Ukraine, Russia and the international economy

The first thing that must be taken into account is that approximately 80% of the Russian economy is based on energy and this energy is demand mainly for the EU (Germany is its largest customer for gas), the US, Korea and Japan that supposeSomething more than 90% of its exports.Thus, Russia provides us with more than 25% of our gas needs and does so fundamentally through Ukraine, that is, through gas pipelines that cross this country.In addition, it is the first wheat exporter, according to FAO.Meanwhile, Ukraine is the ninth world producer of wheat, fifth of corn, eighth cotton and the second barley exporter.It is also the tenth producer of world coal (International Energy Agency), and has iron reserves, magnesium, nickel or mercury.So we would be talking about a conflict between two key countries for energy and food worldwide.When Russia invades Crimea in 2014, the EU tried to divert part of its gas energy purchases from countries in the Middle East, applying, together with the USA or Canada, economic sanctions to Russia, such as the limitation of financing some of its companiesand banks in EU capital markets, the impossibility of exporting weapons to these countries or importing some technology.Analysts estimate that these sanctions have cost Russia between 3.000 and 10.000 million dollars a year, together with the depreciation of the ruble.In addition, Russia reacted limiting food imports, something that has resulted in greater inflation and poverty, without relevant affecting international trade.

However, anyone knows that the economic consequences of a Russian invasion to Ukraine would transcend both the two countries and to the effects of Crimea's invasion, and would have important consequences for the world economy.The first reaction has not been expected and there has been a fall in the bags internationally (also of cryptocurrencies).This market has been attentive to the decisions of the Federal Reserve and the European Central Bank on potential increases of interest rates to counteract inflation, but now they must discourage the potential war conflict in advance.These falls have been moderated for now, since this has not been completely discounted as there is hope of an agreement, but, if the conflict begins, the stock market would drastically fall as the forecasts of economic growth and revalue the dollar against the dollar against euro.This would occur largely due to the increase in energy in the EU.Our energy mix depends on gas, whose prices have been at maximum, and although other suppliers will be sought, without a doubt the price would remain raised even until 2024, some experts sponsor.Likewise, the price of primary crops such as wheat, corn, barley, etc.., it has already been affected, going up.Like, which has also increased the price of other ‘commodities’ as gold and copper.

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— NewsEverything Wed Nov 18 20:17:45 +0000 2020

** Financial Economics Professor at the University of Córdoba