Impact of Ukraine War on Globalisation and the International Business Environment

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Date: 2nd November 2022

Table of Contents
Introduction....................................................................................................................3

Discussion......................................................................................................................3

International Trade and Supply Chains......................................................................4

Commodity Prices and Inflation................................................................................5

Short-term impact on the world.................................................................................6

Long-term impact on the world..................................................................................6

Conclusion......................................................................................................................7

References......................................................................................................................8
Impact of Ukraine War on Globalisation and the International Business Environment

Introduction

A severe global crisis is being brought on by the war in Ukraine. It is believed that over

12 million people have lost their homes and been dislocated due to the war. Population

trauma will have long-lasting repercussions. Not only this, but several other fields and flows

have been disrupted around the globe that include the financial transfers, flow of goods,

commodities and confidence of investors and businesses in the market. The economy of

individual countries have suffered the worst in terms of losses and downfall, which in turn

will impact the world trades and supplies. For instance, due to the falling economy of Russia,

the transfer of funds and remittance to the neighbours has severely been impacted adversely.

Naturally, the economic downturn will have raising concerns from the investors, both current

and probable. Apart from the individual economies and countries of Russia and Ukraine, the

impact of war on the world have been dramatic as well. The conflict has significantly

weakened long-term prospects for the world economy. The major and most dramatic effect of

the on-going Russia and Ukraine war has been on the commodities market. The prices of the

goods that are exported by these countries including oil, fertilisers, wheat and various

minerals and metals have drastically increased. Thus, this paper will cover how the Ukraine

War has a dramatic effect on globalisation and international business environment.

Discussion

Although the implications of the war have been most severe on developing nations,

but the impact is still threatening and cascading to the global economy. This is made worse

because the Ukraine war followed the global pandemic COVID-19 that had already disrupted

the whole world. There was no time given for the world’s economy to recover from the

economic downturn faced in the pandemic that the war has disrupted the economy yet again.
According to UNCTAD, due to the Ukraine Russia war, the GDP of the world economy

would increase at a rate which is 1% lower than the predicted GDP growth for the global

economy (UNCTAD, 2022a).

One of the world's economic powerhouses is the Russian Federation, followed by

Ukraine. Around 30% of the supply of wheat and barley across the globe is done by the two

countries. Moreover, one fifth of maize production of the world and fifty percent production

of sunflower oil is in these two countries (UNCTAD, 2022b). In addition, Russia is the

second-largest oil exporting nation in the world as well as the leading exporter of natural gas.

International Trade and Supply Chains

The global supply chain and trade disruptions are at significant risk because of the

Ukraine war. Even though the direct effect on the supply chain and international trade may be

little, but the indirect effect may itself cause significant disruptions in global sourcing of

products, commodities, and minerals. There have been numerous war-related implications

such as sanctions on export, interruptions in supply networks, stricter controls on export, the

transit routes from Europe and Asia from Russia are also restricted. Furthermore, many goods

such as industrial commodities, agricultural product and wood materials face restricted

exports from Russia due to the war (Orhan, 2022).

Russia entirely, further upsetting key global supply networks and commercial

activities. These acts by Russia may have an indirect impact on the global businesses and

people as they might lose their jobs and investments. One of the major impacts on global

commerce is due to the mutual harbour of Russia and Ukraine, Black Sea, that supplies

agricultural products to Africa, Asia and Europe (Orhan, 2022). Although, other countries are

making efforts to cover the gap that is posed by the disruptions in supply of important
commodities from Russia and Ukraine, however, the experts have raised their concerns for

potential shortage and increase in prices of the barley, grains, and wheat around the world.

Commodity Prices and Inflation

Immediately after Russia invaded Ukraine, the prices of minerals such as rare

minerals, grains, wheat, cereals, natural gas, oil and fertilisers rose by a significant level. The

reason for the increase is that both of the countries contribute majorly to the export of

sunflower oil, wheat, and maize to the Europe and Middle Eastern countries. In addition to

the prices of agricultural products, the prices of metals such as platinum, titanium,

manganese, nickel have also increased significantly as well as the businesses that were

relying on the supply of these metals from Ukraine and Russia suffer from detrimental effects

of shortage as well as increased prices (Johnston, 2022). The prices of fertilisers around the

world had already experienced an increase due to export limitations by several countries that

produce potash (Ben Hassen & El Bilali, 2022). Fertilizer production interruptions brought on

by the war are anticipated to increase prices further and strain the agricultural supply for the

next year by lowering crop yields and product quality.

