Western Unity and Economic Pressure: The Growing Risks of a Long War in Ukraine

As the war in Ukraine reaches its fifth month, there is a growing confidence in the western alliance about the course of the conflict. This confidence is both justified and potentially dangerous, as the economic and political fallout of the war begins to weigh heavily on the governments of the west. The western allies have imposed unprecedented sanctions on Russia and provided significant military aid to Ukraine, but the economic impact of the war will be felt for months to come.

Key Takeaways:

• The economic costs of the war will have a significant impact on European economies, with energy bills set to soar by as much as 100% in the UK and the EU struggling to reduce dependence on Russian gas.
• The war will lead to increased prices, energy shortages, lost jobs, and a growing number of Ukrainian refugees in Europe, posing significant social and economic challenges.
• The US, while less economically exposed than Europe, is also feeling the effects of the war, with petrol prices soaring and American voters already expressing disapproval of Biden's handling of the crisis.
• The war poses significant risks to the governments of the west, particularly in terms of their ability to maintain social stability and economic growth in the face of rising prices and international tensions.
• The pressure on western unity could fracture, leading to contradictory pressures on political leaders, and the "Putin understanders" faction may begin to demand an end to the conflict, even at the expense of supporting Ukraine.

Statistics:

• Energy bills in the UK could increase by as much as 100% in April, followed by another 50% rise in October.
• The EU's target of reducing dependence on Russian gas by two-thirds by the end of the year is expected to be difficult to achieve, with some traders warning that a shortage of diesel from Russia could lead to fuel rationing in Europe.
• Food prices are set to surge, reflecting the importance of Ukraine and Russia to the global wheat and fertilizer markets, with the number of Europeans using food banks or requiring emergency assistance likely to increase.
• The war could lead to a new surge of desperate people trying to leave for Europe, exacerbating existing refugee challenges and straining government resources.

Sources:

• Rachman, G. (2022, March 31). The growing economic costs of the war in Ukraine. Financial Times.
• Petroleum prices in the US are soaring, with Bloomberg reported an average price of $3.436 per gallon on March 31.
• Traders at the FT commodities conference warned of fuel rationing in Europe due to a shortage of diesel from Russia.
• European Commissioner for Migration, Home Affairs and Citizenship, Ylva Johansson stated that 10 million Ukrainian refugees are expected in the EU.