Six months that shook the world

Six months ago today, Russia launched its assault on Ukraine to "demilitarise and denazify" its neighbour. While the theatre of war has been limited to the borders of Ukraine, the whole world has felt the impacts of the fighting.

The crisis has given birth to the fastest growing refugee crisis since World War 2, unprecedented sanctions against a major economy, global energy crisis, major disruption of the international supply chain and cross-border relationships turned upside down, not to mention the rebirth of NATO. Some have described the current world order as a descendant to the iron curtain.

The Business Standard takes a deep dive into what this war has meant for the world and where things stand six months into the war.

Human toll of the war:

• Nearly six thousand civilians have been killed since the war began: UN
• More than 20,000 Ukrainian troops were killed or seriously wounded during the first 4 months.
• 15,000 Russian military personnel killed, while 45,000 wounded, claim some sources.
• At least 13,212 civilian casualties were reported in Ukraine: 5,514 killed and 7,698 injured.
• Over 10 million border crossings from Ukraine to the European Union (EU): UNHCR. 
• Countries with the highest refugee intake: Poland (1.27 million), Germany (940,000) and the Czech Republic (409,000)

A new world order?

Ever since the invasion began, the United States and its Western allies have been weighing on countries around the world to condemn Russia's actions and effectively implement the sanctions imposed on Russia. Not everyone, however, is responding to their liking. While some countries have gladly embraced the Western position, many countries are sitting on the fence by actively and tacitly continuing to engage with Russia. International relations experts have been speculating about the start of a new Cold War as countries actively and tacitly align themselves along the two sides. With tensions between Washington and Beijing also heightened after House Speaker Nancy Pelosi's visit to Taiwan, such speculation is indeed deserving of serious attention. 

China's President Xi Jinping, Russia's leader Vladimir Putin and US President Biden plan to attend the G20 summit in Bali in November, setting the stage for the first summit involving the leaders of the US, China and Russia since Moscow's invasion of Ukraine. 

Photo: Collected

The US and the West:

• Till July this year, America allocated €23.8bn in military aid, while the largest European donors, Britain and Poland, committed €4.4bn and €1.8bn, respectively, to Ukraine. American Himars (multiple rocket launchers) and Turkish drones have enabled Ukraine to stall the artillery-led Russian advance.
• Countries generally considered neutral like Finland and Sweden have now joined NATO's ranks.As of June 2022, three additional states have formally informed NATO of their membership aspirations: Bosnia and Herzegovina, Georgia, and Ukraine.
• NATO is expanding its rapid-response force to 300,000 troops. NATO allies significantly bulked up their presence at the alliance's eastern borders.
• Western trade with Russia has been replaced by trade with others – European nations are negotiating gas deals with Azerbaijan, Algeria and the Gulf states. 
• Europe is keen to revive the 2015 Iran nuclear deal that was scuttled by the US. Securing it would mean the lifting of sanctions on Iran and the flow of Iranian crude oil back into the market. 
• The US is seeking to thaw its relationship with Saudi Arabia, which soured over the Jamal Khashoggi Killing, in hopes of pursuing the kingdom to pump more oil to lower crude oil prices.
• Senior Biden administration officials travelled to Venezuela in a bid to rebuild relations with the South American oil giant as the war in Ukraine dragged on.

Russian sphere of influence:

• Western sanctions have brought Russia and China closer together. Four months after Moscow's invasion of Ukraine, China has overtaken Germany as the biggest single buyer of Russian energy.
• Former Pakistani Premier Imran Khan chose to meet with President Putin in Moscow just as Russian forces were invading Ukraine. This strained Islamabad's ties with Washington and Brussels and contributed to the ousting of Imran from power.
• Belarus is by far the country most heavily dependent on Russia for trade, as imports and exports to and from the country are equivalent to nearly half of the country's GDP. 
• The country with the second-closest trade partnership to Russia is Armenia, with Russian trade at 17% of GDP. 
• Countries like Hungary and Serbia have also maintained trade relations with Russia.
• Given China's tacit support, Western investors have pulled out of Chinese markets as well. Apple has begun moving manufacturing from China to Vietnam. In July, Volvo announced that it would open its first European factory in 60 years in Slovakia.
• Given the similarities between Russia's Ukraine war and Chinese claims over Taiwan – a world of closed economic blocks might be on the cards.

Countries on the fence:

• On 2 March, the UN General Assembly voted on a resolution condemning the invasion. Countries representing 59% of the world's population either abstained or voted against this. India and Bangladesh were among the countries that abstained.
• Turkey's President Recep Tayyip Erdoğan has simultaneously supplied Ukraine with valuable Bayraktar drones while maintaining relations with Russia and negotiating a deal to free up grain shipments through the Black Sea and the Bosphorus. 
• Other states maintaining relations with both sides include Kazakhstan, Algeria, Vietnam and Brazil.

