Putin’s War – Long Term Political & Economic Impact – Part III

In the previous two articles, we looked at the worldwide response to Russia’s invasion of Ukraine and examined the short-term economic impact it’s having in the United States and abroad. In this final installment, we’ll address the sanctions from an economic and political standpoint, and their potential long-term impact.

Long-term Economic Outlook

Unfortunately, even if Russia pulled out of Ukraine today, the invasion would have long-term negative consequences, though not as severe as if the war continues. By invading Ukraine, Putin has undermined worldwide trust, making it far less likely for countries and global businesses to consider long-term investment in Russia for many years. Those who depend on Russia for exports like natural gas, wheat, fertilizer, and metals will look to diversify their supply chains and focus more on domestic production. European nations are likely to spend more on energy imports and renewable energy as they try to weaken their own dependence on Russia for oil and natural gas. This situation is the economic equivalent to having too many eggs in one basket, if the basket falls, where do you turn for eggs?

The ramifications go beyond trade. At the macro level, neighboring countries who feel Russia is a threat are likely to spend a greater amount of their national budgets on defense. While this shift can benefit some sectors of the economy, it can also curtail investment in science, infrastructure, and innovation, and lead to slower economic growth. Even on the micro level, individuals and families may become more cautious and hoard resources rather than spend, which can also negatively impact their economy.

Unrest and Instability

No man is an island, as the saying goes, and in today’s world, no nation is either, at least not from an economic standpoint. Nearly every major business and producer relies on a web of international trade lines. When fertilizer from the Ukraine can’t make it to Brazil, for example, it can have a drastic effect on Brazil’s ability to feed its people. Consequently, hunger can spark political upheavals that further disrupt the flow of goods and services needed elsewhere.  It basically has a domino effect.  According to the World Food Programme, “Conflict is driving hunger in nearly all the world’s main food crises. War leads to greater food insecurity. And, in its turn, food insecurity increases the chances of unrest and violence.”

Why Resist? Of course, Putin’s war breeds costs that go beyond social and economic troubles. If those were the only considerations, fewer nations would be willing to help Ukraine resist. However, the world knows from sad experience that unchecked aggression can lead to further aggression. The appetite for power and control is insatiable. Putin’s success could not only lead him to invade other former Soviet bloc countries, but it could also embolden autocratic leaders around the world who are intent on overthrowing democracies and establishing dictatorial regimes. The choices of a few men could eventually threaten worldwide peace and stability, leading to greater chaos and suffering. As one writer put it, “Far more important is a world where people and countries feel secure. And that is something worth paying for, even more than the world’s leaders have paid so far” (Project Syndicate).