How Current Events in Russia Could Spell Doom for the Global Economy

Economics 101

The global economy has been in turmoil for most people’s recent memory. No, it’s not just those of us in the United States that are feeling the pinch (but indeed, we are).

First, we suffered through the pandemic (enough has already been written about that), and when we raise our heads from that to see the light at the end of the tunnel, it ends up being an oncoming train in the form of Vladimir Putin invading Ukraine. That was about sixteen long months ago, and as troops slog it out in the trenches World War I style, there is no end in sight.

Economists tell us that despite a slight recovery in the second quarter, economic growth is likely stalling again. Looking overseas, we note that around the turn of the year, the 20 nations that use the euro have fallen into recession. Food prices are up across the board in Europe. This trickles down to the most basic of staples. Let’s look at white bread in Britain. Food doesn’t get much more basic than that. Last April, the cost of a loaf of white bread was up 28% over the previous year (1.39 pounds or approximately $1.72). Incidentally, that’s about what I pay now for a loaf of the ultra-cheap stuff at my local Walmart. Food and drink prices in the Kingdom have risen at the highest rate in over four decades.

How Does Russia Fit Into This?

I’m glad you asked. Russia used to be a superpower. Now their economy has dropped out of the top ten. Still, they supply a lot of energy to the world. This is despite the best efforts of Western sanctions against them. The tiny Middle Eastern nation of Qatar is concerned about the situation. Check that, they are “greatly concerned”.

When their foreign minister got word of Prigozhin’s rebellion yesterday, he responded with the following:

“The escalation of the situation in Russia and Ukraine will have negative repercussions on international security and peace, as well as on food and energy supplies,”

If Russian energy is not as freely available as it is now, countries like India and China will have to compete with the West for supplies. If the recent strife causes exports of fertilizer and grain to be further restricted prices go up for everyone who relies on Mother Russia as a breadbasket.

The recent events in Russia cause great uncertainty. To quote the folks at Morgan Stanley, there is an old saying on Wall Street: “Bad certainty is better than uncertainty.” Markets hate uncertainly. Can’t say I’m too crazy about it myself.

We May Be At a Tipping Point

Richard Bronze is the head of geopolitics at Energy Aspects. In case you aren’t up on what the good people at Energy Aspects do, according to their website, they “provide you with expert-driven, on-time analysis and critical data on global energy commodity markets, enabling you to make informed business decisions.” Expert analysis is somewhat useful in determining global fortunes.

Mr. Bronze has recently said to CNN:

“This seemingly attempted coup only brings uncertainty, which could be reflected through into higher prices,”

A gentleman named Matt Smith, lead Americas oil analyst at Kpler , seems to agree. He told CNN:

“Such upheaval and uncertainty as we have seen in recent days could bring support to prices given the potential for supply disruptions — and the fear of them — that wasn’t a consideration prior to the weekend.”

We are at a pivotal point in regard to the global economy. Time will tell if the end of the Wagner Group rebellion occurred quickly enough to allay fears of great stability in Russia.

If not, we may see global food and energy prices shoot up once again.

That affects your wallet, and it affects mine. Only time will tell how much.

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** If you feel like taking a deeper dive into global economics, click here.