A global economy in turmoil 

Economic Growth

• Russia's war led the International Monetary Fund last month to downgrade its outlook for the global economy for the fourth time in under a year. The lending agency expects 3.2% growth this year, down from the 4.9% it forecast in July 2021 and well below a vigorous 6.1% last year. 
• Food
• UNDP said rising food and energy prices threw 71 million people worldwide into poverty in the first three months of the war. Countries in the Balkans and sub-Saharan Africa were hit hardest. 
• Up to 181 million people in 41 countries could suffer a hunger crisis this year, the UNFAO has projected.
• Ukraine and Russia account for about a third of the world's wheat and a quarter of barley production, not to mention some 75% of the sunflower oil supply. 
• At least 23 countries have implemented 33 food export bans, and at least seven have implemented 11 export-limiting measures ever since the crisis began.

Supply chain

• Since the Russia-Ukraine crisis unfolded, hundreds of bulk carriers have been diverted away from the Black Sea. Several more are waiting at the port and the sea to unload their cargoes. With major ports in the area shut down and the movement of goods coming to a halt, the world's second-largest grain exporting region has essentially come to a standstill.
• At the beginning of 2022, ocean freight rates remained 8-9 times higher than the pre-pandemic rates. Experts have warned that the conflict between Russia and Ukraine may triple the ocean freight rate from the current levels.
• Around the globe, more than 600,000 businesses worldwide rely on Russian and Ukraine suppliers.

Commodities

• Ukraine has steadily increased its exports over the years, and is now a important provider of raw materials, chemical products and even machinery like transportation equipment, It's also a major supplier of minerals and other commodities. 
• Russia also controls about 10% of global copper reserves, and is a major producer of nickel and platinum. Nickel is a key raw material used in electric vehicle batteries, and copper is extensively used in electronics manufacturing and the construction of homes.

Energy 

• Europe which for years depended on Russian oil and natural gas for its industrial economy, has absorbed a gut punch. Russian natural gas supplies to Europe are down around 75% year on year, with export company Gazprom last week announcing unscheduled maintenance on the Nord Stream 1 pipeline, which runs under the Baltic Sea to Germany. 
• Europe faces the growing threat of recession as the Kremlin throttles back flows of natural gas. Prices are 15 times what they were before Russia massed troops on the Ukrainian border in March 2021. 
• European gas storage levels are critically low at 33% of capacity.

Inflation: 

• Information from between April and July 2022 shows high inflation in almost all low- and middle-income countries: 92.9% of low-income countries, 92.7% of lower-middle-income countries, and 89% of upper-middle-income countries have seen inflation levels above 5%. 
• Citizens of countries like Kenya and Uganda are experiencing a phenomenon called "shrinkflation": A price may not change, but a doughnut that used to weigh 45 grams may now be only 35 grams. Bread that weighs 1 kilogram is now 850 grams.

Are the sanctions working?

Financial sanctions cut Russia off from much of the international financial system. IMF expects the Russian economy to contract 6% this year. Russia's retail sales tumbled 10% in the second quarter compared with a year earlier as consumers cut back. Close to half of the $640 billion held externally in hard currency reserves were frozen. 

More than 1,000 multinational companies ended—or at least reduced—business in or with Russia . The list of sports and cultural bans include FIFA World Cup (both men's and women's), International Ice Hockey Federation, Formula 1, and Eurovision Song Contest.

Impact on Russia

• Russian GDP projections saw the worst contractions since the chaotic 1990s 
• In March, the ruble lost close to half of its value, from 84 rubles to 154 rubles to the dollar. 
• In mid-April, Moscow's mayor warned that 200,000 jobs were at risk. 
• Economy-wide inflation approached 18%, even higher in sectors most dependent on international supply chains.
• Russia has resorted to three main sanctions defence strategies to mitigate the impacts of the sanctions

Alternative trade partners :

• Although many countries joined the sanctions, some key ones did not. China has increased its Russian oil imports, provided some military goods, though it has not been as fully supportive as the Russia-China pre-invasion "no limits" partnership implied. 
• Prompted by price discounts as well as bilateral military ties, India increased Russian oil imports from 1 percent to 20 percent. 
• With Saudi Arabia and the United Arab Emirates refusing to significantly increase production, world price rises more than offset even the discounts Russia resorted to, keeping earnings by some estimates higher than the year before.

Sanctions busting :

• Oil tankers 'went dark' to avoid being detected and shippers and refiners hiding Russian oil blended in with others.
• Hundreds of thousands of metric tons of Ukrainian grain were stolen and shipped out to Russian allies. 
• Other sanctions-busting, include oligarchs and Putin associates finding offshore tax and banking havens and safe harbours for their superyachts.

• Hikes in central bank interest rates and capital controls helped bring the ruble back from its early sharp decline to a seven-year high in late June
• Arrests and other political repression subdued the initial wave of internal protests.