On 24 February 2022, Russia invaded Ukraine, triggering international condemnation. The 2 March 2022 United Nations resolution demanding that Russia immediately end its military operations in Ukraine was adopted by 141 countries, with 37 abstentions and 5 against, while the 12 October 2022 UN resolution demanding the reversal of Russia’s attempted illegal annexation of Ukrainian territories was adopted by 143 countries, with 35 abstentions and 5 against1.
The international condemnation was followed quickly by the imposition of wide-ranging economic sanctions on Russia, and the provision of military support to Ukraine, by most OECD and European Union countries. Trade-related sanctions have included prohibitions of exports to Russia of strategic goods, including high-tech goods and components for use in electronics, telecommunications, aerospace and oil refining, among other sectors. Sanctions imposed by the United States apply not only to goods exported by US companies, but also to goods produced elsewhere using US technologies. The extraterritorial nature of US sanctions has likely impacted exports to Russia even from countries that have not applied sanctions.The EU, United Kingdom and US have also announced plans to phase out imports of Russian energy.
The war hit the global economy by creating new geopolitical and economic uncertainties, soaring energy prices, and disruptions to global value chains in which Russian and Ukrainian companies were involved. Economic sanctions exerted adverse effects not only on Russia, but also on countries that imposed them and, more generally, on other economies because of higher energy and commodity prices.
Isolating the impact on the global economy and trade of Russia’s war is difficult because global inflation pressures were building up already before the war, along with the recovery from the COVID-19 pandemic. The pandemic resulted in shortages of various materials and machinery, and in increased transportation costs and times. The fiscal stimulus implemented by most countries around the world in 2020-2021 supported household incomes, but the uncertainty and lockdown restrictions boosted household savings in several countries, creating pent-up demand. Sandbu (2022) argued that one of the reasons for the global surge in inflation, which came earlier than the energy price shock, was the strong rebound in US consumer goods demand, leading to a global scarcity of goods, with spill-over effects on the rest of the world. As pandemic-related restrictions were eased and largely eliminated from 2021 or early 2022, demand for contact-intensive services has also resumed 2. These developments would have exerted upward pressure on various prices even without the war.
WP 20Zsolt Darvas (zsolt.darvas@bruegel.org) is a Senior Fellow at Bruegel and Senior Research Fellow at Corvinus University of Budapest. Catarina Martins (catarina.martins@bruegel.org) is a Research Analyst at Bruegel.
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