Harvard Employees: Is the Russia-Ukraine War a Threat to the Global Economy?

'The global disruptions as a result of the Russia-Ukraine war will impact supply chains, energy prices, and inflation, and this will affect Harvard employees and retirees; it is important to stay informed and readjust your financial planning accordingly,' said Wesley Boudreaux, a representative of The Retirement Group, a division of Wealth Enhancement Group.

'Harvard employees and retirees should be aware of the continuing impacts of the war in the food and energy markets and how it may affect their long-term retirement planning and budgeting,” advised Patrick Ray, a representative of The Retirement Group, a division of Wealth Enhancement Group.

In this article, we will discuss:

1. The effects of sanctions on Russia and its economy.

2. How supply shocks, especially in energy and food, affect global markets.

3. The consequences of the events on inflation and economic growth, and the lower-income populations in the world.

Just before Russia invaded Ukraine, most people thought that the economic ties that had been created through globalization would actually help to promote peace. But the war is putting that to the test and, at the same time, exposing the weaknesses in the supply chains that have been extended to the farthest corners of the world – weaknesses that had already been revealed by the pandemic and the recovery.

The United States, European Union (EU), United Kingdom (UK), and other members of their alliances are using financial sanctions to put massive pressure on Russia and its leaders to stop the war after the brutal invasion of Ukraine. But that is likely to come at a great cost to the world economy. This is something that concerns Harvard employees, retirees, and consumers all over the world.

Punishing Russia:

For the first time in history, Western nations have acted quickly to exclude Russia from the global financial system and trade. Some of Russia’s biggest banks have been kicked out of SWIFT, the system for international bank transfers. Germany has put on hold the launching of a new gas pipeline from Russia while the United States and the United Kingdom have clamped down on Russian oil imports. Hundreds of Western companies have closed shop or exited Russia, the world’s 11th largest economy, either to comply with sanctions or in protest of the war. Some of the rich oligarchs said to be close to the Kremlin have also had their assets frozen or seized.

The effects of the sanctions are clear in Russia where the central bank had to increase its policy rate to 20% and the Russian economy is expected to shrink as much as 10%. Although Russia was recently an integral part of the global community, cutting it off from supply chains and technology could be disastrous for Russian businesses and consumers. It is still unclear whether China will come in to fill the gap left by the West.

Supply Shocks:

Russia is a major supplier of food, energy, metals, and other raw materials, and prices of these commodities are often determined by the law of supply and demand in the global market. Therefore, price increases of some high-demand products have been observed due to supply shocks resulting from the war and sanctions. Russia is a major energy producer and exporter thus the crude oil and natural gas prices have risen since the conflict started mainly due to concerns on supply. The European Union gets about 40% of its natural gas and 25% of its oil from Russia. Thus, any reduction in energy exports from Russia would be impossible to replace and may lead to more shortages in the global market.

Russia is also a leading producer of metals like palladium (used in catalytic converters), platinum, aluminum, copper, and nickel (used in batteries). In addition, the world’s supply of neon gas used in making semiconductors was supplied by Ukrainian companies that have since been closed due to the conflict. Lack of sufficient production of neon elsewhere, shortages are likely to worsen the chip shortage that has been slowing down the generation of new cars, computers, phones, and other electronic products.

Russia and Ukraine are the leading suppliers of wheat to the world market, supplying 30%, corn supplying 17%, barley supplying 32%, and supplying sunflower seed oil 75%. Due to financial sanctions, Russia has been unable to export food, and the war has hindered Ukraine from exporting food. Russia is the world’s largest producer of fertilizer, which accounts for 15% of the global production. Thus, crop production in other parts of the world may be affected by a lack of fertilizer that has increased in price owing to the fact that natural gas is also a source of fertilizer.

Consequently, Harvard employees, retirees, and consumers across the globe will be able to pay more for their groceries. According to the United Nations, food prices, which are already at a record high, are expected to rise further by 22% due to the war. Egypt and other countries in North Africa, Middle East, and Asia are heavily dependent on grains from Russia and Ukraine. This results in food scarcity and high prices will lead to a significant rise in hunger globally.

Ripple Effects:

Despite the fact that Russia and Ukraine make up only about 2% of the world’s GDP, the war and the resulting high energy prices and supply shocks may affect the global economy, which has not yet recovered from the COVID-19 pandemic. The OECD predicts that in the first year of the war the world economic growth will be 1.1% lower and the prices will be 2.5% higher than without the invasion. The effects will be most pronounced in those countries that have closer trade and financial links with Russia and Ukraine. Accordingly, people with lower incomes will be affected more because food and energy are a higher portion of their spending.

The same OECD report points out that inflation is expected to rise by 2% in the euro area and 1.4% in the United States more than it would have without the war. The OECD expects that 2022 year's economic growth will be lowered by about 1.4% in the euro area and 0.9% in the United States. The humanitarian crisis and the economic disaster in Ukraine that has been caused by Russian aggression are almost impossible to quantify. More than 4 million people have been forced to flee Ukraine and many more could do so. Without external assistance, the burden of accepting the massive refugee influx is likely to place a strain on the financial resources of countries such as Hungary, Moldova, Poland, Romania, and Slovakia.

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In the American continent, however, Europe has closer ties to the Russia-Ukraine conflict, but both economies have seen their inflation rates climb to historical highs. In the coming months, the world’s key central banks will have the difficult task of hiking interest rates high enough to combat inflation without sparking a recession. There could also be long-term effects, including a reconfiguration of global supply chains and less integrated financial systems — something that Harvard employees and retirees should know about.

Sources:

1. Wikipedia contributors. 'Economic Impact of the Russian Invasion of Ukraine.'  Wikipedia , 17 Feb. 2025,  https://en.wikipedia.org/wiki/Economic_impact_of_the_Russian_invasion_of_Ukraine . Accessed 17 Feb. 2025.

2. 'Why's the War in Ukraine Still Impacting My Pension?'  PensionBee , 24 May 2023,  https://www.pensionbee.com/uk/blog/2023/may/ukraine-impact-on-pensions . Accessed 17 Feb. 2025.

3. 'Ukraine War Impacts Still Felt in Energy Markets, Pension Fund Returns.'  Pensions & Investments , 24 Feb. 2023,  https://www.pionline.com/markets/ukraine-war-impacts-still-felt-energy-markets-pension-fund-returns . Accessed 17 Feb. 2025.

4. 'Russia's Economic Gamble: The Hidden Costs of War-Driven Growth.'  Carnegie Endowment for International Peace , 15 Dec. 2024,  https://carnegieendowment.org/russia-eurasia/politika/2024/12/russia-economy-difficulties . Accessed 17 Feb. 2025.

5. 'Russia's Putin Announces 10% Hike in Pensions, Minimum Wage.'  Reuters , 25 May 2022,  https://www.reuters.com/world/europe/russias-putin-announces-10-hike-pensions-minimum-wage-2022-05-25 . Accessed 17 Feb. 2025.