Global Economic Conflict
Without a doubt, when the conflict between Ukraine and Russia began, economists jumped to say that the whole world would suffer the consequences of such a sudden war. In Putin’s arsenal, two raw materials are of great interest to the world, oil and natural gas.
Europe receives 40 percent of its natural gas and 25 percent of its oil from Russia.
Likewise, we must remember that both economies participate globally in products and services.
If Ukraine continues to fight this war, trying to maintain its autonomy, the production of grains and natural oils may decline, causing a shortage of products. When this happens, it leaves no choice but to look for a replacement, making it extremely expensive in some cases.
Another point to explore is that although Russia maintains superiority in military power, this does not mean superiority in the world of finance since its economy is suffering a severe blow.
On January 1, 2020, you could exchange 61.87 rubles for every U.S. dollar (Russia’s official currency). By late March, for each U.S. dollar, you will receive 106.65 rubles, almost doubling the figure of January 1, 2020.
Economic Impact in the United States
This conflict still affects us, even though we are not involved in it and we are approximately 5,000 miles away from both countries.
Without a doubt, precious black gold is one of the products that costs us much more now, and we know it firsthand.
The average price of gasoline in the United States reached $2.17 per gallon in 2020. Now in 2022, the average is around $4.25.
“First thing you are seeing is at the pump, which you know gas prices are slowly on the rise…but it doesn’t just stop there. So many products actually use oil in their production process… so many products that you use on a daily basis,” Donald Ross, professor of economics at OCCC, told the Pioneer.
Products range from electronics, textiles, sports products, health and beauty products, medical products and products we use in our home.
The reality is that products that use oil as raw material, like natural gas, can rise in price, meaning a price on the products that we go to the store to buy. It is imperative to remember that this raw material is critical, especially for the United States.
“The purchasing power of the U.S. currency may not go as far if the price of goods and services go up all the way from rice to the gasoline you are putting on your vehicle,” Ross said about why it is vital to keep an eye on oil prices.
Perhaps you have heard about a movement that is beginning to become politicized.
The United States can use its reserves and manufacture oil to offset the very high prices of this precious commodity.
“What I have read historically is that the U.S couldn’t become totally independent,” Ross said.
Ross added to this growing debate in social networks and the media. Ross says that there are two ways of looking at this conflict.
The first is based on the idea that the United States become independent in its energy, meaning being the primary producer of oil and natural gas.
This industry is big in Oklahoma. As he mentioned, the only problem is that the United States would have to implement ways so that it would not be so expensive to become independent.
The other way of thinking about this conflict is to keep our loot of oil and natural gas and use that of other countries, so when there is a demand for these raw materials, we have some leverage over these reserves.
Economic Sanctions vs. Russia and its Oligarchs
To understand how some of these sanctions imposed on Russia work, it is crucial to know the history of the oligarchs. At the collapse of the Soviet Union, the Russian government basically sold out to prominent young entrepreneurs, economic sectors of the fallen Soviet Union. The oligarchs were in charge of making the correct political movements.
Jumping to today, most of the oligarchs still hold enormous influence in the country’s politics, but with the absolute control of Vladimir Putin.
The oligarchs are vital players because, first, they provide money to the Russian president and move a lot of the economy in Russia.
There is a small problem, though. A lot of their money is “parked” in the west, that is, places like the United States and other economies in Europe.
These sanctions almost surgically remove the privileges of many of these Russian tycoons to put pressure on the Russian leader Vladimir Putin since the oligarchs are closely related to him.
For example, the British government sanctioned the famous European soccer team, Chelsea, because its owner, Roman Abramovich is an oligarch.
The British government took such harsh action that Abramovich decided to sell his beloved club.
Other restrictions range from private companies such as Starbucks and McDonald’s closing all operations in the Russian country.
Other companies are Apple, Microsoft, BMW, Ford, VISA & Mastercard, Nike, Samsung, Netflix… and many other companies that join in the fight to raise awareness about this invasion by imposing their sanctions to the mix.
There is a big “but” in imposing these sanctions here.
As Ross says, “You gotta be real careful with sanctions. Because, if it goes too far, you can anger the Russian citizens who want nothing to do with this war.”
Does this sound familiar? For all you history buffs, the world has done this before, specifically France, the U.K, and the U.S.
At the end of the First World War, the world-imposed sanctions on a small but influential country called Germany.
“What that (sanctions) essentially did it angered the Germans so bad, that they turned into one dude, an extremist, to get back national pride,” Ross said.
That extremist was Adolf Hitler.
While many of the sanctions in place seem to be aimed at higher-ups like Vladimir Putin’s inner circle, we have to remember that sanctions may not always be the solution to everything.
Also, we need to watch out for how these sanctions are being applied and who they are targeting as they put Russia in a tough spot.
While this war is still going on, the economic impact will continue to be dragged along. One thing is for sure. The conflict should end immediately, as we won’t know for certain how the future global economy may look if this war continues.
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