Russia-Ukraine: The Effects on European inflation and

Consumer Buying Behavior

One of the most shocking and, therefore, talked topics in the current year is definitely the
Russia-Ukraine war, in which different opinions all around the world have taken place. This
conflict between both countries is thought to be very recent, as the Russian president,
Vladimir Putin, suddenly took the decision to invade Ukraine in just a few days, taking and
risking many people’s lives in the process. We just have to remember the very firsts days
this took place, as, at first, Russia attacked the Chernobyl nuclear power plant -which was
part of the former Soviet Union- stating that they had successfully passed the day after
making such chaos. A few days later, a heavy russian missile shelling was reported in
Kharkiv, which is known to be Ukraine’s second largest city, leaving at least six people
injured. So we can clearly notice how desperately Putin wanted to win this conflict, no matter
how much violence he had to impose on the Ukrainian population. But that aside, how does
this war affect the rest of the countries in the world, being Europe one of the main involved?
And, of course, why? To answer these questions, first, it’s important to make a summary on
this war in order to talk about the huge consequences it’s been having in the continent.

To begin with, both Russia and Ukraine have a tense history that, basically, has existed for
many years now (since medieval times to be exact, although both countries evolved
separately), but we’ll focus on recent dates. Beginning in the 17th century, a huge part of
Ukraine became part of the Russian Empire and it wasn’t until the 20th century that it also
became part of the Soviet Union, which was beneficial for Russia. Of course, this didn’t last
long as the U.S.S.R dissolved in 1991, and as a result, Ukraine started having interest in the
North Atlantic Treaty Organization (NATO) because it wanted to have a different image and
democracy. This also means this country was known as one of the fifteen independent
republics due to the end of the Soviet Union. But anyway, it was all going well until 2008
when Ukraine was offered to be part of NATO, something Putin didn’t agree on as he tried to
persuade Víktor Yanukóvich into not joining the organization, leading in 2013 to multiple
strikes and complaints from the Ukrainian population. So, the country's instability was
exploited by Putin for the invasion of Crimea, and therefore fomented more tension in
Ukraine: despite the international condemnation, economic sanctions and petitions to give
Crimea back to Ukraine, Putin never accepted. Thus, we can affirm that the tension has
been increasing since this conflict between the countries, but how does it mainly affect
Europe, at least, economically? Briefly, because this takes place in Europe.
Insecurity and uncertainty are the words which can describe this situation, not only for the
continent but for the whole world. There might be absolutely no need to say that this conflict
between these countries has deteriorated the Eurozone stability before it even started, and
the humanitarian catastrophe in Ukraine is reverberating across Europe. Right now, there
are approximately 6 million refugees, who have settled mainly in neighboring countries in
order to stay away as much as possible from all the chaos, but economically speaking, this
has been giving Europe less chances to grow as the inflation can only increase every time.
In fact, the European Bank for Reconstruction and Development (EBRD) expects Ukraine's
economy to shrink by 20% and Russia's by 10% in 2022. We should specially bear in mind
the fact that the world has just gone (and in many countries, still suffering) the disadvantages
of the COVID-19 pandemic, which, even though its effects are different in each country, it
still has messed up with the global economy, and, of course, that includes Europe with its
real GDP falling by 6.1%. The pandemic left private consumption and investment well below
pre-coronavirus forecasts, even as fiscal and monetary support saw employment rebound
remarkably, to near levels last seen before the pandemic, and it’s something we can’t ignore.
So, despite the fact that the continent itself was able to handle the situation as well as it
could, a topic could say a lot about, the war wasn’t really good news. Recent studies have
revealed that inflation in March (2022) has reached 7,5 on an annual basis, which is
important because this was the first month that took into account the war consequences in
the continent. To have a better idea, let’s take a look into Spain, specifically. Ukraine is the
main exporter of cereals such as corn (30%), wheat (17%) or sunflower (60%) to Spain. It is
understood that the disappearance of this situation will lead to possible supply problems,
and although alternatives will possibly be found, prices will rise again. If cereals rise, so will
the prices of related industries and products, and that’s basically what’s happening in the
eurozone. Specifically, the most damaged parts were the areas of energy, demand,
commerce and property: so, as for the first one (as it’s the most affected), this means that in
the short-term there will be serious negative effects on energy price and market structures.
But, why? It’s nothing new that the Eurozone receives approximately 40% of its gas from
Russia; according to figures from the non-governmental European Federation for Transport
and the Environment (T&E), this dependency costs some US$118 billion a day. That’s the
main reason why Europe looks forward to divesting from Russian fossil fuel consumption by
2030 thanks to the REPowerEU plan, which seeks to achieve cheaper, safer and more
sustainable energy. So, in conclusion, what is needed is to find alternative gas supplies in
the coming months, improving the efficiency of energy consumption while redoubling the
search for green energy sources in the medium and long term.

