As Russian tanks and troops rolled across the border in a full-scale invasion on Ukraine and advanced its forces by land, sea and air, Russian missiles and air strikes targeted cities and military bases across the country, forcing civilians to flee for their lives and leaving at least 10 civilians and 40 Ukrainian soldiers dead, and dozens wounded so far. The attack, considered the biggest by one nation state against another in Europe since World War II, has send shockwaves across the globe.

Russia’s massive invasion came just two days after Moscow had recognized two breakaway Ukrainian regions, Luhansk and Donetsk, as independent states and ordered its troops to deploy to both areas in a move that was likely to accelerate its conflict with Ukraine, causing international economic sanctions to start rolling in.

Russia’s attack will spark a humanitarian and refugee crisis that could compel millions of Ukrainians to cross the border into neighbouring countries. Europe is bracing for an influx of refugees, but they would not be contained to Europe alone - the U.S. would likely see refugees seeking asylum as well.

The Russia-Ukraine war comes at a time when the world is just coming out of the pandemic. Mounting humanitarian, geopolitical and economic uncertainty surrounding this crisis threatens to disrupt the global financial system. A continent-wide humanitarian disaster, weakened corporate and consumer sentiment, severe supply constraints and rising prices will exacerbate the issue even further.

The incessant talk of war, conflict and its consequences has organizations and governments around the world worried. They are glued to the latest developments on the crisis. Here are the global economic ramifications of Russia’s wide-ranging attack on Ukraine.  

Push up oil and natural gas prices and inflation

Russia is among the world’s largest oil producers, second only to the United States. A protracted conflict or prolonged severe economic sanctions could upset the oil supply-and-demand balance (hurt trade balance), push oil prices that have soared to $105 a barrel to go higher and fuel inflation around the world. Surging oil prices would lift prices at the pump, drive up heating and electricity costs, dampen consumer spending and potentially impact the profit margins of corporations worldwide.

A spike in oil prices also means that a number of major central banks would tighten monetary policy, putting on course an increase or series of increases in interest rates to counter the impact of higher inflation. And that would mean higher borrowing costs for consumers and companies.

Natural gas prices have spiked too. The European Union (EU) would pay the biggest price in a conflict, as it relies on Russia’s natural gas. Nearly 40% of the natural gas used by the EU comes from Russia to help heat millions of homes, generate electricity and power factories.

Soaring energy prices will affect the purchasing power of global households and businesses, including the confidence and willingness to spend and invest. This will also result in slower economic growth.

Commodity volatility

Palladium, a precious silvery-white metal, is used in catalytic converters, the part of a car used to control and reduce emissions. Palladium is also used in electronics, medicine, dentistry, jewellery, and groundwater treatment.

Russia is the world’s largest producer of palladium. Given that the global auto industry is already grappling with supply chain woes, an expected disruption in palladium exports from Russia will result in more auto supply chain snarls and make the lustrous white metal costlier.

Beyond palladium, other commodities could experience price volatility. Russia is the world’s largest wheat exporter. Russia and Ukraine are also large agricultural suppliers, exporting wheat, rye, barley, corn, maize and other grains. Disruptions in these commodities could send global food prices higher, straining developing countries and even putting pressure on U.S. consumers.

Russia is also a significant producer of aluminium, copper, platinum, titanium and nickel. Bottlenecks in exports of critical metals could worsen the current semiconductor chip shortage, disrupt the auto and aerospace supply chains, and further increase prices of cars, electronics and other big ticket items. Countries that depend on Ukraine’s and Russia’s rich supplies of commodities will have to encounter supply hiccups and endure the volatility of commodity prices.

Stock markets on the edge

Investors abhor uncertainty. With the war breaking out, the global stock markets are jittery and plunging, unnerving investors and traders.

The Russian-Ukraine conflict has morphed into a full-blown attack, and it may trigger a sharp sell-off in stocks and a resultant shift to safe-haven assets such as oil, bonds and gold that will stand to gain the most.

While many investors remain edgy, there will be some who will hold onto Russian debt because of its strong underlying financial strength spurred by a current account surplus, record high international reserves, a relatively small debt load, and their belief that the stock market will rally soon.

Historically, it is during periods of uncertainty that stocks suffer the most, and markets bounce back relatively quickly after wars or geopolitical tensions. Investment experts are reiterating that past wars didn’t push equities lower long-term, and that's what's most likely to happen again.

Cybersecurity risks

If tensions over Ukraine are followed by a NATO response, Russia’s formidable cyber forces can unleash sophisticated cyber attacks on Ukrainian and strategic Western finance, transportation, energy and communications networks and infrastructure.

The Department of Homeland Security warns, “Every organization in the United States is at risk from cyber threats” with Russia potentially considering escalating its cyber-attacks against the United States. David Ring, a senior cyber official at the Federal Bureau of Investigation (FBI) asked U.S. businesses and local governments to be mindful of the potential for ransomware attacks as the crisis between the Kremlin and Ukraine deepens. Organizations and governments worldwide are being urged to bolster their defences, as the conflict could move beyond Ukraine’s borders. 

To conclude, history teaches us that the cost of war is steep. The human costs will be immeasurable. The economic costs of the full-blown attack won’t just hurt Russia and Ukraine. There will also be collateral damage in the EU, the US, Asia, the Middle East and Africa. 

When it comes to modern battles, no country wins. As Aristide Briand, France’s longest serving First World War premier said, “In modern warfare there is no victor. Defeat reaches out its heavy hand to the uttermost corners of the Earth and lays its burdens on victor and vanquished alike.”