Invasion of Russia in 2022 and its Impact
On February 24, 2022, Russia attacked Ukraine. Invasion is widely regarded as an act of aggression. It has sparked the greatest refugee crisis in Europe since World War II, with over 4.2 million Ukrainians fleeing the country and a fourth of the population displaced.
The assault was a significant step forward in the Russo-Ukrainian War, which began following the Dignity Revolution in Ukraine in 2014. Russia has annexed Crimea, and Russian-backed separatists seized part of Ukraine’s southeastern region, provoking war. A substantial build-up of the military was initiated by Russia along the Ukrainian border in 2021, that is, up to 190,000 troops and their equipment.
President of Russia, Vladimir Putin, preached irredentist sentiments, questioned Ukraine’s claim to statehood, and falsely accused Ukraine of being governed by neo-Nazis who persecuted the ethnic Russian minority in a broadcast just before the invasion.
It was emphasized by Vladimir Putin that Russia’s security was harmed by NATO (North Atlantic Treaty Organization) as NATO was moving eastward during the early 2000s – a claim denied by NATO – and demanded that Ukraine should be prohibited from ever joining the alliance. Russia was blamed by the united states and others for plotting an attack or invasion of Ukraine, which Russian officials denied until February 23, 2022.
The Donetsk People’s Republic and the Luhansk People’s Republic, two self-proclaimed states in Donbas controlled by pro-Russian rebels, were recognized by Russia on February 21, 2022. The federation council of Russia authorized the use of military force abroad the next day, and overt Russian forces entered both areas the next day. On February 24, Putin announced a “special military operation” to “demilitarize and denazify” Ukraine.
Minutes later, missiles and aircraft attacked Ukraine’s capital, Kyiv, and were quickly followed by a massive ground invasion from various directions. President Volodymyr Zelenskyy of Ukraine responded by declaring martial law and mobilizing the military.
Russia, Belarus, and the two occupied Ukrainian areas launched multi-pronged offensives (Crimea and Donbas). Planes and rockets of Russia had also targeted the western regions of Ukraine.
Russian forces have approached or besieged significant settlements such as Chernihiv, Kyiv, Kharkiv, Kherson, Mariupol, and Sumy. Still, they have run against challenging Ukrainian logistical and resistance and operational obstacles. The Russian forces had more success in the south three weeks after the invasion began, while incremental advances or stalemates elsewhere forced them into attrition warfare, resulting in rising civilian losses.
Internationally, the invasion has been widely denounced. A resolution was passed by the general assembly of the united nations condemning it and calling for a complete withdrawal. Russia was kicked out of the council of Europe when the International Court of Justice ordered it to cease military operations. Many countries slapped new sanctions on Russia and the rest of the world, as well as provided humanitarian and military aid to Ukraine.
Protests took place all around the world; in Russia, they were greeted with mass arrests and heightened media censorship, which included the prohibition of the terms “war” and “invasion.” Several companies have withdrawn their products and services from Russia and Belarus. It includes Russian state-funded media outlets that were barred from broadcasting and were deleted from online platforms. An inquiry was being set up by the International Criminal Court for the allegations raised on the military movement of Russia.
Background of Conflict
Ukraine and Russia remained close after the dissolution of the Soviet Union in 1991. Years passed, and the region’s ongoing hostilities prompted countries that had previously been part of the Soviet Union to join NATO, seeking backing from the West and the United States. Ukraine and Georgia applied to join NATO in 2008, but their request was denied due to a split opinion. Their admittance was largely supported by The United States.
With Ukraine’s internal political turmoil dating back to 2004, the most significant action was the rewriting of the constitution to allow the country to join the EU and NATO. Russia has taken a tough stance, claiming that Ukraine’s joining NATO will jeopardize the country’s security and integrity. Ukraine, on the other hand, was adamant about joining the EU and NATO.
Sanctions on Russia
As an energy superpower, Russia relies on its conventional fuel reserves. Its economy is also based on advanced armaments manufacture and exports, as well as the automobile industry. The country is ranked 10th among Europe’s tourism hotspots.
To end the war, the United States and NATO members imposed a slew of sanctions on Russia, making it the world’s most sanctioned country. In addition, Russian banks have been barred from using the Swift International Payment System by Western allies. It means that no loan or finance-trade payments may be made, which will have a significant impact on global trade and supply chains. As Russia has vast reserves of crude and natural gas, this results in steep discounts for Russian fuels and, at the same time, a global demand deficit.
Effects on the global economy
Various European nations rely substantially on Russian energy, particularly gas, which is transported through many vital pipelines. Imagine if the situation is resolved; still, the heavy economic penalties imposed on Russia may make it difficult for these countries to buy gas.
Meanwhile, traders hurried to find alternative crude sources in a market that was already tight when oil prices soared on Wednesday as supply interruptions grew due to Russian financial penalties,
Brent crude futures climbed more than dollar 8 to a high of dollar 113.02 a barrel, the most since June 2014, before dropping to $111.53, up to $6.56 or 6.3 per cent by 950 GMT.
Supplies: Companies are trying to secure enough raw materials and components to manufacture items to meet growing customer demand due to the world’s speedy recovery from the pandemic crisis. Shortages, shipping delays, and rising prices are caused by overloaded factories, ports, and freight terminals. Industries in Russia and Ukraine could be disrupted, delaying a return to normalcy.