Having explained some of the economic issues the Eurozone is going through due to this
conflict between Ukraine and Russia since many years ago, especially since last February,
we can only imagine how it affects consumers. But how is this so important? Well, to begin
with, let’s see the case of any company: understanding consumer behavior is critical to a
company's success with existing products and new product launches, as every consumer
has a different mindset and attitude towards purchasing a particular product. So, if it does
not understand how consumers react to the product, the likelihood of product failure is high.
In other words, this behavior will decide what is to be produced, in what volume, its price and
quality, and the fact that markets are falling can only increase people’s uncertainty, as well
as their position. Taking that concept into a bigger scenario, this means that taking said
action into consideration is strategic for any country because it will highly influence its
economy. Due to this, some negative effects are shown: It’s expected to be a drop in the
UK’s £12 billion spent on non-essential services and products, as now the average family
was left with at least 6.5% less money after buying essential products, so this can only mean
that people wish to find the lowest prices (and many discount stores have already
experienced sales spikes thanks to this). It’s important to keep in mind that consumers may
also conduct additional research in their shopping journeys to compare prices across various
online platforms. Food distribution is, too, affected by this instability: many factories have
already closed and some retail stores are now selling fewer items. Some of them are even
hiring staff in order to maintain some level of production, but it’s not likely to have a
significant increase.The rising prices of petrol has also meant a slide for the population,
since when its price increased, people began to desperately fill their tanks for fear of what
may happen in the future. But even though the situation itself isn’t good at all, It’s too early to
tell whether this change in behavior will deteriorate the economy more than it already is,
however, there are many other economic aspects that are involved in the situation. For
example, the fact that the prices are rising faster than the wages are or that there is now less
purchasing power, both of which have obviously changed people’s confidence in the market.
On the other hand, Europe’s attempts to maintain the economy’s stability are remarkable,
but maybe not as useful.

In order to handle these consequences, the European Union (EU) has launched economic
sanctions in this regard. These are penalties by one country to another so that it can stop
acting so aggressively, like the war that is currently taking place in Ukraine, even though
Russia doesn’t seem too bothered by it. However, they were added to those that have
existed since 2014 (yes, many sanctions have been around for many years now), after the
illegal annexation of Crimea by the Kremlin, with the aim of hitting the Russian currency, its
finances, its technology, each economic sector, and its main politicians and oligarchs. One
of the most shocking actions were to prevent Russia's central bank from using its foreign
exchange reserves abroad; briefly explained, Russia's central bank has a foreign exchange
reserve to provide stability to the ruble and to be the last resort for Russian banks and
corporations. Those reserves were considered the Russian shield against economic
sanctions, however, most of it is not cash in dollars or euros, but an electronic accounting
entry in a western bank. Thus, on February 28th, Russia's access to these assets was
frozen and all transactions with its central bank banned, which cannot sell securities or
withdraw cash from Western banks. But besides that, many other important sanctions were
launched and it’s making Russia’s situation worse -In fact, recently a new package of
measures was presented, which affects the country’s commerce-. Among them, we can see
that it’s prohibited to sell, supply, transfer or export goods and technology suited for use in
oil refining and liquefaction of natural gas to any person or entity in Russia or for use in
Russia. Related technical or financial assistance and brokering or other services are also
prohibited. This measure was also one of the most shocking ones. Besides, It is prohibited
to import, purchase or transfer iron and steel products from Russia; sell, supply, transfer or
export luxury goods to any person or entity in Russia or for use in Russia; and it is prohibited
to acquire new or extend existing participation in any entity operating in the energy sector in
Russia. Anyway, this is exactly why Russian and Ukrainian officials have held several
meetings to negotiate a way out of the conflict, but they have never really solved anything.
To sum up, even though these are barely a few of the sanctions the European Union has
imposed, they are surely affecting the Russian population’s lives, and the EU doesn’t look
like it will stop any time soon.
In conclusion, even though this war has given the world huge consequences, it’s Europe
who affects the most. As one of the most powerful countries, it’s unsurprising that Russia’s
action has affected every continent, not only in economic terms, but also social and political
terms. Due to this conflict, many people all over the world have shown their rejection against
the simple idea of invading Ukraine, even Russians, who were constantly censored by the
government itself. On the other hand, Europe is clearly facing a huge economic problem that
aims to stop Russia at all costs, and this has led many to wonder if Russia might have a plan
B to avoid economic pressure from sanctions. Either way, some economists agree on the
idea that Europe’s challenge will be to economically re-build Ukraine and prevent people
from leaving the country as they also encourage the 6 million refugees to return. This isn’t as
easy as it may sound, and it’ll surely take a long, long time, as well as extensive financing
which will help to improve Ukraine’s infrastructure.
 References

● https://cnnespanol.cnn.com/2022/05/24/por-que-rusia-ucrania-guerra-invasion-
motivos-orix/

● https://www.imf.org/es/News/Articles/2022/04/22/blog042222-eurreo-war-in-ukraine-
is-serious-setback-to-europe-economic-recovery

● https://capital.es/2022/03/04/guerra-ucrania-consecuencias-union-europea/

● https://www.ecb.europa.eu/pub/economic-bulletin/html/eb202202.en.html

● https://www.conference-board.org/topics/geopolitics/early-read-impact-of-ukraine-
war-on-consumer-confidence

● https://www.sanctionsmap.eu/#/main

● https://www.just-food.com/special-focus/ukraine-crisis/ukraine-crisis-raises-short-
and-long-term-questions-over-food-supply-chains/

● https://www.telam.com.ar/notas/202205/594041-ue-sanciones-bruselas.html

● https://blogs.imf.org/2022/04/22/war-in-ukraine-is-serious-setback-to-europes-
economic-recovery/#