Russian President Vladimir Putin’s recognition this week of the independence of Ukraine’s Donetsk and Luhansk regions is “the “beginning of a Russian invasion of Ukraine,” President Joe Biden said Tuesday. Both of the separatist areas, located in eastern Ukraine at the Russian border, are backed by the Kremlin.
“This is a clear violation of international law and demands a firm response from the international community,” Biden told reporters at the White House.
The growing threat of war has obvious political ramifications in Europe and around the world. But it could also further strain a global economy already weakened by inflation, rising energy prices, a constrained supply chain and the ongoing pandemic.
“There’s definitely going to be an economic impact, and you’re absolutely right to say that gas prices are going to go up,” William Muck, a political scientist at Illinois’ North Central College, told NBC News. “The global economy as a whole is gonna have a hiccup.”
If war breaks out, Muck added, “it’s gonna hit all of our pocketbooks.”
Here’s how Russia’s incursion into Ukraine could affect life for Americans and others around the world. For more, learn about Russian cyberattacks against Ukraine, which have already impacted the nation’s banks and military.
Expect gas and oil prices to rise
Russia is one of the world’s largest producers of crude oil and natural gas, providing roughly 40% of the European Union’s gas. Sanctions from the West could affect access to that supply, especially with Germany putting a halt to the Nord Stream 2 pipeline that was intended to bring natural gas from Russia to the EU via the Baltic Sea.
The cost of oil has already climbed toward $100 a barrel just on the prospect of war: Brent crude prices rose to $99.50 a barrel on Tuesday on the ICE Futures Europe exchange, a seven-year high. On Wednesday it sits at $98.29.
Some analysts predict that if Russia moves forward with plans to invade Ukraine the price could go as high as $150 a barrel. If that happens, Americans could be shelling out up to $7 a gallon at the gas station, energy analyst Dan Dicker, founder of Energy Word, told Yahoo Finance.
Even at $100 a barrel, Dicker said, the price at a US gas station would average $5 a gallon.
But Biden said Tuesday he is developing a strategy to “blunt gas prices” in the face of the Russian incursion.
“We’re closely monitoring energy supply for any disruption, and we’re executing a plan … toward a collective investment to secure stability in global energy supplies,” he said in his televised address, according to the Associated Press. “I want to limit the pain the American people are feeling at the gas pump.”
Russia is also the largest exporter of palladium — a metal used in automotive exhaust systems, fuel cells, mobile phones and even jewelry and dentistry. Rising prices of palladium and other essential metals, like aluminum and nickel, could kick off another supply chain crunch.
“We could see a new burst of inflation,” the American Enterprise Institute’s Christopher Miller told The New York Times.
Stock market volatility
The US stock market was closed Monday for Presidents Day, but on Tuesday, as tensions rose at the Ukraine border, the market took a sharp dip. The Dow Jones Industrial Average dropped about 500 points on Tuesday, while the Nasdaq Composite slipped over 1.2% and the S&P 500 fell 1%.
Asian markets tumbled as well, with Hong Kong’s Hang Seng dropping more than 3% Tuesday morning over concern about a possible Russia-Ukraine war. On Wednesday, it recovered slightly, up 0.6%. China’s Shanghai Composite Index and the smaller Shenzhen Composite Index both fell slightly Tuesday before bouncing back Wednesday.
“The Russia-Ukraine situation remains very fluid, and tensions remain high, and in the short term that will remain a headwind on stocks,” Tom Essaye, founder of the Sevens Report, told CNBC.
In Russia, the Moex index seesawed Tuesday, ending trading 1.6% higher, after falling more than 9% earlier in the day and as much as 14% on Monday. This week has represented the most volatile period in the Russian market since Moscow seized Crimea eight years ago, the Financial Times reported.
“Markets are waking up to the reality today that this is the biggest threat to European security since World War II,” emerging-markets strategist Tim Ash told the FT. “I think a lot of foreign investors were still long on Russian assets, and it seemed like the locals overwhelmingly didn’t think an invasion was going to happen.”
The Treasury Department and Homeland Security have both sounded the alarm over possible cyberattacks on US banks, hospitals, government offices and power grids in retaliation for the US’ standing against Moscow, The Washington Post reported.
Katerina Sedova, a researcher at Georgetown University’s Center for Security and Emerging Technology, told NPR she’s more concerned about misinformation and influence campaigns intended to “sow discord between us and our allies.”
Rising food prices
Inflation is already hitting American and European wallets, and the dent could get bigger with the Russian invasion.
Ukraine, considered the “breadbasket of Europe,” is one of the top five corn exporters in the world, trading some 35.9 million metric tons in 2019 alone. An extended open conflict would likely see prices go up in Europe, not just for corn itself but also for related goods, including cooking oil, corn syrup and livestock feed.
Soybean prices have also surged in the US in recent months, following an unusually poor crop in South America. If US farmers have to make up the difference in both corn and soybeans — which compete for land — prices for both crops will likely rise here, as will the cost of packaged goods made with them.
Russia is the world’s largest exporter of wheat, a crop that Ukraine exports as well, commodities economist Arlan Suderman told MarketWatch. Together the two nations account for nearly a third (29%) of the global wheat trade.
“A prolonged military conflict that disrupts trade could make much of that wheat unavailable to the export market,” Suderman said.
The US doesn’t rely on Russian wheat — Egypt, Turkey and Bangladesh are the biggest importers — but the trade disruption could affect global prices on flour, pasta, bread and other wheat products.
The impact would likely be immediate, Suderman added, given the production and shipping strains already inflicted on the market from the pandemic.
The escalating conflict has all but shut down travel from the US to both Russia and Ukraine: On Feb. 10, the US Embassy in Kyiv issued a travel advisory warning Americans not to travel to Ukraine “due to the increased threats of Russian military action and COVID-19.”
Those in Ukraine should depart immediately via commercial or private means, the embassy said.
“U.S. citizens in Ukraine should be aware that the U.S. government will not be able to evacuate U.S. citizens in the event of Russian military action anywhere in Ukraine,” it added. “Military action may commence at any time and without warning and would also severely impact the U.S. Embassy’s ability to provide consular services, including assistance to U.S. citizens in departing Ukraine.”
In late January, the State Department issued a Level 4 advisory against Americans traveling to Russia, due to the tensions at the Ukraine border, along with the potential for harassment against US citizens, the embassy’s limited ability to assist American citizens, terrorism, COVID-19, harassment by Russian government security officials “and the arbitrary enforcement of local law.”