Economic shock and geopolitical realignment. Russian invasion will have global consequences—The Economist

Author

Olga Krotovska

Russia's invasion of Ukraine that could be the start of the greatest war in the European region since the 1940s will not only cost Russia dearly but will also have significant global consequences. The world needs to know what a new round of Kremlin aggression could turn into, The Economist reports.

What awaits the RF

The outlet points out that in case of an attack on Ukrainian territory sanctions will inevitably await the Russian Federation that will hit its economy, the banking sector in particular. The outlet does not exclude the possibility of imposing personal sanctions against "ultra-rich Russians" or even Vladimir Putin himself. The Russian population, whose standard of living has been lowering for the past seven years, will also suffer. Russia will have to face "strategic losses". In response to the aggression, NATO will continue to strengthen its eastern flank and will probably add Sweden and Finland to its membership.

What the world should prepare for

The European gas market will be the first to feel the Russian invasion. Commodity markets will experience a significant impact. An attack on Ukraine could also set a "destabilizing political precedent." Putin's actions may inspire other dictators to take similar steps.

Helima Croft, Head of Commodity Strategy at RBC Capital Markets and former CIA analyst, stresses that "if Russian tanks cross Ukrainian borders, there will be a panic in the commodity markets." According to her, this is due to the great importance of Russia for the commodity supply. The RF is the world's largest exporter of natural gas and the second largest exporter of oil. The country also supplies almost a tenth of the aluminum and copper to the global market. Moreover, 43% of palladium is mined on the territory of the state. Russia is the world's largest exporter of wheat (together with Ukraine, they control about 29% of the global wheat market).

The worst-case scenario, she says, is halting the flow of these critically important raw commodities as tensions escalate. This can be caused either by sanctions for the invasion, or by the Kremlin's unauthorized decision (to intimidate opponents). For example, halting the export of wheat will result in an emergency situation in the countries of the Middle East and North Africa.

Croft stresses that so far only the threat, not the attack, has already driven oil prices up to a seven-year high of $90 a barrel. The price of copper is moving towards its multi-year peak. JPMorgan Chase predicts that if a war breaks out between Russia and Ukraine, the price of "black gold" will soar to $120 per barrel.

Context. Western countries believe that Russia is ready to attack Ukraine at any point. One of the possible options is an invasion during the Russian-Belarusian military exercises. The Ukrainian authorities assure that the situation is under control and Ukrainians have no reason to panic.