{"id":5945,"date":"2022-02-28T09:27:21","date_gmt":"2022-02-28T09:27:21","guid":{"rendered":"https:\/\/euromenaenergy.com\/?p=5945"},"modified":"2022-02-28T09:27:21","modified_gmt":"2022-02-28T09:27:21","slug":"the-economic-consequences-of-the-ukraine-war","status":"publish","type":"post","link":"https:\/\/emimer.com\/?p=5945","title":{"rendered":"The Economic Consequences of the Ukraine War"},"content":{"rendered":"<p><time class=\"vl-divider\" datetime=\"2022-02-25T17:21Z\">Feb 25, 2022<\/time><span class=\"byline\"><a class=\"track-event\" href=\"https:\/\/www.project-syndicate.org\/columnist\/jason-furman\" data-entity-type=\"member\" data-entity-id=\"597f0ccb2bd5d2069ca0b14c\" data-language=\"english\" data-event-action=\"click\" data-entity-link-name=\"jason-furman\" data-href-original=\"\/columnist\/jason-furman\"><span class=\"listing__author author\">JASON FURMAN<\/span><\/a><\/span><\/p>\n<p>Russia\u2019s invasion of Ukraine has been rapid and dramatic, but the global economic consequences will be much slower to materialize and less spectacular. Yet, other than Ukraine, Russia will likely be the biggest long-term economic loser from the conflict.<\/p>\n<p>CAMBRIDGE \u2013 Russia\u2019s invasion of Ukraine has been rapid and dramatic, but the economic consequences will be much slower to materialize and less spectacular. The war itself is enormously tragic, first and foremost for the Ukrainian people, but also for the\u00a0Russian people\u00a0and the global order more generally. When something like this happens, we expect it to be like a morality play in which all the bad consequences play out equally dramatically in every dimension, including the economy. But the economy does not work that way.<\/p>\n<p data-line-id=\"a4fc0f62910b4f1a890fa6d9c7034c24\">True, financial markets reacted swiftly to news of Russia\u2019s invasion. The MSCI All Country World Index, a leading global equity gauge, fell to its\u00a0lowest level\u00a0in almost a year. The price of oil rose\u00a0above $100 a barrel, while European natural gas prices initially\u00a0surged by almost 70%.<button class=\"comment__caller comment__caller--no-comment\" aria-expanded=\"false\" aria-label=\"Paragraph comment\" aria-controls=\"login_register\" aria-haspopup=\"true\"><\/button><\/p>\n<p data-line-id=\"53b805a7c17d45afaf8a59327a4b0ee1\">These energy-price increases will negatively affect the global economy. Europe is especially vulnerable, because it did little in recent years to reduce its dependence on Russian gas, and in some cases \u2013 notably, Germany, which\u00a0abandoned\u00a0nuclear power \u2013 even\u00a0exacerbated\u00a0it.<button class=\"comment__caller comment__caller--no-comment\" aria-expanded=\"false\" aria-label=\"Paragraph comment\" aria-controls=\"login_register\" aria-haspopup=\"true\"><\/button><\/p>\n<p data-line-id=\"a896027b83e74e7dae0488ed7343b751\">Oil-importing countries will experience a headwind from higher prices. The United States is more hedged: Because its oil production is\u00a0equal\u00a0to its oil consumption, more expensive oil is roughly neutral for GDP. But higher oil prices will hurt US consumers while helping a more limited segment of businesses and workers tied to the oil and gas industry. The price surge will also add to\u00a0inflation, which is already at its highest levels in a generation in the US, Europe, and other advanced economies.<button class=\"comment__caller comment__caller--no-comment\" aria-expanded=\"false\" aria-label=\"Paragraph comment\" aria-controls=\"login_register\" aria-haspopup=\"true\"><\/button><\/p>\n<p data-line-id=\"b84554442e704426bd30a75fa76499d0\">But some perspective on these immediate consequences is in order. At $100 a barrel, oil is about\u00a0one-quarter below\u00a0its inflation-adjusted price during 2011 to 2014. Moreover, prices for oil futures are lower than spot prices, suggesting that the market expects this increase to be temporary. Central banks may therefore largely look through events in Ukraine, neither holding off on tightening nor speeding it up in response to higher headline inflation. And global\u00a0stock markets\u00a0are still up over the last year.<button class=\"comment__caller comment__caller--no-comment\" aria-expanded=\"false\" aria-label=\"Paragraph comment\" aria-controls=\"login_register\" aria-haspopup=\"true\"><\/button><\/p>\n<p data-line-id=\"70d742cc73b0454083c331f3d5562bc0\">Similarly, although the Russian stock market has\u00a0fallen significantly\u00a0since the start of the invasion, Western sanctions are unlikely to have immediate dramatic effects. Sanctions rarely do; they are simply not the economic equivalent of the bombs that Russia is currently dropping on Ukraine.<\/p>\n<p data-line-id=\"576c9c8a934648bf8f27c525f4e3983b\">Moreover, Russia is better prepared than most countries to weather sanctions. The country has been running an enormous current-account\u00a0surplus\u00a0and has accumulated record foreign-exchange reserves of\u00a0$630 billion\u00a0\u2013 sufficient to cover nearly\u00a0two years\u00a0of imports. And while Russia is dependent on revenue from Europe, Europeans are dependent on Russia\u2019s oil and gas \u2013 which may be even harder to replace in the short run.