The impact of the Russia-Ukraine conflict on world trade

Abstract

Following on from the Covid global pandemic, the world shared a common hope that international trade would soon get back on track. However, the events of February 2022 created a new reality as the Russian-Ukrainian war impacted on all the aspects of world trade. It is now predicted that world trade will decrease by 1%, which may significantly deepen the impending recession. This article is an attempt at answering the question about the effect that the Russian/Ukranian war has on world trade. The changes that have occurred in the global coal, oil, gas and grain markets are enormous. The war has disrupted global and in particular European supply chains and Russia which was one of the main suppliers of coal to Europe before the introduction of embargos has meant that the countries of the European Union must now find new sources of supply for these essentials .,Some countries, such as Germany, have, in retrospect, made strategic mistakes by closing some of their coal fired nuclear power plants and now they have to reopen these power plants, which will in turn increase their demand for coal. In addition, most Western European countries have closed their coal mines, which means that they too are now forced to import coal and while coal producers will be able to increase production it will certainly not happen before the winter of 2022 which will clearly make things hard for most European citizens . Additionally, over 50% of gas imported to the EU comes from Russia which can cut supplies off at any moment and Europe is caught in a bind of its own making and does not know how to get out of this clinch. Russia has already cut off gas to some countries, such as Bulgaria, Poland, Lithuania, the Netherlands, Denmark, Latvia and Finland demonstrating the vulnerability of the dependent nations on their main source of supply. Moreover, European countries must find new sources of oil and petroleum-based products because starting at the end of December 2022 there will be an additional embargo imposed on the import of these products from Russia. The war has also disrupted the global grain market because Ukraine is one of largest grain producers in the world. Is Europe in danger of going hungry? Maybe not, but such a disruption to the supply chain can have a devastating effect on Africa. A famine in Africa may destabilize local governments and cause a new wave of immigrants into Europe. Additionally, if there is a real recession combined with high inflation and an increase in unemployment in Europe, the public mood may become radicalized, and it can thus affect the policy of the European Union. Of course, nobody knows for sure what the future will bring. Three years ago, no one thought about a pandemic and hardly anyone thought that Russia would attack Ukraine in 2022. In the face of these changes and many other unknowns, it is difficult to unequivocally predict how these events will affect the world trade of goods.