War on Ukraine: An Economic Lens on a Global Crisis

Written by Shivani Desai, W25; Edited by Talia Sacks W24

“We will fight as long as it takes to liberate the country… Slava Ukraini!” Ukrainian Prime Minister Zelensky solemnly spoke into the camera as his country’s citizens face an imminent war. 

What is going on?

The History

Russia has long been trying to show its dominance as a modern superpower, especially in light of the US’s hold on the West. From having veto power on the UN Security Council to invading Crimea, the Eastern European superpower has been trying to show its prowess to the world while remaining true to its culture. 

What does Russia have to gain? In 2014, Ukraine citizens ousted their former Pro-Russian President Viktor Yanukovych for accusations of treason and wealth mismanagement after violent street protests (BBC). Since then, over 100,000 Russian troops were sent to separatist borders where tensions grew up until a tipping point at the end of 2021. Russia demanded NATO cease all activity and that Ukraine demilitarize into neutrality (Al Jazeera).

The Current Situation: Key Economic Updates

Switzerland Breaks Neutrality

For many, the news that Switzerland froze Russian assets, joining the EU in enacting sanctions against the superpower that held almost 10.4 billion Swiss francs ($11.33 billion) in Switzerland in 2020, (Reuters) came as a shock. Despite previous isolationist policies enacted by the Congress of Vienna dating to 1815, as a mediator nestled between other European superpowers, Swiss officials faced growing pressure from protests and other EU member states to break their long standing neutrality (WaPo). 

Ruble Falls

After a number of countries including the US took part in freezing Russian assets and cutting off interactions with the Russian Central Bank, the value of the Russian currency severely depreciated, or lost value compared to the dollar (CNBC). What does this mean? Essentially, the purchasing power of Russians using the Ruble is weakened: the same amount of money doesn’t go as far as it used to, to purchase goods and services. Everything is about to become significantly more expensive for Russian citizens in this time of crisis. 

In response, the Russian government raised interest rates (throwback to ECON 010; let’s walk through what this means). Higher interest rates → more incentive for Russians to save their money in the banking system and have the value compound over time → more money saved = higher supply of loanable funds for cash flow → the exchange rate recovered slightly. However, higher interest rates make it harder for Russia to pay off its debts (CNBC)

Bear Market

What is a Bear Market? A decline in the stock market after confidence falls. That’s where we were almost heading. Why? Investors are scared of Central Banks hiking up interest rates.

Wheat Markets

Russia and Ukraine are major wheat exporters. A war would not only affect their production and exports, but in turn come back to harm them with lost profits and damage to crops for the future. Lebanon, Egypt, and Turkey stand to suffer from these lost imports. (NYT)

Oil & Gas

It’s safe to say that Russia is a major player in the gas market. Recently, The U.S. banned all Russian oil imports. The US currently produces the most, but also consumes the most oil. Regardless of how self-sufficient we can be, oil and gas are a global market, so when global prices rise, so do ours. Prices have surged from $90 to about $130 a barrel, which is reflected on the numbers by your local gas pump. Now what? There are talks of weighing the option of opening back up deals with Iran or Venezuela to get more crude oil circulating in the economy, but time will tell as inflation and prices continue to rise. 

Sanctions

What do sanctions mean? We seem to hear the term everywhere in the news. Countries enact them as a form of punishment against the target country, limiting their ability to export goods for revenue or receive goods for their economy. In addition to freezing assets as described above, foreign sanctions are affecting everyday Russian citizens by essentially nullifying the value of the ruble and limiting access to technology appliances. It’s a form of isolation Russia has been trying to fend off, but in the end, a failing currency can cripple the cycle of Russia’s economy.

The Future

Although it may feel out of reach to keep up with the news, it’s not as daunting as it seems to stay well-informed (what that means is subjective, too). 

Penn students get free, unlimited access to the Wall Street Journal & New York Times subscriptions. 

Once you activate your account through Penn Libraries, it’s as easy as receiving a newsletter to your inbox or downloading their Apps and browsing in your free time. 

Looking for something to listen to on your walk to class on Locust?

Podcasts are a great way to hear immediate updates on the happenings of the world, conveniently delivered through Spotify or Apple Music (the choice is yours).

NPR’s Up First covers the biggest stories needed to start your day in about 10 minutes.

NPR’s News Now is updated hourly and covers information in only 5 minutes.

Have some more time? The recs are limitless, test out which podcasts you enjoy and do your own research!

Disclaimer: Wharton Women is not affiliated with any of these publications. Any recommendations provided are from the author alone and do not represent the views of Wharton. 

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