With a few exclusions, the majority of the recent price fluctuations reflects worse

threat to the global economy than the trade sanctions and supply chain disruptions posed by

the war. Investors have several predictions about the behaviour of Russia related to trade

disruptions such as decreasing the purchases of oil from Russia by the European countries

(Ben Hassen & El Bilali, 2022). An acute energy crisis in Europe is more likely to happen

which may lead to an economic downturn around the world resulting in a significant increase

of global oil and gas prices. This is more likely to happen if Russia restricts its energy exports

to Europe.
Short-term impact on the world

The short-term outlook, given the conditions of war, seems to be impeding the global

economy, trade, and businesses. The global economy is interconnected due to trade and

supply chains as well as transit routes of goods and commodities in different countries. There

are major economic spill overs as side effects of the war because the ties between countries

are affected which in turn affect capital markets, financial flow, migration between countries

as well as confidence and sentiments of investors and customers. Major impact might be on

Europe’s economy as it significantly depends on imports from Russia for natural gas and oil.

The repercussions will be on the economy of the world because the cost of supplies of food

products, energy and oil are increasing which in turn will lead to global inflation of products

as their supply costs increase. Various types of businesses such as transport, architecture,

petrochemical products might ne adversely affected due to shortages of their raw materials as

Ukraine and Russia are major exporters of the agricultural and food products and minerals.

A huge financial stress will also be placed on the global economy in the short-term

due to the war. Given there are extreme price volatility of commodities which puts global

inflation as a risk to the businesses. Moreover, a general financial stress may be placed due to

the financial instability that could be created because of risk aversion attitude of the investors

and depreciation of currencies (Guénette et al. 2022). This may also lead to increased

insecurity for food and energy which in turn will increase price and cause financial stress for

countries.

Long-term impact on the world

One of the major long-term impacts that can be seen are global trade disruptions,

fragmentations of investment and financial networks. Due to shortages of agricultural

products and energy commodities, transport industries will severely suffer. For instance,

palladium and neon are one of the most important materials for catalytic converters required
by automotive firms (Guénette et al. 2022). Productions will also be affected due to the

reduced supply of these raw materials in the long run. Furthermore, high commodity prices

are likely to result in fiscal challenges and increased debt specifically for emerging markets

and developing countries (Guénette et al. 2022). Evidently, there has already been trade

restrictions imposed by governments on food product and fertilizers from Russia. All these

factors will lead to an impeding growth of the world’s economy.

Conclusion

To conclude, the invasion of Russia in Ukraine has caused sever implications for

businesses around the world, global economy and the financial conditions of the economy.

Although the implications of the war have been most severe on developing nations, but the

impact is still threatening and cascading to the global economy. One of the major impacts on

global commerce is due to the mutual harbour of Russia and Ukraine, Black Sea, that

supplies agricultural products to Africa, Asia and Europe. Another major impact is on the

supply of important raw materials that has affected the businesses that use those raw

materials for production. Such as nickel, palladium, neon and manganese were mainly

exported from Russia and Ukraine. However, due to the war and trade restrictions, the supply

of these raw materials has significantly decreased. This not only has a direct effect on the

production and revenue of these business but also those countries and firms that used their

final product such as palladium and neon are one of the most important materials for catalytic

converters required by automotive firms. Therefore, the world needs to come together to help

the global economy and save it from more adverse effects in the future.
 References

Ben Hassen, T., & El Bilali, H. (2022). Impacts of the Russia-Ukraine war on global food

security: towards more sustainable and resilient food systems?. Foods, 11(15), 2301.

Guénette, J., Kenworthy, P., & Wheeler, C. (2022). Implications of the War in Ukraine for

the Global Economy.

Johnston, R. (2022). Supply of Critical Minerals Amid the Russia-Ukraine War and Possible

Sanctions.

Orhan, E. (2022). The Effects of the Russia-Ukraine War on Global Trade. Journal of

International Trade, Logistics and Law, 8(1), 141-146.

UNCTAD. (2022a). Tapering in a Time of Conflict. Retrieved from

https://unctad.org/system/files/official-document/tdr2021-update1_en.pdf

UNCTAD. (2022b). The Impact On Trade And Development Of The War In Ukraine.

Retrieved from

https://unctad.org/system/files/official-document/osginf2022d1_en.pdf