The Russia-Ukraine conflict's economic impact is being felt by the citizens of this country. This is even though the conflict is happening a long way away from the shores of the United States. Most of the families in the nation will feel the economic consequences of any type of major conflict. The Russia-Ukraine conflict economic impact will be felt worldwide because the financial markets and the global economy are interconnected. As recently seen with the global pandemic, any events on one side of the globe can set off a chain of events on the other side. At the present moment, any invasion by Russia in Ukraine will be a cause of increase for the already-high cost of living in the entire nation. The Russia-Ukraine conflict's economic impact can slow the recovery of the country's economy and shake up several investment portfolios.
Many experts believe that the average household in the country will bear the overall burden of Russia's invasion of Ukraine. There are hopes that there might still be no invasion, and de-escalation may happen anytime soon. If not, there are several other ways the people of this country could get themselves entangled in the midst of this major conflict.
Russia-Ukraine Conflict Economic Impact: More pain at the pump
The cost of oil has increased a lot in the previous weeks to levels not experienced in the past eight years. This is because any invasion of Ukraine by Russia could result in the disruption of the energy supply by the latter. The country is an energy superpower. Last year itself, it produced nearly ten million barrels of oil per day. This is only behind the United States of America and is more than the combined production of Canada and Iraq. The gas supply is already failing to keep up with the overall demand. Investors are on very high alert for any more shortfalls in supply through various methods. This includes the country's weaponizing exports, more sanctions on the country, and infrastructure that is damaged in any probable war. Experts have said that if the oil flows from Russia are disrupted in any way by the conflict, the oil costs could see an increase to more than $110 per barrel. In the unlikely event that the oil exports from the country are reduced to half, crude oil prices would skyrocket to $140 per barrel.
A huge increase in oil costs could be offset at least by a little by the countries, who are the primary consumers, releasing emergency stockpiles, and the OPEC countries drastically increasing the production. But, another increase in the cost of oil would also increase the costs of fuel at the gas stations, which presently lag behind the movement of the crude oil costs. The average cost for a gallon of gas across the nation is already at a high of more than six years at nearly four dollars per gallon. The oil prices have already decreased a lot in the anticipation that both countries will take a step back from any future war.
Russia-Ukraine Conflict Economic Impact: Historic Inflation
Inflation is the top issue in the United States at present. The conflict could make inflation more than it is right now. Even if gas prices remained at about a hundred dollars per barrel in an increase of tension, the inflation rate could go over nine percent from the current seven percent. The inflation rate has not touched that mark in the nation in the past forty years. The cost of gas at the petrol pump will increase. But the higher natural gas and oil costs would lead to a massive increase in electricity and heating prices. The elevated costs in energy could make it much pricier to fly. It will keep the input and transportation costs high for organizations that are already fighting to increase their expenditures.
Beyond energy, other commodities could see an increase in the volatility of prices. Russia is one of the main metal producers globally, including palladium and aluminum. The country is also the largest exporter of wheat. Ukraine is also a big exporter of corn and wheat. According to prominent experts, the entire conflict between Russia and Ukraine is happening when the supplies of commodities are more stressed than they have been in the past century. The pressures in inflation would be an even bigger risk for the Europeans. This is because of their proximity to the conflict and their overall reliance on the energy supplies from Russia.
So, What About The Market Turbulence?
Most investors worldwide have been kept bound by the latest developments that keep on happening daily on the conflict between Ukraine and Russia. There have been some signals of recent escalations that have scared the financial markets. There have been various comments that suggest that a full-blown war might be avoided. This has set off many relief rallies. No investor in the financial markets enjoys uncertainty. It is quite simple to see how any full-blown war between Russia and Ukraine could result in a knee-jerk reaction in the financial markets. The investors could start selling off stocks to counter the possibilities of a consuming sanctions regime, higher inflation, or any type of shock in oil prices. Any downturn in the financial markets for a prolonged period has the power to wipe out the wealth that has been built up by families in the markets and in their respective retirement accounts.
The instability in the financial markets has the power to dent the confidence of organizations and consumers. The financial markets do have a history of getting back strongly from various scares in the geopolitical arena. But the sample size is quite small. It is also difficult to predict how the financial markets will respond in the current environment when businesses across the world have been impacted by the global pandemic.
A Slower Economic Growth Expected
Any future war can slow the economy of the United States by boosting the overall unstability and growing the already high inflation even further. Any major jump in the prices of oil could impact the GDP of the United States by a good margin. It will not be as dramatic as the impact it is going to have on the inflation in the nation. But it is still quite important because the nation's economy has not recovered completely from all the jobs lost during the global pandemic. Suppose the inflation goes well out of control. In that case, the Federal Reserve will come under severe pressure from all quarters to increase its fight to get the prices under immediate control. This can mean hikes in the interest rates at a rapid speed to control inflation. The upcoming hikes in the interest rates from the Federal Reserve will lead to an increase in the borrowing costs for the users on all items ranging from credit cards, car loans, and mortgages.
The rates of mortgages have already increased to the levels found before the coronavirus pandemic. This gives a new challenge to the new home buyers on the market. US president Joe Biden has said that there could be a chance for Russia to initiate the conflict through various cyber attacks on Ukraine. Biden said, "If Russia attacks the United States or allies through asymmetric means, like disruptive cyberattacks against our companies or critical infrastructure, we're prepared to respond."
The Russia-Ukraine conflict's economic impact can cause some major impacts on the financial and economic scenario of the United States of America and Europe. The planning and timing of this conflict by the President of Russia are a coincidence. Russia is flush with oil money right now. The European continent has been weakened by the global economic forces and the coronavirus pandemic. It is not easy to find out what is going to happen next in this conflict. But there will certainly be economic repercussions in the short period also.