How is Ukraine-Russia War affecting everyday life in rest of the world?
Ok, so the Ukraine-Russia war has been the most unexpected twist of 2022, and it has revealed new colours of how the world functions at the mercy of a country while the other institutions just wait and watch and share their feelings via press conferences and Twitter updates.
While Ukraine fights for its identity and survival, Russia’s move of attacking Ukraine is causing more harm to others that one can comprehend. Its decision to attack Ukraine has come with direct, visible consequences from the international fraternity like strict sanctions and indirect attempts to manipulate Putin to stop this inhumanity. Though it might seem to be a fight between two countries, it's unfortunately not.
So why do we, who are thankfully not in either of those countries, have a reason to worry?
Well, the war has just started and if there are no attempts to immediately stop this attack, here are the ripple effects that you could experience because of what's happening right now.
THE SANCTIONS THAT STARTED THE CYCLE
Russia's attack was condemned by most countries (at least on the face of it) and the first impact of this was the imposition of strong sanctions against Russian institutions, individuals and certain trades. Sanctions are basically steps or decisions taken by a country or a set of countries which impacts international exchange with another country; here being Russia. This is intended to be a stand for solidarity with Ukraine and a step against Russia's manmaani. The countries expect that their sanctions will impact Russia strongly and force them eventually to stop this attack.
Over the last few days, sanctions over Russia have kept increasing in both count and severity. US, UK, EU, Germany, Australia and Canada were among the first nations to sanction certain Russian banks, and certain close aides of Vladimir Putin. This was followed by trade bans with certain Russian regions, barring of bond issues, freezing of forex reserves, suspension of embassies and more financial and trade constraints on transactions with Russia.
As more countries join in to hold hands against Russia, tiny South Asian countries like South Korea and Singapore have also imposed sanctions similar to that of EU to ban exports, stop transactions with certain Russian banks, and freeze bank accounts. The G7 countries have also come together to hold Russia entirely responsible for this mess and offer support to Ukraine.
On February 28, even a neutral Switzerland took a U-turn and adopted EU's sanctions against Russia's severe breach of international law. Switzerland has decided to impose an entry ban against a number of individuals who are close to Putin and have a connection to Switzerland. Switzerland has also decided to close Swiss airspace to Russian flights except those that are in transit for humanitarian, diplomatic and medical reasons.
The City of Monaco too imposed similar sanctions as that of the EU.
In a tit for tat response to Western sanctions, Russia has banned flights from 36 countries from using its airspace. This move is expected to hurt airlines that fly over Russia, the world's biggest country, to get from Europe to Asia. This will also force airlines to look for different and new routes as the UK-East Asia direct flight routes are no more available (just like the Cold War days).
So, what are the airlines doing? Well, the new stopover for the London-Delhi flight is turning out to be Alaska's Anchorage Airport. At the moment, airlines are routing their flights from this airport and are busy enquiring about the capacity and available services at this airport. As Alaska's airport becomes the new stopover place for flights in 2022, FYI: the flight time and travel distance is going to increase by 45 minutes and 900 kms respectively. Expect ticket prices too to go up.
THE RIPPLE EFFECT ON THE GLOBE
The ripple effect is initially being felt across industries like cars, agriculture, banks and stock markets across the globe.
Here's breaking down what it looks like:
1. THE MOST AFFECTED ASIAN COUNTRIES
The Indian Rupee and the Philippine Peso are likely to be the most impacted Asian currencies, as per a report by Nomura. In India, RBI had mentioned that the retail inflation might range between 2-6% for the current year. But Nomura expects that the higher oil prices might breach this expected range. It also expects consumption demand to reduce and create a larger than expected fiscal deficit.
2. THE BANKING SECTOR
Since money is the primary source that allows Russia to continue its attack on Ukraine, countries are directly focussing on limiting the availability of foreign reserves and stopping international transactions to isolate Russia and its economy. This will force Russian citizens and Putin's closest sources into a cage, thus restricting them in any way possible.
