The Economic Impact of This Wednesday’s Attack on Ukraine

Photo by Jeremy Bezanger on Unsplash

On March 4th, Russian troops seized control of Ukraine’s Zaporizhia nuclear power plant, the largest nuclear power plant in Europe. Since the start of Russian President Vladimir Putin’s “special military operation”, millions of refugees have been displaced and the crisis is only escalating further. Not only did Russia’s attack spark humanitarian issues, but there are also significant economic implications.

Russia and Ukraine have a long history of tensions. In 1991, Ukraine declared independence from the Soviet Union, which dissolved later that year. Ukraine then overthrew its pro-Russian president, Viktor Yanukovych, in 2014. In retaliation, Russia invaded and annexed the Crimean peninsula from Ukraine, resulting in the loss of 14,000 lives. Since then, Russian backed separatists have also gained control of the southeastern Ukrainian regions of Donetsk and Luhansk.

Since the invasion on Wednesday, countries such as the United States, European Union, and United Kingdomhave imposed sanctions on Russia. Sanctions are penalties that are applied against a country or an individual in order to coerce them economically. Examples of sanctions include asset freezes or trade restrictions. Notably, sanctions on the Central Bank of Russia (CBR) have severely weakened Russia’s banking system. According to the Atlantic Council, the US and its allies froze roughly 53 percent of the CBR’s assets. Furthermore, the US has cut off Russian banks from its financial system. As a result, Russia has been unable to tap into their financial reserves and there will be a significant loss of foreign investments. 

The aftermath of Russia’s invasion has also been marked by rapid inflation and energy prices. Forbes reports that oil prices reached record highs of almost $120 per barrel and are predicted to soar above $150 per barrel. Additionally, consumer price inflation in Russia exceeded 9 percent, with food inflation exceeding 12.5 percent. 

Many major companies have also announced their withdrawal from Russia as it is becoming more difficult to do business in the country. Google is no longer selling online advertising in Russia across all services and Apple paused sales of its popular devices inside Russia. They are joined by other companies such as Ikea, Nike, Airbnb, Microsoft, Ford, and more.

As Russia continues its war on Ukraine, financial markets will continue to face major complications. Rising inflation and food prices along with Russian bank failures are already affecting people around the world. Although there is still debate over whether the heavy sanctions imposed by the US and its allies are enough to stop Putin in his tracks, there is no doubt that Russia’s economy will be severely weakened.