The Impact of the Russia-Ukraine Conflict on Global Economy
The escalating conflict in the Ukraine has put world leaders, economists, bankers, and investors on a state of alert. While the world watches news of events on their mobile devices or television screens to condemn atrocities and hoping for conflict resolution. Most are keeping their eye on the state of the world economy and can’t help but be worried that the crisis will have a major negative impact on global economy.
The Ukraine is a key player in the complex dynamics of European economy. The country is strategically positioned such that European markets and Russia can trade and engage freely in grain exportation. The country is one of the main exporters of wheat and corn. Continuous conflict might put the supply of grain to a halt. In addition, Ukraine’s location in the European continent has made it a preferred conduit for gas from Russia that’s being used as a major energy source by European countries. About 50% of Europe’s gas supply passes through the Ukraine and any disruption could lead to skyrocketing energy cost. Already the price of natural gas has increased by 10% in the United Kingdom.
European investors have reason to be concerned about the future of the economy since high energy prices could slow down the economic growth of the member countries of the EU. Meanwhile, in the United States, the crisis has already resulted in lower stock prices and lower Treasury yields. US and elsewhere, the price of gold has skyrocketed—a phenomenon that usually occurs when conflicts, wars and socio-political breakdown occurs.
A decade ago, Russia and the rest of the world did not engage much in trade, with the levels of interdependence but much has changed since the Russian Federation was formed. Should any sanctions be imposed on Russia because of its continued activities in the Crimean peninsula, the dynamics of global supply and demand will be affected dramatically to the point of that a global recession could be again a economic reality.
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