Russia’s 2022 War Against Ukraine: Global Economic Effects
May 12, 2022
Russia’s 2022 War Against Ukraine: Global Economic Effects
The Russian Federation’s (Russia) renewed invasion of
The effects of the war on the global economy are varied and
Ukraine in February 2022, and the increasing number of
complex and involve several factors. These include lives
international sanctions that followed, have heightened
lost; mass displacement of people; disruptions to financial
congressional interest in understanding the implications of
and business linkages; destruction of infrastructure; factory
these developments for the U.S. and global economy. The
stoppages; shipping container shortages and blocked or
war, which has already led to economic, security and
disrupted transportation routes; market volatility; and the
humanitarian crises in the region, is causing wide-ranging
potential fragmentation of international financial and trade
spillover effects globally and is likely to hamper national
systems, as geopolitical considerations reduce global
economic recoveries from the COVID-19 pandemic. The
economic interdependence. Overall, these factors could
overall impact will ultimately depend on the duration and
potentially derail the post-pandemic global economic
fallout of the war and sanctions, and on policy responses.
recovery and complicate matters for policymakers through
The trade disruptions, inflationary pressures, and security
two principal channels: (1) disruptions to international trade
concerns have started to weigh on consumer and investor
and supply chains, and (2) changes to commodity prices
sentiment, reduce real incomes, and depress global demand
and related inflationary pressures.
for imports. If prolonged, the war could lead to a more
widespread regional—and potentially global—economic
International Trade and Supply Chains
recession and increase the risk of social unrest in both
Major disruptions to international trade and supply chains
advanced and emerging economies. Members of Congress
pose a risk to the global economy. While the direct impact
may monitor the situation and help inform potential U.S.
of the war might be relatively limited, its indirect impact on
economic policy responses.
the sourcing and movement of goods and services around
the world could be significant. To date, a number of war-
Overview
related events have disrupted supply chains or have raised
Russia’s war against Ukraine is having ripple effects across
the possibility of disruptions in the near term. These include
the globe and poses risks and challenges to the global
a wide range of sanctions on Russia and enhanced export
economy that compound pre-existing ones created or
controls, plant stoppages, and restricted rail and sea transit
exacerbated by the pandemic. Global trade tensions and,
routes across Europe and Asia. In addition, Russia has
more recently, a surge in COVID-19 cases in China that has
banned the export of certain manufactured goods, timber,
entire cities back in lockdown also add to global economic
and food grains. It also has reportedly considered, among
instability. Disruptions, and the potential risk that they
other things, restricting certain hydrocarbon and mineral
could worsen, come at the same time that global supply
exports and nationalizing the assets of foreign-based firms
chains are already under stress. In 2021, there was a surge
that suspend or stop operations and leave assets behind.
in demand for physical goods that resulted from economic
stimulus programs and a sharp shift in spending from
Shipping Constraints
services to consumer durables, while supplies remained
Major shippers, concerned about violating international sanctions
restricted by pandemic-induced constraints on production
or the safety of their crews, have halted or curtailed many of their
and transportation. Russia’s invasion and subsequent
services to and from Russia. The United States, United Kingdom
sanctions immediately placed additional strains on supply
(UK), and European Union (EU) have banned Russian-flagged ships
chains, and ensuing developments are likely to exacerbate
from entering their ports (with some exceptions, including for
energy-related cargos). Meanwhile, sanctions have taken much-
supply-demand imbalances in the global economy.
needed capacity out of the global air cargo market and significantly
increased cargo rates. Russia has closed its airspace to airplanes
While projections of the economic impact are based on
owned, registered, or controlled by more than 30 countries in
limited data and certain assumptions, many analysts agree
retaliation for sanctions. As a result, cargo carriers now have to
that the war will result in a near-term reduction in global
divert flights while also avoiding warzone areas. Some suppliers will
economic growth. According to preliminary estimates by
need to use slower or more expensive modes of transportation.
the World Bank, the Ukrainian and Russian economies
The shipping industry, which plays a major role in international
could contract in 2022 by 45% and 11%, respectively.
trade and global supply chains, was facing a shortage of vessels and
While Russia and Ukraine’s shares of the global economy
containers when international sanctions drove up crude oil prices,
which further increased shipping costs. The situation is
are relatively small, the Organisation for Economic
exacerbated by a shortfall in shipping crews due to the war. Some
Cooperation and Development (OECD) and World Trade
analysts expect the surge in container rates and insurance costs to
Organization (WTO) project that the war could reduce
continue to drive up freight costs worldwide.
global economic growth by 0.7 to 1.3 percentage points
(p.p.), push up prices globally by about 2.5 p.p., and slow
Public backlash abroad against U.S. and multinational firms
global trade growth by up to 2.3 p.p. The economic impact
operating in Russia, as well as concerns about staff safety
is expected to be more severe and lasting in Europe than in
and potential sanctions violations, have already led many
the United States.
foreign firms to exit the Russian market or cut ties with
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Russia’s 2022 War Against Ukraine: Global Economic Effects
Russia altogether, thereby further upending some global
natural gas to Poland and Bulgaria. If Russia were to
business operations and supply chains. These actions may
impose new retaliatory countermeasures, particularly on
result in profit and asset losses, as well as foregone export
energy exports to Europe, or if the war in Ukraine severely
and investment opportunities, for businesses and workers
disrupts or damages gas transmission systems, an acute
around the world.
energy shortage is possible in Europe—one that could
potentially lead to a severe global economic slowdown
The war’s impact on global trade has been most severe in
amid a spike in global oil and gas prices. Higher global
the Black Sea region, where Russian and Ukrainian ports
commodity prices, if sustained or exacerbated, may cause
are major hubs for grains destined for the EU, Africa, and
accelerated and prolonged inflation in many countries.