Most countries like US, UK and the EU have blocked select Russian banks from SWIFT, the global financial messaging system, to isolate Russia from international transactions and stop payments. The announcement of further sanctions and the curb on use of foreign currency is definitely affecting the value of Russia's currency, the ruble, and has caused S&P to downgrade Russia's sovereign debt to the status of junk.
Meanwhile, Indian banks are awaiting orders from the government on whether they should follow the lead and stop dealing with Russian banks just like US, EU and allies have.
3. THE STOCK MARKET
On Monday, February 28, the world waited with bated breath to see the financial impact of the sanctions levied over Russia as Putin announced his nuclear armed forces to be on high alert to reciprocate against Western sanctions. The fall in ruble was obviously expected and on Monday, the markets opened to a 40% fall in price of the Russian ruble (which is about 118.6 ruble/US Dollar).
The Russian stock market also has been closed till March 5, 2022.
Russian ruble. Photo: Pixabay
In terms of Indian currency, ruble weakened and price for 1 INR changed from 0.96 ruble to 1.46 ruble in a day. Meaning if someone had to pay 0.96 Ruble in exchange for 1 Rupee, they now have to pay 1.46 Ruble for the same 1 Rupee.
Companies like Societe Generale SA and Credit Suisse Group AG have halted the finance of commodities trading from Russia as sanctions widened. The two banks and key financiers of commodity trade houses, are no longer providing the money needed to move raw materials like metals and oil from Russia.
4. FUEL PRICES
Even though India imports about 80% of its oil requirements, a tiny part of it comes from Russia. Since less than 1% of Russia's oil exports come to India, there is no immediate and direct impact in supply of fossil fuel. But the disruptions in supplies from Russia will further push the crude oil prices in the international markets, which will indirectly, severely disrupt India’s financial calculations.
Russia is one of the Top 5 crude oil exporters in the world and the world’s largest natural gas exporter. This means, Russia can control its oil and gas prices as per its convenience. In response to EU’s sanctions, Russia can reduce or entirely stop gas exports to Europe. If Europe stops buying oil and gas from Russia, it will come at a cost since Europe is used to receiving more than 40% oil from Russia and a sudden overnight change is not practically possible.
Photo: Pixabay
This has already led to a big jump in oil prices as crude oil prices crossed $100/barrel after decades. A jump in oil prices has also directly impacted the commodity trading prices in the stock market as the price of 'Futures' in Natural Gas also shot up. As per reports, every 10% rise in oil prices will drag down India’s GDP growth by 0.2% points, while Philippines and Thailand will see a hit of 0.1% points.
So, what will India do? As a short-term measure (like many other countries), India can tap into its emergency oil reserves and supply from these reserves to maintain the oil prices. India’s strategic petroleum reserves have a capacity of 5.33 million tonnnes/39 million barrels, which is a 9.5 day reserve (as per FY 20 consumption pattern).
(In November 2021, when the prices had risen, countries like US, Japan, UK and India had come together to release oil from their strategic reserves.)
If Russian oil and gas sectors are sanctioned, prices for the same across the world will go up as supply will be restricted. This is particularly disastrous for countries in the EU, which has been seeing a constant rise in gas and oil prices since the last year and has been expecting a rise in demand for the same. The end result will be taxing for the people of EU.
5. FOOD PRICES
Global food prices have surged as the Russia-Ukraine conflict threatens to disrupt the supply of wheat, corn and edible oil. The two countries account for 29% of global wheat exports, 19% of corn exports and about 80% of the world’s sunflower oil exports. (Bro, 80% technically means owning the entire sunflower oil in the world!)
Ukraine and Russia were the countries that provided the 'Breadbasket of Europe', and both countries are relied upon by Turkey and North Africa for wheat and corn. Russia is the world's largest wheat exporter and the world’s largest exporter of fertilisers.
