Russia’s unprovoked invasion of Ukraine provides a fresh example of how what happens halfway around the world can affect the everyday lives of Americans in the grocery store, gas pump and stock market. Americans can experience pain and suffering even when US soldiers aren’t involved in the fighting.
Anticipated impacts range from higher gas and heating oil prices, worsening inflation and stock market volatility. As sanctions are imposed on Vladimir Putin, Russian oligarchs and Russian banks, Americans should brace for cyberattacks aimed at crippling electricity grids, transportation networks and financial operations. Bombs will be exploding in Ukraine, but economic shrapnel will scatter around the world.
The immediate impacts of the invasion, intended to squash a flourishing democracy, may only be the beginning. It wasn’t coincidental that Putin went to Beijing during the just completed Winter Olympics to meet with President Xi Jinping. China has demonstrated its willingness to clamp down on democracy in Hong Kong and foreshadow military action in Taiwan. A Russian-Chinese alliance seems likely, perhaps paralleling the German-Japanese alliance in World War II. A hint of that came in Putin’s late-night speech as the invasion began when he talked of liberating Ukraine from “Nazis”.
Rising Energy Prices
CNET posted a story today describing economic shock waves from the land, sea and air invasion of Ukraine. It noted global energy prices rose to more than $105 per barrel for the first time since 2014. Some analysts say the conflict could send crude oil prices soaring to $150 per barrel. Retail gas prices at the pump average $5 per gallon when crude oil reaches $100 per barrel. At $150 per barrel, retail gas prices could reach $7 per gallon.
President Biden says he is working on a plan to stabilize oil supplies and prices. He also has pledged to help Germany and other European nations dependent on Russian oil and natural gas, perhaps with the assistance of Saudi Arabia and Qatar by boosting their output. The United States already exports liquefied natural gas to Europe, but that is more costly than the natural gas Russia planned to deliver through the Nord Stream 2 pipeline that has been put on hold.
International Trade Disruption
A European ground war, no matter how much it is contained geographically, will have spillover effects throughout Europe, North America and places such as Turkey and Egypt. Exports and imports will be impacted, affecting manufacturing, shipping and supply chains in both the short term and possibly the long term. Commercial shipping channels in the Black and Baltic seas could be impacted if Russia loses its European customers and is forced to look for new customers in the Far East.
US consumers are already restive about inflation that has hit 7.5 percent year over year. Economists attribute the high rate of inflation to an economic recovery that outpaced the ability of manufacturers and supply chains to respond. The sanctions on Russia could aggravate that mismatch.
Russia is the world’s largest exporter of palladium, used in automotive exhausts, fuel cells, cell phones, jewelry and dental fillings, according to CNET. Russia is the second largest global producer of platinum. Ukraine has become a significant exporter of raw materials such as iron and steel, as well as machinery and agricultural and chemical products.
Spiking Food Prices
Ukraine is often referred to as the “breadbasket of Europe” because of its agricultural exports. CNET reports Ukraine is one of the top global producers of corn, so disruptions could lead to higher prices for cooking oil, corn syrup and livestock feed. If US producers are called on to backfill European demand for corn and soybeans, that will put pressure on US prices in the short term and maybe longer.
Russia is the world’s largest wheat exporter and, along with Ukrainian wheat exports, accounts for almost 30 percent of global wheat trade. While the United States doesn’t import wheat, a major trade disruption could rattle markets and put pressure on prices for staples such as flour, pasta and bread.
Stock Market Volatility
On news of the invasion, the Dow Jones Industrial Average plunged more than 800 points, with declines in the Nasdaq index and S&P. European markets experienced similar declines. However, US markets rebounded, ending slightly higher, powered in large part by technology stocks. The tech-heavy Nasdaq dipped 3.4 percent early in the day, but wound up 3.3 percent at closing.
Russia’s MOEX Index cratered more than 35 percent, approximately $150 billion, as there was massive sell-offs, which forced a suspension in trading Thursday. The Russian ruble also tumbled in value by almost 8 percent in highly volatile trading.
Prospect of Cyberattacks
US officials warn of possible Russian-inspired cyberattacks on banks, government offices and power grids in retaliation for sanctions related to the invasion. There also are warnings about disinformation and influence campaigns to deepen existing political divides in America and Europe. Cyber disruptions are occurring in Ukraine affecting cabinet members, foreign affairs and education ministries.
There were reports of thousands of anti-war protestors filling Russian streets and squares to object to the full-scale assault on what many Russians call their “brotherly nation”. The protests were greeted with mass arrests.
Travel to and from Ukraine will be disrupted, as many Ukrainians flee their home country and businesspeople and visitors cancel trips. The US Embassy has urged Americans since January to leave Ukraine, explaining the US government won’t be able to assist with evacuation after an invasion begins. Regime change appears to be Putin’s objective, which could lead to a chaotic period when fighting continues and no one is really in charge.
More Shoes Could Drop
Since Ukraine is not a NATO member, it won’t receive any significant military back-up from the United States and European powers. Biden has ordered US troop reinforcements to NATO allies that border Russia and Ukraine. It’s likely NATO will reinforce defenses along the present and potential border of Russia since Putin seems bent on re-creating a version of the Soviet Union, even if it means invading adjacent countries or sending troops and armaments into Russian-friendly border states such as Belarus.
Assuming Putin successfully kidnaps Ukraine, Western policymakers will be forced to reckon with an act of aggression as egregious as Hitler’s annexation of Austria. If current Ukrainian officials are forced to abandon Kyiv, they will find refuge in the West to guide a government-in-exile insurgency campaign. That will require a deeper level of engagement than sanctions and provoke an angrier reaction from Putin, who already has threatened nations that get in his way. A bolder step will be to place more weapon systems in border nations to deter further incursions, but also feeding Putin’s fear of being surrounded by a ring of hostility.
Then there is a stronger internal reaction to the invasion in Russia. There were reports of thousands of anti-war protestors filling Russian streets and squares to object to the full-scale assault on what many Russians call their “brotherly nation”. They were met with armed police, leading to mass arrests, according to live news reports. Even in a dictatorship, leaders cannot ignore public reaction and the realization that official news reports have been filled with untruths. The ranks of the restive can grow under the pressure of economic sanctions.