<button class=\"comment__caller comment__caller--no-comment\" aria-expanded=\"false\" aria-label=\"Paragraph comment\" aria-controls=\"login_register\" aria-haspopup=\"true\"><\/button><\/p>\n<p data-line-id=\"945114c98a79482c9d823821c87a1548\">But, in the longer term, Russia will likely be the biggest economic loser from the conflict (after Ukraine, whose losses will go well beyond what can be measured in the national accounts). Russia\u2019s economy, and the well-being of its population, have been\u00a0stagnant\u00a0since the Kremlin\u2019s 2014 annexation of Crimea. The fallout from its current, large-scale invasion will almost certainly be more severe over time. Sanctions will increasingly take a toll, and Russia\u2019s growing isolation, as well as heightened investor uncertainty, will weaken trade and other economic links. In addition, Europe can be expected to reduce its fossil-fuel dependence on Russia.<button class=\"comment__caller comment__caller--no-comment\" aria-expanded=\"false\" aria-label=\"Paragraph comment\" aria-controls=\"login_register\" aria-haspopup=\"true\"><\/button><\/p>\n<p data-line-id=\"f7a9668a0e46470cbdb297943330d58f\">The longer-term economic consequences for the rest of the world will be far less severe than they are for Russia, but they will still be a persistent challenge for policymakers. There is a risk, albeit a relatively unlikely one, that higher short-run inflation will become embedded in increasingly unanchored inflation expectations, and thus persist. If that happens, central banks\u2019 already difficult job will become even more complicated.<button class=\"comment__caller comment__caller--no-comment\" aria-expanded=\"false\" aria-label=\"Paragraph comment\" aria-controls=\"login_register\" aria-haspopup=\"true\"><\/button><\/p>\n<p data-line-id=\"a3da9f2e43574412a1f71a0cd98d37e1\">In addition, defense budgets are likely to rise in Europe, the US, and some other countries to reflect the increasingly dangerous global situation. This will not reduce GDP growth, but it will reduce people\u2019s well-being, because resources dedicated to defense are resources that cannot go toward consumption or investment in education, health care, or infrastructure.<\/p>\n<p data-line-id=\"938ea5a7aa2b4033bde7944c09aadf6b\">The medium- and long-term consequences for the global economy of Russia\u2019s invasion of Ukraine will depend on choices. By invading, Russia has already made one terrible choice. The US, the European Union, and other governments have made initial choices on\u00a0sanctions, but it remains to be seen how Russia will react to them or whether further penalties will be imposed. To the extent that sanctions and counter-responses escalate, the costs will be larger \u2013 first and foremost for Russia, but also to some degree for the rest of the global economy.<button class=\"comment__caller comment__caller--no-comment\" aria-expanded=\"false\" aria-label=\"Paragraph comment\" aria-controls=\"login_register\" aria-haspopup=\"true\"><\/button><\/p>\n<p data-line-id=\"9b1d99e6dd55467a92109b304bf0837a\">Global economic relations are positive-sum, and Russia\u2019s growing isolation will remove a small positive. More broadly, uncertainty is never good for the economy.<button class=\"comment__caller comment__caller--no-comment\" aria-expanded=\"false\" aria-label=\"Paragraph comment\" aria-controls=\"login_register\" aria-haspopup=\"true\"><\/button><\/p>\n<p data-line-id=\"7dc9f508a3a94c5a97f375504a4ef7bf\">But, as the world continues to respond to the Russian invasion, concerns about GDP seem minor by comparison. Far more important is a world where people and countries feel secure. And that is something worth paying for \u2013 even more than the world\u2019s leaders have paid so far.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Feb 25, 2022JASON FURMAN Russia\u2019s invasion of Ukraine has been rapid and dramatic, but the global economic consequences will be much slower to materialize and less spectacular. Yet, other than Ukraine, Russia&#8230;<\/p>\n","protected":false},"author":1,"featured_media":5946,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14,22],"tags":[46,48,57,68,76,77,82,86,87,90,96,99,103,107,109,111,113,137,139,146,148,160,174,183,184,201,202,209,222,230,232,233,244,246,249,256,262,263,267,277,279,280,285,288],"class_list":["post-5945","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","category-oil-gas","tag-aramco","tag-athens","tag-baroudi","tag-carbon","tag-climate","tag-climate-change","tag-co2","tag-cyprus","tag-decarbonising","tag-democracy","tag-doha","tag-eastmed","tag-egypt","tag-embargo","tag-emissions","tag-energy","tag-energy-peace","tag-gas","tag-gazprom","tag-greece","tag-greenenergy","tag-international-maritime-disputes","tag-lebanon","tag-maritime-boundaries-east-mediterranean","tag-maritime-disputes","tag-offshore","tag-oil","tag-opec","tag-pollution","tag-poverty-alleviation","tag-putin","tag-qatar","tag-rosneft","tag-roudi","tag-russia","tag-saudi","tag-solar","tag-solar-power","tag-straddling-hydrocarbons-reserves","tag-total","tag-trump","tag-turkey","tag-unclos","tag-usa"],"_links":{"self":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/5945","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5945"}],"version-history":[{"count":0,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/5945\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/media\/5946"}],"wp:attachment":[{"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5945"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5945"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5945"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}