Asia. Some analysts have warned of shortages of—and
Further price surges could increase hunger and food
price increases for—substitutes of certain grains and other
insecurity for some people, particularly across import-
food inputs not produced in Ukraine or Russia, as other
reliant countries in the Middle East and Africa (e.g., Egypt,
countries try to fill the gap in imports.
Lebanon, Libya, and Yemen). These developments could
Commodity Prices and Inflation
also risk exacerbating political turmoil and creating
migration crises in these regions.
In the immediate aftermath of Russia’s invasion of Ukraine,
the prices of crude oil, natural gas, fertilizers, and key
Outlook and Issues for Congress
minerals and commodities, including rare-earths and grains,
The global economic impact of Russia’s war against
increased sharply. Russia and Ukraine together account for
Ukraine is likely to be uneven across sectors and regions,
a significant share of global wheat, corn, and sunflower oil
and subject to considerable uncertainty. Countries that have
exports, and they are major suppliers to markets in Europe
close economic ties with Russia are at greater risk of supply
and the Middle East. In addition, a number of industries
disruptions, and companies that are highly exposed to the
around the world depend on Russian and Ukrainian inputs
Russian economy or dependent on certain Russian inputs
for which there are limited alternative sources of supply,
will be affected the most. In addition, if the crisis has a
including neon (for semiconductors), palladium (catalytic
significant negative impact on European economies, many
converters), nickel (EV batteries), and titanium (aerospace).
of which are highly dependent on Russia for energy,
Russia and Belarus, also affected by many sanctions due to
minerals, and agricultural commodities, this could have
its support of Russia, are two of the world’s largest potash
potentially serious knock-on effects on the economies of
producers, a key ingredient in agricultural fertilizers. Global
major European trading partners, including the United
fertilizer prices had already soared to multi-year highs in
States and China. Major commodity-producing countries,
2021, following a surge in natural gas and coal prices and
however, may see export earnings rise. The crisis also has
export restrictions by a number of potash-producing
the potential to further disrupt and undermine China’s
countries. The war-induced disruptions in fertilizer
efforts to reshape global trade and solidify its centrality in
manufacturing will likely drive up prices further and put
global supply chains—particularly through One Belt One
next year’s agricultural supplies under stress by reducing
Road—with trade and investment implications for Europe,
crop yields and output quality.
Asia, and, to a lesser extent, North America.
Growth, Inflation, and Policy Challenges
The ongoing war, like the COVID-19 pandemic, has
The war and the sanctions could hamper global economic growth
accelerated and magnified existing problems in global
for some time amid rising inflation and heightened uncertainty.
supply chains and emphasized the interconnected nature of
Weaker growth, however, could imply less inflationary pressures.
the global economy. For many, the war further highlights
At the same time, higher prices may induce more production,
which would eventually help relieve upward price pressures.
the importance of improving the resilience of domestic and
Ultimately, while there will likely be an elevated level of inflationary
global supply chains and potentially limiting trade
pressure worldwide, its impact will vary. In particular, it will depend
dependencies on certain countries. This new emphasis
on individual countries’ trade dependencies and overall
presents the United States and its allies with questions
macroeconomic and fiscal conditions. Prior to Russia’s invasion,
about the manner and extent to which government policy
major central banks were expected to tighten monetary policy to
can and should alter existing production and supplier
contain inflation, which had already been hovering at decades’ high
arrangements. In particular, Congress could consider the
levels in many countries. However, raising interest rates at this time
could further exacerbate rising manufacturing and production
costs and benefits of adopting policies that attempt to
costs. The uncertainty around economic recovery and higher
reallocate resources within the economy toward developing
prices could limit monetary policy options and ultimately slow or
domestic production of goods currently being imported
delay central banks’ plans to further hike rates. Relatedly, growing
from Russia and Belarus. Another option for Congress
debt burdens via higher defense, social, and humanitarian spending
would be to reinforce U.S. support for global trade
could add to the risk of fiscal crises in some countries.
arrangements and agreements with like-minded trading
partners, while also encouraging “reshoring” and “friend-
With some exceptions, much of the recent price volatility
shoring,” and utilizing a greater diversity of foreign
reflects concerns about potential risks and is not the result
suppliers to increase resilience.
of major current disruptions to supply or broad sanctions on
trade. Investors worry that the conflict could result in
See also CRS Report R47054, Russia’s 2022 Invasion of
additional disruptive trade measures globally, including a
Ukraine: Related CRS Products.
reduction or total ban on the purchase of Russian oil (and
Andres B. Schwarzenberg, Analyst in International Trade
possibly natural gas) by Europe, or a possible decision by
the Russian government to halt or further curtail exports of
and Finance
key commodities. Russia has suspended the delivery of
IF12104
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Russia’s 2022 War Against Ukraine: Global Economic Effects
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https://crsreports.congress.gov | IF12104 · VERSION 1 · NEW