LOVELY PROFESSIONAL UNIVERSITY

Mittal school of Business

Name of the faculty member: Ms. Parul Verma

Course Code: ECO113 Course Title: Business Economics

Academic Task No: 2 Academic Task Title: Online assignment
Date of Allotment: 14/10/ 2022 Date of Submission: 25/10/2022
Student Roll No: RQ2107A31 Student Reg. No:12103667
Term: 121223 Section: Q2107
Max. Marks: Marks. Obtained:
Evaluation Parameters

Learning outcome: I was able to clearly understand the impact of Russia-Ukraine war in
businesses globally.
Declaration:
I declare that this Assignment is my individual work. I have not copied it from any
other students’ work or from any other source except where due acknowledgement
is made explicitly in the text, nor has any part been written for me by any other
person.

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Evaluation Criterion: Rubrics on different parameters

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INTRODUCTION:
Everyone is aware about the conflict between Ukraine and Russia. Russia was infuriated that so
many countries were joining NATO to defend from Russian aggression. As a result, to make
Ukraine step back from NATO, Putin declared a war with Ukraine. While the main focus
remains as it should is on the tragic loss of lives and the destruction of Ukrainian territory, the
Russian invasion has led to several disruptions in businesses and international trades. The
Ukraine-Russia conflict, as well as the sanctions imposed on and by Russia and Belarus, have
had a significant impact on international trade. The consequences range from a lack of food, raw
materials, and components to the cancellation of trade routes, changes in demand, and price
increases. The world economy is paying a hefty price for the war in Ukraine because it led to
weaker growth, stronger inflation and potentially long-lasting damage to supply chains.
According to forecasts released by the Organisation for Economic Co-operation and
Development, the organisation reduced its forecast for global growth this year to 3% from 4.5%
in December and doubled its inflation forecast to nearly 9% for its 38 member countries. It
expects growth to slow to 2.8% in 2023.

ANALYSIS, IDEA AND RELATED CONCEPTS:

The ongoing conflict between Russia and Ukraine is expected to have far-reaching consequences
for the global economy, which is still reeling from the effects of the coronavirus pandemic.

The International Monetary Fund (IMF) previously stated that Russia and Ukraine are both
major commodity producers, and disruptions there have resulted in soaring global prices,
particularly for oil and natural gas. Food prices have risen as well, with Ukraine and Russia
accounting for up to 30% of global wheat exports. The IMF also stated that slower growth and
higher inflation would have an impact on the entire global economy.

1. POVERTY AND HUNGER:

According to the World Bank's baseline projection, Ukraine's poverty rate will rise from 1.8% in
2021 to 19.8% in 2022, based on a $5.50 per day threshold. It went on to say that models
developed by the UN suggested that a more severe and prolonged war could lead to poverty
affecting nearly 30% of the population. According to the World Bank, the latest rise in food
prices could push an additional 40 million people below the $1.90-per-day poverty line, citing
estimates from authors of a Centre for Global Development blog.

The IMF expressed similar reservations. It stated in March that "higher food and fuel prices may
increase the risk of unrest in some regions, ranging from Sub-Saharan Africa and Latin America
to the Caucasus and Central Asia." The conflict ruined Ukraine's planting and harvesting
seasons, as well as critical fields, stores, infrastructure, and production, particularly in eastern
Ukraine. Furthermore, the conflict has halted shipping from the Black Sea, from which
approximately 90% of Ukraine's grains are exported.

2. DISRUPTIONS IN TRADE:

Freight rates reached record highs during the COVID-19 pandemic. The current increasing fuel
costs are causing inflation and may result in higher freight rates. Besides this, sanctions against
Russia and safety concerns have disrupted land and air transport routes via Ukraine and Russia.
Rerouting these connections is expensive. And there are limited options to divert shipments via
the already disrupted maritime transport sector. Also, there are fewer Black Sea trade routes.
This means that even countries that do not have trade restrictions may struggle to import from
the region.

3. FOOD SECURITY BECAME DOUBTFUL:

Ukraine and Russia are among the world’s main suppliers of agri-food commodities, particularly
grains and oils. Together, they provide over 30% of world trade in wheat, 32% of barley, 17% of
corn/maize and over 50% of sunflower oils, seeds and meals. Many emerging or vulnerable
economies rely on these supplies for their food security, especially in the Middle East and
Africa. For example, countries such as Benin, Egypt and Sudan source nearly all their wheat
imports from Ukraine and Russia. Options to replace these with regional trade are limited.

In its report, the Food and Agriculture Organization of the United Nations (FAO) estimates that
20-30% of the Ukrainian areas used for winter cereals, maize and sunflower seed will remain
unused or unharvested during the 2022/23 season. The yields of these crops are also likely to be
lower. Processing and transport have been disrupted too. Decreased availability of crops further
increases prices and competition for alternative sources. In such a difficult market, developing
countries may struggle to compete for supplies with developed countries. For example, Indonesia
has banned palm oil exports to reduce domestic cooking oil shortages and price increases.
INCREASED PRICES OF OIL AND GAS:

According to the IMF, economies that rely on oil imports will face larger fiscal and trade
deficits, as well as increased inflation pressure. Higher prices, on the other hand, may benefit
exporters in the Middle East and Africa. Long-term, the war could fundamentally alter the global
economic and geopolitical order if supply chains are reconfigured, payment networks are
fragmented, energy trade shifts, and countries rethink reserve currency holdings, according to the
report. Because of the penalty imposed on Russia, the blocked ports of Ukraine, and the inability
of farmers of Ukraine to work in the fields due to destruction by the war, the prices of wheat and
corn have reached a all time high of $12 per bushel(25.4kgs).
DISRUPTED TRADE ROUTES:

Despite the fact that Russia and Ukraine account for less than 3% of global exports and 2% of
global imports, the financial body adds that the conflict and subsequent sanctions have harmed
trade connectivity by disrupting transit routes, particularly for maritime container shipping and
air freight traffic. Additionally, higher fuel prices and insurance premiums have increased
shipping costs.

High-value goods and critical component supply chains, such as those in automotive and
electronics, bore the brunt of disruptions in the trade corridor between Europe and Asia.
According to the World Bank, the war has prevented European automakers from obtaining key
components such as wiring systems manufactured in Ukraine. Some assembly lines have been
halted as a result of this. Food, construction, petrochemical, and transportation industries have all
been affected by bottlenecks.

CONCLUSION:
From the above, we can say that the consequences of the war between Ukraine and Russia have
mainly been an increase in prices of commodities, thus causing inflation across the globe. Even
if the war stopped today, the consequences of this conflict would be felt for months to come, and
that would reflect through commodity prices. "The entire global economy will feel the effects of
the crisis through slower growth, trade disruptions, and steeper inflation, harming especially the
poorest and most vulnerable," the IMF, World Bank and European Bank for Reconstruction and
Development (EBRD) warned in a joint statement.

Impact on Russia:
The sanctions specifically target major Russian banks, the Russian central bank, Russian
sovereign debt, selected Russian public officials, and the export of high-tech components to
Russia. These measures put significant downward pressure on the Russian ruble(currency of
Russia), which has already dropped significantly, and will cause consumer price inflation to
skyrocket.

Impact of European countries:

Europe appears to be the region most vulnerable to the consequences of this conflict due to its
reliance on Russian oil and natural gas. Replacing all Russian natural gas supplies to Europe in
the short to medium term is impossible, and current prices will have a significant impact on
inflation.

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