Transportation: With global transportation already severely hampered due to the pandemic, the conflict has the potential to worsen the situation. Ocean freight and rail transport are two types of transport that are likely to be affected. Although rail transports only a tiny percentage of the total freight transported between Asia and Europe, it has played an essential role in the recent and steadily growing period of transport congestion. Sanctions against Russia are expected to have a significant impact on countries like Lithuania’s rail traffic.
Food supplies: Russia and Ukraine account for 30% of global wheat exports, 19% of corn exports, and 80% of sunflower oil exports, all of which are utilized in food processing. According to the Associated Press, much of the Russian and Ukrainian windfall goes to poor, insecure countries like Yemen and Libya. The threat to eastern Ukraine’s farms and a halt to exports through Black Sea ports could limit food supplies at a time when prices are at their highest since 2011, and several countries are experiencing food shortages.
Edible oil: Ukraine accounts for nearly half of all sunflower oil exports. Importers will struggle to replace supplies if harvesting and processing are hampered in war-torn Ukraine, or exports are halted.
With significant supply interruptions looming in India, firms are left with few options to contemplate raising prices of daily-consumed edible oils within weeks. According to the country’s primary edible oil producers, over 70% of India’s crude edible oil demand is covered by imports, and the proportion of sunflower oil is even higher.
Rising prices: The battle in Ukraine comes at a particularly difficult time for the Federal Reserve and other central banks. They were caught by surprise by the recent spike in inflation, which was primarily due to the economy’s unexpectedly strong recovery.
Consumer prices in the United States increased 7.5 per cent from a year ago, the most significant increase since 1982. In Europe, numbers released Wednesday show that inflation in the 19 nations that use the euro currency increased to a record 5.8% last month compared to a year ago.
Automobile: The war is predicted to have a significant impact on the automobile industry. The industry’s troubles will likely be exacerbated by rising oil prices, a continuing shortage of transistors and circuits, and other rare earth metal shortages. Aside from that, Ukraine is home to a slew of enterprises that produce automobile parts for automakers.
According to The Wall Street Journal, Leoni AG, which supplies European automakers with wire systems built in Ukraine, has closed its two plants in the country. As a result, Volkswagen AG had to complete one of its German plants.
The negative effect of Ukraine- Russian conflict on the Indian economy
Crude: Russia is the world’s third-largest oil-producing country. Russia has been included in a list of oil-producing nations that provides for Iran and Venezuela. The global supply of crude oil was impacted by the Russian oil embargo. Oil prices in other producing countries rose while Russian oil was heavily discounted. Even though India only imports 2% of its oil from Russia, it continues to bear the impact indirectly because it imports 85% of its needs from the Middle East. Prices may fall due to peace discussions, but when tensions rise, prices will soar.
Inflation: Crude oil caught fire as a result of the escalation. It raised not only the trade deficit but also the prices of a variety of items. Crude oil is used in almost 6000 items, and their prices have risen or will rise accordingly. Nearly every industry is connected to crude oil or its derivatives, either directly or indirectly. As a result, inflation may exceed forecasted levels. With moderate inflation, the RBI will have to raise interest rates as a countermeasure.
Possibility of sanctions on India
Amid all this uncertainty, you might consider the potential of Western countries imposing sanctions on India. The move could be conceivable because Russia supplies most of India’s defence equipment, including the S 400. The Countering America’s Adversaries through Sanctions Act, or CAATSA, prohibits all of these defence sales. Before the Russian-Ukrainian war, it was expected that the US would lift sanctions on India for its S-400 agreements.
The equipment, India stated, was a critical deterrent against China and Pakistan. India has been issuing numerous warnings in this regard. Because of the Russian-Ukrainian war, getting out of the CAATSA act is becoming increasingly difficult.
Exchange rate: The Indian rupee may depreciate more if the war between Russia and Ukraine persists. As a result of the rise in oil prices and the increase in the US dollar index, FPIs (foreign portfolio investors) withdrew their assets due to concerns about growing inflation, further devaluing the INR to an all-time low.
The positive impact of Ukraine- Russian conflict on the Indian economy
Russian Currency: Because of the multiple sanctions imposed on Russia, the Russian Ruble has been in free fall. The demand for the Ruble has decreased, resulting in an imbalance and the possibility of hyperinflation.
So, how can the rupee’s depreciation help India’s economy?
Since the West has imposed sanctions on Russia and barred it from using Swift, India may pursue a Rupee-Rouble trading pact. It will primarily help India since we will be able to purchase defence equipment and crude oil at reduced prices, hence providing a further boost to our economy.
Boost to the agriculture sector: Russia and Ukraine exported more than 30% of wheat globally. Ukraine is recognized as the balance bar of Europe. Because of the Russian invasion of Ukraine, wheat prices increased by more than 50%. The wheat supply chain in the world has been heavily damaged due to prolonged hostility between these two countries. India creates a lot of wheat, and this dispute can increase our wheat exports.
Opportunities for Indian Investors: The ongoing conflict between Russia and Ukraine will likely benefit Indian retail investors. Concrete actions and Bluechip become available at a reduced cost due to the considerable sales of FPI. After the pandemic adjustment, this is a period of significant adjustment, with many good actions in most areas. Good people see this as a golden opportunity to invest long term. On the other hand, situations like wars and international conflicts are sad events that should never have happened.
Edited by Prakriti Arora