Home Economic Trends The Unseen Contributions of Conflict: How Regional Wars Shape Global Economy”

The Unseen Contributions of Conflict: How Regional Wars Shape Global Economy”

On February 24th, 2022, Russia launched a military invasion of Ukraine that changed the course of global economics. While the news of war was ‘bad’ for common people around the globe, governments, policymakers, and analysts were worried about many other things beyond the understanding of a common citizen.

Wars in the past have changed the course of the world’s economic outlook, and some of the common impacts of war in history over non-participating countries are inflation, unemployment, high-interest rates, rising debts, shortage, and uncertainty. The same impacts were seen after the Ukraine invasion, but the ripple effect was even more intense because the world has become more interlinked in current years.

Russia is the world’s third-largest oil producer behind the United States and Saudi Arabia. In January 2022, Russia’s total oil production was 11.3 mb/d, of which 10 mb/d was crude oil, 960 kb/d condensates, and 340 kb/d NGLs. US total oil production was 17.6 mb/d while Saudi Arabia produced 12 mb/d.

Russia is the world’s largest exporter of oil to global markets and the second-largest crude oil exporter behind Saudi Arabia. About 60% of Russia’s oil exports go to OECD Europe, and another 20% go to China.

The immediate effect, as a result, was an increase in oil prices due to disruption in the supply chain and the imposition of a ban in Russia from international countries. The oil prices on the day of the invasion, that is, 24th February 2022, were recorded at 101.29. Approximately, two weeks after the invasion, the price rose to 133.18 on 8th March 2022, and the trend continued afterward for a couple of months.

Another impact was the food crisis. Russia and Ukraine together accounted for 25% of the world’s wheat exports and 14% of corn shipments. The conflict disrupted these exports and drove up prices, leading to food shortages and inflation. In January 2022, the average price of corn was 31 percent higher compared with January 2021, and the price of wheat was 14 percent higher. 

The economic indicators have started to adjust according to new economic conditions in the conflicted area as well as around the world. The countries started to deal with new economic challenges by adopting policies that best suit their internal situations and keep them afloat in the global arena.

On 22 July 2022, an agreement was made by the United Nations and Türkiye to open a safe maritime humanitarian corridor in the Black Sea (the Black Sea Grain Initiative). Since then, over 900 ships full of grain and other foodstuffs have left three Ukrainian ports: Chornomorsk, Odesa and Yuzhny/Pivdennyi.

However, one of the prolonged economic impacts of the war, which is not evident in the short run and will affect many economies in the long run is the number of displaced persons.

The number of people moving around the world because of war and conflict has increased over the years all around the world. As per the world bank’s categories of countries, the graph was plotted which shows that the number of internally displaced persons (new additions), has significantly increased in 2021. Some of the observations as per the data include the following:

  • There are 46 countries included in the list of least developed countries as per the UN classification including Afghanistan, Bangladesh, Cambodia, Eritrea, Liberia, Myanmar, Somalia, Uganda, Yemen, etc. The number of IDPs in LDC has increased by 123 percent in the last five years.
  • The second largest increase in IDPs can be witnessed in Sub-Sahara Africa indicating an increase of 111 percent from 2017 to 2021.
  • One notable increase in IDPs is in Africa (Eastern and Southern). In the last 3 years, the region has witnessed an increase of 190 percent in IDPs.  

Figure: Internally Displaces Persons (New addition)

                                                                                Source: The World Bank

These numbers are important to understand as they create lag economic impacts that are not immediately observable. Anna Bjerde, World Bank Vice President for the Europe and Central Asia region said,” Russia’s invasion of Ukraine has triggered one of the biggest human displacement crises and exacted a heavy toll on human and economic life”.

As per the report by Internal Displacement Monitoring Centre, internal displacement affects the well-being and welfare of internally displaced people (IDPs) in numerous ways. It can lead to a deterioration of their health, security, social life, housing conditions, livelihoods, environment, and education. People in the host community can also be affected, particularly in the case of mass, protracted displacement.

All these impacts have repercussions not only on the lives of affected people but also on the economy. Some of the key impacts include the following:

  • The economic impact of internal displacement in 2020 ranged from $109 per IDP for a year of displacement in Afghanistan to $830 per IDP in Syria.
  • The average cost of providing each IDP with support for housing, education, health, and security, and their loss of income for one year of displacement was estimated at $370 in 2020.
  • With about 55 million people living in internal displacement because of conflict, violence, and disasters at the end of 2020, this produces a total global economic impact of nearly $20.5 billion.

The impacts of conflicts, regardless of their size, extend far beyond their immediate surroundings in today’s interconnected world. The war may have started with two parties, but it is fought by the rest of the world as well. The others do not fight with arms, but they end up being involved in various ways, through economic, political, and social challenges. The magnitude of war reaches beyond the involved countries, affecting numerous regions for extended periods, and ultimately reshaping not only the countries involved but also the global order.