What impact do you believe the ongoing instability between Ukraine and Russia would have on Europe’s economy if a conflict breaks out?
Europe has been at the center of trade for decades after enjoying unprecedented peace, security, and stability for many years, and it was the major driving force for the global economy for many years before the emergence of Asia, particularly the advancement of China.
However, instabilities in eastern Europe, particularly in Ukraine, are threatening more than 75 years of relative peace and stability in Europe, which will have profound consequences for Europe’s economy.
The US and its allies, particularly the UK, have been informing the world for months that Russia was plotting an invasion of Ukraine, citing more than 100,000 Russian troops stationed on the Ukrainian border. They recently escalated the danger of a Russian invasion of Ukraine by citing military exercises in Belarus, despite Russia’s denial of such allegations.
It should be emphasized that Russia is one of the world’s major producers of oil and gas, and Europe is one of Russia’s top consumers, accounting for more than 30% of Europe’s energy demands. Germany, Hungary, Poland, Bosnia & Herzegovina, Moldova, and a number of other countries rely on Moscow for their energy needs.
It’s also worth noting that gas prices in Europe have risen by as much as 75%, putting the cost of a gallon of gasoline at an all-time high. This is hitting European households particularly hard during the winter season when gas is needed more than ever to keep millions of homes warm.
High prices in Europe have caused inflation to go up by 5.1% as of January 2022 and that was before the Ukraine crisis intensified this comes as economies in Europe were starting to slowly recover from the devastation caused by the Covid-19 pandemic which started in 2020.
Europe has experienced wars and cruises for hundreds of years and they just had more than 75 years of relative peace and stability which is a major achievement but the renewed crisis in eastern Europe especially Ukraine could destroy this relative peace and stability which had defined Europe for decades as a peaceful continent.
If a war breaks out between Russia and Ukraine, three major events are likely to occur in Europe’s economy. That’s right!
If a war breaks out between Russia and Ukraine, first there’s no guarantee that it will remain between Russia and Ukraine, which means there’s a chance that it may spill over into neighboring countries drawing in Europe like what happened during world war I and II.
Secondly, the US has convinced its allies in Europe to apply the toughest sanctions in human history against Russia which means even the Russian energy sector will be sanctioned, and hence this happens, then that’s the beginning of chaos in Europe if people don’t get gas to heat their homes.
Governments in Europe will likely be overthrown as people take to the streets to protest the lack of fuel for their cars and gas for their homes.
Thirdly, even if Europe manages to get alternative sources of energy as the US has promised, gas or oil will be much more expensive which will undoubtedly drive up commodity prices in Europe and the result will be inflation on a scale never seen before since the world war II.
The EU is Russia’s largest trading partner, accounting for 37.3 of the country’s total trade in goods with the world in 2020. 36.5% of Russian imports come from the EU and 37.9% of its exports go to the EU with total trade volume reaching more than 174 billion Euros.
This is no small trade between the EU and Russia, so the question is” what happens if this trade comes to stop” maybe after the imposition of sanctions. It will have devastating consequences on the economy of Europe which may even cause Chaos among member states.
The biggest challenge Europe is likely to face and maybe is facing it even now but on small scale is the migration of investors and investments from Europe to the US. If this happens on large scale, then there will be a crash of markets in Europe bringing the whole economy to a standstill in one night.
For investors and investments, peace and stability are the main factors and if you can’t guarantee those two, they will just leave and take their money where they feel secure and the likely beneficiary from this will be the York stock exchange in the United States of America.
Ukraine is already experiencing this situation. According to president Zelensky of Ukraine, the increased rhetoric about the Russian invasion of his country is causing panic among the population, countries have withdrawn their citizens, commercial flights are no longer working, investments and investors have fled and factories have been shut down.
If the inflation continues to skyrocket and Russia is put under sanctions as the US is telling the world due to the invasion of Ukraine, the Euro currency will weaken to near collapse as investors flee Europe with their money and when that happens, there will be no one to save Europe.
