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### Perspective on the Russo-Ukrainian War’s Economic Impact
Historically, conflicts ravaging countries usually left their economic footprint somewhat minor on the global stage. This notion stood firm until the Russo-Ukrainian War disrupted prior assumptions.
### The Conflict’s Direct and Indirect Economic Repercussions
The Russo-Ukrainian War, stretching nearly a decade, saw its most dramatic escalation with Russia’s invasion of Ukraine in 2022. Two and a half years later, the economic aftermath is becoming starkly apparent. The direct devastation wrought by war is undeniably severe for the involved nations. However, the indirect economic fallout is often profound, particularly as warring countries find themselves hamstrung in global trade.
### Global Ripple Effects of the Conflict
While Ukraine and Russia may not rank high among the U.S.’s primary trade partners, their goods are vital for several countries. In early 2022, the International Fund for Agricultural Development (IFAD) noted that fuel prices tripled in Haiti shortly after the conflict began.
Countries already beleaguered by wars, COVID-19, drought, and other calamities faced even steeper challenges. Yemen, Ethiopia, and Somalia, for instance, saw exacerbated food security crises due to the heightened cost and diminished supply of wheat and other agricultural products. The World Food Programme reported that 7.1 million Somalis are in crisis, with 213,000 standing on the brink of starvation.
| Country | Number of People in Crisis | Facing Starvation |
|———|—————————-|——————-|
| Somalia | 7.1 million | 213,000 |
| Ethiopia| N/A | N/A |
| Yemen | N/A | N/A |
### Persistent Challenges
The ongoing conflict means these tribulations aren’t likely to abate soon. Even with initiatives to establish new supply routes or provide aid, the situation remains dire. The Center for Strategic International Studies noted a 20% drop in Ukraine’s land ready for harvest from 2022 to 2024.
### Inflation and Rising Costs
The FAO Food Price Index saw an average jump of 14% in 2022, indicative of the broader repercussions of supply scarcity on global food prices. When food costs rise, inflation follows, and subsequently, the cost of all commodities increases.
| Year | FAO Food Price Index Increase |
|——-|——————————-|
| 2022 | 14% |
### U.S. Implications
While the U.S. has minimal direct trade with Ukraine and Russia, it certainly hasn’t escaped unscathed. The semiconductor shortage, exacerbated by the conflict, has had significant ripple effects. COVID had already strained semiconductor supply, but with Ukraine supplying 90% of neon and Russia 35% of palladium used in their production, the war has intensified these shortages.
### Inflation and Economic Measures
Semiconductors hold critical value across multiple U.S. industries, and their scarcity has widespread repercussions. Mark Zandi from Moody’s Analytics observed a 3.5% inflation rise from May 2021 to May 2022, attributed to the Ukraine war. To counter this, the U.S. Federal Reserve hiked interest rates, which remain elevated.
| Factor | Inflation Percentage Increase |
|———————————-|——————————-|
| Ukraine War’s Impact (May 2021-22)| 3.5% |
### Conclusion
War and conflict, undeniably, come at a staggering economic cost. While we in the U.S. might experience these effects indirectly, the Russo-Ukrainian War vividly illustrates how conflicts can ripple through economies worldwide.
Dominic Petrone is a Data Analyst at Bedel Financial Consulting, Inc., located in Indianapolis. For further information, visit their website or email Dominic at dpetrone@bedelfinancial.com.
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