The Russian-Ukrainian Conflict: Beyond the Short-Term Implications

Russia’s regional ambitions represented a long-standing open test. However, with the invasion of Ukraine on February 24, the European security environment, the economic prospects of Ukraine and Russia, the stability of the markets is swept away and in the process of being reshaped. The same goes for a host of geopolitical challenges that have remained unresolved in a post-9/11, post-Afghanistan, and post-Brexit world. Interconnected challenges like
supply chain security, financial system integration, trade relations and
migration no longer simmer in the background as the world seeks to recover from a pandemic.

The deeper dive

Despite intermittent ceasefire talks, no clear way out of the conflict in Ukraine has yet emerged. In line with the Economics and Country Risk team forecast for the six-month outlook, Russia continues to follow an escalating path, most recently with a “Phase 2” focused on capturing the entire Donbass region. Even in the event of an internationally negotiated ceasefire agreement, we expect to see protracted, lower-intensity conflict continue unless a genuine Russian path of collapse (an external probability) does not occur. is reached.

While in our most likely scenario the conflict remains confined to Ukraine, we envision war trajectories where Russia seeks to expand and sustain fighting beyond Ukraine’s borders. This looks like spillovers to non-European Union and non-NATO states, including Moldova and Belarus, and less likely to affect wider EU and NATO territory. The Russian deployment of chemical, biological, radiological and nuclear weapons also remains on the table, albeit of extremely low probability.

Beyond the shorter-term implications for the Russian economy – our economists forecast an 11.1% contraction in real GDP in 2022 – and for Ukraine – which is expected to see a dizzying contraction of 45.7% of GDP real in 2022, the conflict is accelerating the redesign of a multitude of longer-term strategic challenges.

On global security, everything from future global political architecture to security alliances and nuclear proliferation is scrutinized. An emerging narrative of the conflict, so far, has been around a growing consensus on the unification of states against the Russian offensive and, therefore, Russia itself. Yet votes at the United Nations, its Human Rights Council and a recent walkout in the G20 Group in response to Russian participation, belie the growing misalignments between advanced and emerging economies.

Ukraine security map

Likewise on global financial integration, ranging from the future of globalization and regionalization to trade relations and sanctions, a lot is changing. The widely applied sanctions campaign against Russia’s banking, defense and commodities sectors, its individuals and institutions, led by the United States and its European allies, has been championed for its effectiveness in isolating Russia from the world economy. A subsequent wave of corporate self-sanction was seen as corroboration of the global appetite to rely on the economic tools of foreign policy rather than on the ground or on diplomacy alone. Yet concern over the precedent set by current sanctions and the potential future risk for others to face such economically consequential sanctions is growing in economies across Asia-Pacific, Latin America and Africa. sub-Saharan.

The pandemic catapulted supply chain links and vulnerabilities in the foreground. Russia’s invasion of Ukraine presents another consequential shock to the supply chain. Sanctions on Russia have precipitated a renewed conversation about the sources of energy dependency and the pace of energy transition. Similarly, the disruption and destruction of infrastructure in Ukraine caused by the war has raised new concerns about the availability of agricultural products and the risks to food security. The question of whether and how to unbundle supply chains, whether and how to ensure commodity security are now at the top of the global agenda.

Irregular migration of those fleeing conflict for Europe is nothing new. The year 2015 saw an influx of migrants seeking to escape the war in Syria. Yet the rapidly accelerating migration from within Europe across Europe – nearly six million people left Ukraine and another seven million internally displaced – precipitated by Russia’s invasion has no recent comparison. Beyond the short-term impact on Ukraine’s economic prospects, a refugee crisis in central Europe will have long-term implications for border patrols and cargo disruption, civil unrest, insurgency, policy responses and labor markets.

The take-out sale

We always knew that Putin’s ambitions for Russia’s neighborhood were likely to attract attention. We just didn’t know when. Since we saw Russian military personnel and resources piling up at the Ukrainian border and then crossing it on February 24, Ukraine’s economic and security outlook, Russia’s role in the world, market volatility around Inflationary pressures and commodity prices are all closely watched. Along with these shorter-term trends, the reassessment of long-standing challenges regarding the global security environment, global financial architecture, supply chains and migration is also evolving. The cumulative effect of each of these shocks will be felt for years to come, pushing us down a new path.

Posted on May 05, 2022 by Deepa KumarDeputy Head of Asia-Pacific Country Risk Team – Asia-Pacific Country Risk, IHS Markit


Lindsay Newman, Ph.D.Director, Economics and Country Risk, IHS Markit

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.

Michael J. Chiaramonte