This war could impact the prices of wheat, its production along with the price of fertilisers, which India depends on.
The Ukraine-Russia War has also led to a drastic jump in wheat and edible oil prices in the commodity market across the globe. The future prices of commodities like corn and wheat on the US stock exchange also soared on February 28, after the tougher sanctions came in.
Meanwhile, the Bombay Stock Exchange crashed by 870 points and slipped below 55,000 mark.
India is heavily dependent on Ukraine for its edible oil needs (i.e, sunflower oil) and this feud is expected to lead to an immediate surge in the oil prices. Again, rise in actual edible oil prices has also led to higher prices in the international market and in the commodity markets.
Companies over the world also worry about the supply chains that might get disrupted thanks to the rising prices and restrictions on flights and banking. As Ukraine supplies about 30% of grains to the world, any supply disruptions will shoot up costs, thus leading to losses for many companies, who may or may not pass on these costs to their customers.
Also, about 18% of India’s tea exports are shipped to Russia and Indian exporters are already facing payment issues with other consignments with Iran. Thus, receiving payments from Russia is vital and more important today, when SWIFT systems are being used to exclude Russian payments. India and Russia, therefore, are working on alternative mechanisms to continue payments as the bilateral trade between India and Russia in April 2020-March 2021 amounted to $8.1 billion and the same has continued in 2021-22.
6. MILITARY AND CARS
Remember how the car industries across the world faced a chip shortage and relevant supply chain problems because of the over-dependence on spare parts that came from China? Well, brace yourselves for this: Russia is the largest supplier of metals like aluminium and nickel that are used in cars. It is also a big manufacturer of lithium batteries. On top of that, car manufacturing giants like Volkswagen and Toyota both have their manufacturing hubs in Russia. If the automobile industry is sanctioned, factories may not be able to operate.
7. HOW ARE COMPANIES DEALING WITH THE UKRAINE-RUSSIA WAR?
A. SALE OF STAKE
British company British Petroleum has decided to take a stand against Russia's attack, by selling its 19.5% stake in a Russian oil and gas company called Rosneft, that it had held since 2013. Along with this sale, the company's CEO, Bernard Looney, and former executive Bob Dudley, have also decided to immediately resign from Rosneft's board.
B. SOCIAL MEDIA SANCTIONS
Twitter Inc had suspended all advertising in Russia and Ukraine to ensure that promotional posts don’t detract from public safety information. Twitter won’t show advertising in these markets and has also curbed tweet recommendations that appear in users’ timelines from accounts that they don’t already follow. This is to limit the spread of misleading and abusive content.
Meta is also fact-checking and labelling posts from Russian state-owned media organisations, which is leading the Russian government to partially limit Facebook in its country.
8. WHAT ARE THE PEOPLE/COUNTRIES DOING?
A. FINLAND WON'T DO THIS ANYMORE
B. TURKEY JOINS IN
Some Russian warships and a submarine crossed through Turkey's straits to enter the Black Sea, to attack Ukraine's southern coast. But Turkey initially did not pay as much attention as it should have. Before February 27, they had considered Russia's attacks to be equivalent of just a ''couple of strikes''. But as Russia's strikes evolved to a full war, Turkey decided to invoke the Montreux Convention and changed its stance. It pledged to implement parts of an international pact that would potentially limit more Russian warships from transiting from the Mediterranean to the Black Sea.
C. THE PUBLIC TAKES REVENGE
Many countries like the US, UK and Ukraine have taken to damaging and shelfing Russian Vodka off the stores as a way to support Ukraine.
As is visible in US cities too.
D. MEANWHILE UKRAINIANS LEARN HOW TO MAKE & ATTACK WITH MOLOTOV
Ukrainian civilians who learned how to make Molotov Cocktails are now a big problem for Russia.
Ukrainians are learning and executing very quickly.
E. MEANWHILE THE CRYPTO COMMUNITY POURS IN SUPPORT FOR UKRAINE