed, thousands have been injured and approximately 10 million Ukrainians have fled their homes. The impacts of these dire circumstances have not been contained in Eastern Europe alone. With sanctions being imposed, commodity prices soaring, supply chains being disrupted and trade routes coming to a standstill, let’s delve deeper into the impact this conflict will have on the global economy.

Refugees

The heaviest socio-economic impact would likely be the loss of human livelihood. Refugees are the unfortunate souls fleeing the conflict, displaced from their homes as the Russian army marches through Ukrainian soil. As tensions with Russia boil over, Ukrainian refugees are pouring into neighboring nations in what has become the worst migrant crisis since World War II. In countries such as Poland, Hungary and Slovakia locals and aid agencies are rushing to provide food, water, shelter, etc. for arriving refugees. Poland has been top choice for Ukrainian refugees because of their shared border and already almost 2 million refugees have flooded Poland increasing its population by 4.8%. This puts a severe strain on Poland and other nations who have welcomed refugees and the burden of ensuring their safety and standard of living has to be shared by the European Union if the well-being of refugees is to be guaranteed. So far the EU has designated $547 million to support these refugees but estimates suggest that as more and more people flee, this cost could rise to a whopping 50 billion in 2022 alone! The UN and other agencies have only received roughly 7% of the $1.1 billion they are requesting nations to put forward to support refugees and host communities from March to May 2022. However, in an unprecedented move, the EU has passed a new Temporary Protection Directive which will allow Ukrainian refugees to reside in its member countries for up to three years without having to apply for asylum, while still having access to healthcare and education and being able to work. This could potentially allow host nations to successfully integrate millions of young Ukrainian workers into their economies, which could prove especially beneficial for nations like Poland who had begun to see changing demographics due to emigration. Nevertheless, the situation and future of these refugees remain unstable - integrating them into another society is no easy feat because many of their decisions on whether to stay in their host countries or return to Ukraine will depend on the outcome of conflict which still has no end in sight.

Sanctions

The immediate international response to Russia's war has been a growing list of countries sanctioning the nation, including the US, the UK, the EU, Taiwan, Japan, Switzerland, Australia and New Zealand. The question herein lies, how effective are these sanctions? Western Allies in the NATO bloc have attempted to “asphyxiate Russia’s economy”, as stated by the French foreign minister, in the hopes of forcing an end to the incursion into Ukraine. Thus far, measures have included restrictions of the sale of crucial defense and military technologies from the US and EU (such as encryption security for cyberwarfare and avionics technology) as well as banning imports from Russia and its ally, Belarus. Many companies have seized operations within Russia, including fast-food chains, technology and virtual business firms as well as many chains like supermarkets, hotels etc. Even the Oligarchs supposedly running the show behind the Putin regime aren’t safe - with superyachts and condos belonging to Russian nationals being seized and even blocking the nation entirely from SWIFT, the key framework for the world’s banking system, which along with sanctions against Russian banks, freeze up roughly 80% of all Russian assets.

The Russian people are affected the worst, and the actions of dozens of nations to ‘seize and freeze’ their assets reduces trust in the global financial system because they see their hard earned money becoming useless. The capture of corrupt billionaires’ luxury investments, laundered assets and dirty money may make for sensationalist headlines, but mainstream media tends to forget the human faces of misinformed or even resistant citizens. Moreover, the impact of these sanctions on the global economy are inextricable from their impacts on Russia. Sanctions resulted in stable currencies such as the US Dollar and Japanese Yen rising in value and the prices of basic commodities such as oil and gas have risen. The economic impact of the war, given there are no severe escalations, will likely come in ripples through the next few years, with sustained damage being observed primarily in Eastern Europe, where Russia and Ukraine’s spheres of influence mean that trade partners in the Baltics will experience downturns and the two countries themselves may suffer sharp recessions. The growth forecasts for Europe on the whole in 2022 are likely to fall below inflation and below expectations by up to 50% and 10% for the Eurozone.

Article Written By Ivannah Jacob and Dhruv Mathur

Edited by Revant Biswas and Yashas Ramakrishnan

Stay Tuned for Part II to be Published Next Week!