The End of the World (Economy): Consequences of the Russia/Ukraine Conflict
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ELIZABETH JOHNSON: After WW2, it was widely accepted that the key to international peace and security was the adoption of similar governmental structures and economic codependence. The Cold War and the fall of the Soviet Union solidified that structure to be constitutional democracies engaging in the ongoing pursuit of free trade via shared currencies, minimal tariffs, and reducing sanctions. Tying countries together economically intended to construct a system for automatic and discretionary consequences for aggressive action. However, through the decades of relative international peace we have yet to see a successful, full-scale test of this ideology. Russia’s war on Ukraine highlights the failures of economically bonded world peace.
President Putin’s invasion of Ukraine sparked international retaliation in the form of sanctions varying from export bans and limitations to asset freezes and seizures. Though most of these sanctions burden specific Russian oligarchs and banks, they also have significant consequences for the global citizenry. Oil sanctions have caused a continuous rise in gas prices. Countries like the United States are beginning to tap into reserves to combat these effects, but not every nation has access to these resources. Germany and Hungary’s heavy dependence on Russian oil makes them unable to participate in, comply with, or encourage these types of restrictions. These two nations will not engage in popular actions that contest Russian aggression.
The purpose of the sanctions is to spiral a state’s economy to discourage their aggressive behavior. But that is not what is happening. Russia’s economy has stabilized over the past few weeks despite sanctions placed on their major exports. The government has steadied their banking system and returned the value of the ruble to its pre-war status. Though many argue the war is not going as Russia has planned, the international economic response has not had a major effect on stopping the invasion. Instead, it raises concerns about the validity of economically reliant peace.
The war also tests international trade in food and agriculture. Ukraine is a world leader in grain and vegetable oil exports. During the invasion, Russia cut off access to Black Sea port which was Ukraine’s primary export route. Though they have made arrangements to substitute sea with rail transportation, there is no guarantee how long these rail lines will remain intact. And wheat prices are already rising. There is no question about the necessity of trade to combat food insecurity. But again, because of the international economy (and pre-existing supply chain issues), an ongoing conflict between two states has the potential to harm millions.
As the conflict continues—and hopefully ceases soon—questions arise about residual damage to the free trade movement. Russia’s commitment to self-reliance after their invasion of Crimea in 2014 resulted in their current economic resilience against waves of sanctions. It is possible that other countries will follow suit and cause another international isolationist movement, testing the post-Cold War economic world order.
Elizabeth Johnson is a graduate student at the McCourt School of Public Policy pursuing her master’s degree in Public Policy.