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After last month's brief overview of the United States' drone program and the possible future thereof, this week we are taking a look at the possible economic effects of the crisis in Ukraine.
The Ukrainian crisis appears to be one of the most publicized, real-time domestic and eventually international conflicts, which underline the power of social media; it was almost impossible to overlook the Twitter and Facebook feeds, Youtube videos uploaded from Maidan Square earlier this year, as well as the striking reports more recently from the Eastern region of the country. The crisis is ongoing, and although presidential elections will be held on May 25, the unrest and instability of the Donetsk region may undermine a peaceful and satisfactory solution in the country.
Christine Lagarde, Head of the International Monetary Fund, warned in a German newspaper interview recently, that the Ukraine crisis may have a 'severe impact' on world economy and that a current $17 billion aid package by the IMF would not be enough to eliminate risks. According to Lagarde, possible impacts center around international trade, foreign direct investment, international capital flows, as well as the stability of Europe’s energy supply.
According to USA Today’s analyst, John Waggoner, global impacts include a decrease in stock prices as one of the classic early indicators of international turmoil; stock markets appear to have anticipated the annexation of Crimea before the separatist referendum, as many Russian companies saw their stock prices go into a dive in early March. International business intelligence company, Wealth-X estimated the instant losses for some of Russia's richest oligarchs in the billions.
As most experts point out, the ongoing crisis between Russia and Ukraine is synonymous with higher energy prices, particularly in Europe, where the major energy supplier is Russia; this would go hand in hand with a slowdown in the continent's economic growth, which already appears to be the case in Russia. Foreign sanctions imposed on the country’s leading elite do not seem to have vast effects, but the plummeting stock prices for several Russian conglomerates – in some cases managed by the same people who are being sanctioned by the United States government –, the massive outflow of foreign direct investment, a possible 1% or even lower expected economic growth and a rise in inflation may all transpire towards the West. The European Union and its energy market is strappingly dependent on Russia; according to a recent report, Germany’s GDP growth may decrease by 0.9% this year, and according to speculations, Russia’s isolation and economic downturn might account for a 0.3% decline next year as well. Germany’s dependence, by no means the worst in the EU, is still striking: 46% of its natural gas and 37% of the country's crude oil consumption is supplied by Russia. Several member states are almost 100% percent dependent on the EU’s Eastern neighbor when it comes to energy and natural resources.
A peaceful resolution of the crisis - at least for the time being - seems to be out of sight; should the separatist movement succeed in the Donetsk region, sanctions imposed by the United States government and the European Union would likely target more painful and severe areas than some of the political and economic elite's private wealth and businesses. According to a recent analysis in German magazine Stern, EU sanctions seem to be a double-edged sword, as a result of the above described dependence: the more severe the sanctions are the more visible its direct impacts will be in the EU. As for the United States-Russia relations, analysts foresee more 'soft cold war rhetoric' and the partial international isolation of Russia.
BloombergWealth-XUSA TodayCarnegie EndowmentReuters via Stern