Analysis of Sansad TV Discussion: Worldwide Implications of Russia’s Invasion of Ukraine

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”Analysis of Sansad TV Discussion: Worldwide Implications of Russia’s Invasion of Ukraine”

Introduction

• As Russian President Putin announced a military operation in Ukraine.
• The US and several western nations have imposed stringent new sanctions on Russia.
• It is clear that this conflict will have huge implications for European security, the United States, NATO, the European Union, the global economy and India.
• Oil briefly climbed past $100 a barrel for the first time since 2014, while European natural gas jumped as much as 62%.

How west is targetting Russia’s economy?

• The EU and UK have imposed personal sanctions on President Putin and Foreign Minister Sergei Lavrov.
• The EU also wants to restrict Russian access to capital markets and cut off its industry from the latest technology and defence.
• Germany has halted approval on Russia’s Nord Stream 2 gas pipeline, a major investment by both Russia and European companies.
• The US is targeting 10 of Russia’s biggest financial institutions, with about 80% of its banking assets, so they will struggle to do transactions in dollars or euros.
• The UK says all major Russian banks would have their assets frozen, with 100 individuals and entities targeted; and Russia’s national airline Aeroflot will also be banned from landing in the UK.

New Geopolitical Order

• We are now back in a kind of confrontation of blocs, only the borders of the Western bloc have shifted eastward compared to the time of the Cold War.
• Peace in Europe is a thing of the past, and trust in Russia has been completely destroyed.
• This is likely to mean that European countries will once again, as in the Cold War, become more and more dependent on the United States to guarantee defence, and the borders to Russia’s sphere of influence will become militarized.
• There is also a danger that Russia’s provocation of the international order could also have a destabilising effect on other parts of the world where crisis regions are being held together by fragile agreements and guarantees from other powers.

Impact on Indian Economy

• A sustained rise in oil and food prices would have adverse impacts on India’s economy, manifested through higher inflation, weaker current account and fiscal balances, and a squeeze on economic growth.
• Every 10 per cent rise in crude oil price, will shave off around 0.2 percentage point (pp) from the country’s GDP growth and widen the current account by 0.3 per cent.
• It could add to growth uncertainties, as the country navigates an uneven recovery, and counters near-term tailwinds like higher public capex, services normalisation and easy financial conditions.
• The recent crude oil spike could result in Rs 6-8/liter hike in auto fuels, once the state elections get over in early March.
• These hikes would add about 30-40bps to the CPI.
• While India’s exports to Russia could continue largely uninterrupted despite US sanctions, potential sanctions from the UN could have a much more significant impact on exports to the region.

Impact on Global Economy

• Western nations are caught between the desire for harsh sanctions to deter Putin, and concern that they’ll suffer blowback themselves.
• Unlike during the Cold War, though, the global economy is now deeply integrated. The costs of a prolonged conflict are just too dire, first and foremost in terms of the loss of life and suffering that is already underway in Ukraine.
• The world is still reeling from the Covid-19 pandemic, which hurt the poorest countries and people the most. It can ill-afford a conflict-induced slowdown. It is incumbent on Russia to implement a ceasefire and, subsequently, for both sides to return to the negotiating table. Escalation is not an option.
• If the Ukraine crisis escalates further, the market is likely to take a further beating as oil prices are expected to remain at an elevated level.

Conclusion

The long-term consequences are still difficult to assess in the current crisis, but “at least in parts of Europe, it looks like the post-1990 order is in ruins — mostly for the in-between countries, unfortunately, the countries that are not already part of NATO or the European Union.

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