As Russia’s invasion of Ukraine grinds on, and Western leaders weigh their options and calibrate their responses, it’s obvious the impact of this war is global. Here’s a look at how this shock is shifting the tectonic plates of economics and politics around the world.
Middle East and North Africa
There was a moment when it appeared Russia’s war might sink the multinational effort to negotiate a return to the Iran nuclear deal. Russia—a party to the bargaining along with the U.S., Britain, France, Germany and China—was demanding a side deal to protect its commercial ties with Iran that would have violated sanctions against Russia following the Ukraine invasion. That issue appears to have been resolved, whether or not it happens…we’ll wait and see.
More broadly, one of the war’s main implications for the Middle East comes from global oil prices that have reached heights we haven’t seen in nearly a decade. Saudi Arabia and the UAE now enjoy big budget surpluses. Europe’s determination to relieve its dependence for natural gas on Russia also promises big potential long-term gains for major gas exporters Qatar and Algeria.
But those countries in the region that aren’t big energy producers, particularly those that import nearly all their food, now face real dangers. Russia and Ukraine together account for a quarter of world wheat exports and a fifth of corn sales. In recent years, nearly half of Ukraine’s wheat exports have gone to North Africa and the Middle East, where many governments subsidize food purchases for millions of their citizens. The interruption of so much of the world’s wheat supply, and Ukraine’s inability to plant crops for next year, sharply raises the cost of these subsidies for governments already reeling from the costs of COVID-19. This is a region where higher food costs have often triggered violent social unrest.
The major economy most at risk is Egypt, home to more than 100 million people and the region’s biggest wheat buyer. In recent years, Egypt has imported half its wheat from Russia and 30 percent from Ukraine. Its government has reserves that could last up to five months, but the war in Ukraine shows no signs of abating. Adding to the hit, Russian and Ukrainian visitors are a crucial part of Egypt’s lucrative tourism sector, adding to the risk that Egypt will be one of the war’s biggest losers.
The war in Ukraine also poses problems for India, which will become the world’s most populous country in the next five years, according to the U.N. India’s economic growth remains strong, but price inflation, especially for food, is now surging and could become a major economic and political headache. In general, India’s trade relations with Russia are limited, but Russia and Belarus, which has been targeted for Western sanctions for allowing Moscow to use its territory as an invasion launchpad, are the world’s leading exporters of fertilizer. All of India’s potash, a key fertilizer ingredient, comes from imports from Russia and Belarus. Both shortfalls and higher global prices will raise costs for India’s government, its farmers, and its consumers.
Read More: A Realistic Plan for Peace in Ukraine
Russia’s war in Ukraine also complicates India’s increasingly ambitious foreign policy. Since India won independence in 1947, its government has protected its good relations with Moscow. Though his government remained officially committed to “non-alignment” during the Cold War, Jawaharlal Nehru, a committed socialist, had warm relations with Soviet leaders. His daughter, Prime Minister Indira Gandhi, liked to brag that she was born in the year of the Bolshevik Revolution. Even today, India’s defense ties with Russia run deep: Russia is India’s leading supplier of arms, by far.
But to gain long-term advantage over rival China, Prime Minister Narendra Modi has also worked hard to build much better defense ties with the U.S. In particular, he has made the Quadrilateral Security Dialogue—a defense partnership with the U.S., Japan, and Australia known popularly as the Quad—a centerpiece of India’s security policy. India is still hoping to complete its purchase of a Russian missile defense system over loud objections from Washington, particularly since an earlier bid to buy a U.S. system failed. This deal highlights the complications in balancing ties with Moscow and Washington, and Russia’s invasion of Ukraine has made that dance much more awkward.
Even in South America, thousands of miles from the violence in Ukraine, the war’s impact can be felt. This region is home to some of the world’s leading commodity exporters, and many governments across the region are now benefitting from higher prices for agricultural products, oil, and metals. The government of Nicolas Maduro in OPEC member Venezuela, in particular, will benefit from the Biden administration’s desire to cut off Russian oil prices while managing election-year energy costs in the U.S. And countries in South America trade far less with Russia and Ukraine than do countries in Europe, the Middle East, Asia and Africa. (Fertilizer is an important exception.)
But the second-order effects of lower global economic growth and higher inflation in other areas will create economic, and therefore political, challenges for the region. South America took one of the toughest economic hits from COVID-19, which stunted economic growth, killed jobs, stoked inflation for both governments and consumers, and widened income inequality in countries where it was already distorting national politics. Even if higher export earnings, created by the supply shocks that Russia’s invasion of Ukraine will exacerbate, helps governments rebalance their books, consumers will still pay more for food and fuel.
There are direct implications for a number of countries in various stages of political transition. In Brazil and Colombia, an inflation shock for consumers will boost the already high odds that leftist opposition candidates while unseat conservative incumbents in elections later this year. In Chile, newly inaugurated President Gabriel Boric will find that a tightened economy shortens any political honeymoon he might have add and undermines his ability to keep campaign promises for higher government spending. In Peru, public anger over a price shock for consumers will badly damage the already deeply unpopular government of President Pedro Castillo and could accelerate a bid by opposition lawmakers to remove him from office.
The bottom-line: Vladimir Putin shows no signs that he’s willing to compromise with Ukraine’s government and to end the war. The longer this conflict continues, the greater its global aftershocks.
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