What the War in Ukraine Means for Your Economy?

Vladimir Putin’s decision to invade the sovereign nation of Ukraine has shocked the world. Protests against Putin’s action have sprung up in major cities from New York to London and even in Moscow. World leaders have responded swiftly with punishing sanctions against Russia and those who support Putin and bans of exports to Russia. However, in an age of globalization, those sanctions and bans come with an economic cost to the nations imposing them and to the global economy in general. UK Foreign Secretary Liz Truss has acknowledged for example, that Britons could feel the economic pain of the sanctions and bans for months and perhaps even years. One way to understand just what that pain could look like is to consider the role of Russia in the global economy. In addition, because Russia’s invasion in Ukraine is likely to disrupt normal trade flows to and from both countries, understanding each country’s major exports and imports can provide additional insight into the economic fallout from Putin’s attack on Ukraine.

You may already know that Russia is a huge exporter of oil and natural gas. Indeed, the United States imports some 600,000 barrels of oil from Russia every day, an amount second only to its imports from Canada and Mexico. But did you know that Ukraine is the world’s fourth largest exporter of the barley used in animal feed and beer production? Any disruption in barley exports will probably result in higher prices for the meat and beer you consume. Wheat and corn prices could also rise if exports from Ukraine, one of the world’s largest exporters of both, are disrupted. Much of Ukraine’s grain exports go to the Middle East and Africa, however any major disruption to global supplies could have a domino effect for other nations. Car prices could also jump if Russia is unable to export nickel, used in lithium ion batteries, and palladium, used in catalytic converters. Rising costs of these goods and other others will probably push inflation, already high because of the pandemic, even higher, affecting interest rates on mortgages, car loans, and credit cards. While the economic pain you may feel as a result of the sanctions and bans pales in comparison to that currently being experienced by Ukrainian citizens, it reflects that while globalization has its benefits, it also has its drawbacks. 

Discussion Questions:

1. Russia’s invasion of Ukraine has pushed global oil prices to their highest since 2014 and it is expected that they will rise even further. Discuss the ramifications of higher oil prices for the U.S. economy and the global economy in general. What do higher oil prices mean for you personally? How, for example, could they affect prices of the goods you buy or flights you take?

2. How has Russia’s natural resource base allowed it to become a dominant player in the global economy? Even countries that don’t depend on Russian oil are likely to feel an impact from any disruption to global oil supplies. One means of moderating the rising cost of oil is to produce more. Why is it so difficult to increase production? What does this tell you about U.S. dependency (and that of other nations) on imported oil? How could a move to renewable energy change the geopolitical dynamic?

3. Discuss globalization as it relates to the current situation. How has the world benefitted from the free flows of trade that have allowed Russia to become a major exporter of oil, nickel, and palladium and Ukraine a major exporter of barley, wheat, and corn? What do potential disruptions to those trade flows mean for the global economy? Do you think you’ll experience any direct impact?

Sources| BBC: Ukraine conflict: Five ways life could get more expensive , CBS 8: How the Russia Ukraine conflict impacts gas and food prices in the US , SKY News: Ukraine Invasion More UK Sanctions on Moscow Revealed As Britons Advised Against All Travel to Russia, Image by Alexey Hulsov from Pixabay