How The Russia-Ukraine Situation Is Currently Affecting Global Business
This is an article “How The Russia-Ukraine Situation Is Currently Affecting Global Business” by Marc Primo
After barely overcoming massive shockwaves brought about by a global pandemic, the world economy braces itself for even more significant risks carried by the sudden invasion of Russia in Ukraine in February. While the conflict further exacerbates Europe’s economy, a ripple effect now creeps in on a global scale caused by bans on Russian oil.
Before the war, the US imported an estimated 209,000 barrels of crude oil per day and 500,000 barrels of various petroleum products from Russia. At the rate things are going, a turn for the worse is highly likely and we might soon find ourselves in the midst of the greatest recession in modern times.
The year 2022 is not going particularly well for Russia. Its Ruble continues to diminish in value due to multiple record-setting global sanctions never before seen worldwide, not to mention the ongoing exodus of international businesses pulling out of the country.
Experts consider this war not only unnecessary, but also the most devastating since World War II. Conflicts between Russia, Ukraine, and NATO-allied nations are escalating rapidly and unless the countries reach a diplomatic resolution, worldwide energy price hikes and logistical issues are poised to disrupt the global economy once again, adding to the burden that many consumers already have to bear.
Immediate effects on Russia
Naturally, Russia is the first nation to feel the war’s immediate effects on the economy. The US, the UK, and other European countries issued severe sanctions against Vladimir Putin and his oligarchs while Russian forces continued to force their way into major Ukrainian territories.
The US Treasury intends to immobilize 80% of all banking assets, including Russia’s largest financial institutions Public Joint Stock Company Sberbank of Russia, and VTB Bank Public Joint Stock Company. Aside from blocking Russian banks, the UK imposed debt and equity prohibitions on federal and private Russian entities, particularly prominent figures in business who are considered part of Putin’s elite.
Over a dozen Russian oligarchs and other billionaires who control Sberbank, VTB, the state-owned Transneft pipeline company, Russian oil and gas drilling company Gazprom Burenie, PSJC Mosotrest construction, state-owned conglomerate Rostec, and state-owned development and investment firm VEB.RF, among others, saw their assets across the globe frozen for aiding the Putin administration and pillaging the Russian people via concealed assets.
President Biden’s announcement for sanctions came after the US, UK, Canada, and the European Commission forced the removal of Russian banks from the Society for Worldwide Interbank Financial Telecommunications or SWIFT on the 26th of February.
Likewise, the UK imposed asset freeze orders on the most prominent Russian banks and a halt on Russian financial transactions, as well as the right to raise sovereign debts in UK markets. More sanctions were announced later, including a ban on Russia’s largest airline, Aeroflot, and its flights to the country, plus the exportation of electrical, aircraft parts, oil refinery equipment, and automotive goods.
Most transactions imposed by the US and its allies from the west and the European Union also apply to Belarus, which sided with Russia in the present conflict.
With more prominent businesses pulling out of the Russian market, citizens suddenly found themselves panic buying goods in supermarkets and queuing at ATMs hoping to secure whatever value is left of the Russian Ruble. The currency’s value dropped to a record low of less than one US cent just days into the war.
Immediate effects to global businesses
Following the days when Russian forces initially moved to invade Ukraine, oil prices shot up to over $100 per barrel while European natural gas increased by over 60%. The conflict continues to pave the way for higher inflation and problematic financial markets across the globe, with US households bracing themselves for higher gas prices. At the rate the war is progressing, struggling countries may face the difficulty of sourcing potential investment funds due to dips in their wealth and confidence ratings.
Now beset with herculean tasks, global central banks are desperately trying to manage the prices of goods to reduce the economic effects of the war, while tightening their respective financial policies. Depending on how long the conflict lasts, just how exactly the massive humanitarian crisis could affect the European economy remains undetermined. The same can be said for how the consequences of Russian sanctions could make a difference, as well as to what extent the cataclysmic effects of the war will have on the global economy.
Pundits who weighed in on potential outcomes say that if oil and gas prices continue to spike, energy prices will surge into negative spillovers, which means more financial turmoil for global markets despite central bank efforts to reevaluate their economic frameworks. In the event that a cease emerges on Europe’s gas supply, more significant recessions will be inevitable and harder to put off. At the same time, monetary solutions veer toward dovish interest rate policies to keep public spending going.
However, if the war ends and oil prices begin to settle, financial problems in commodity markets can still rebound and keep recoveries on track. But despite diplomatic talks underway between Ukraine and Russian officials, things remain unpredictable. The same goes for the war’s effects on financial markets.
The importance of contingency plans
For businesses, experts believe that employees and stakeholders will bear the brunt of the war, considering the reduction of markets for companies that have pulled out of Russian businesses. Thousands of enterprises from the energy sector, consumer brands, automotive and aviation companies, food and beverage chains, payment systems and accounting firms, tech, shipping, manufacturers, and even entertainment personalities have shown solidarity with Ukraine and supported Russian sanctions.
More difficulties face businesses across all industries caused by major oil price hikes and supply chain problems. And as usual, the end result will always affect the consumers. For now, the only recourse for such companies is to come up with realistic contingency plans that can keep them active in the market.
What’s crucial is how businesses can manage their internal audits and tweak their in-store and back-office operations while boosting marketing efforts for business-to-consumer and business-to-business (B2C and B2B) campaigns that are positioned against the Russian invasion.
Taking the same approach during the pandemic, when the 2021 holiday season shopping confidence peaked at 14.1%, might also encourage consumers to stay optimistic about their spending despite the ongoing war. If such a scenario materializes, it could help keep businesses to stay afloat amidst fluctuating energy costs and rising inflation.