The loss of life and economic stability are the most disastrous consequences of any war or armed conflict in the world. All countries are now interdependent on commodities and have to maintain the supply chain for global economic stability. Therefore, the ongoing war between Russia and Ukraine has not only taken their economy decades back but caused a significant crisis in global supply chains, thus giving rise to chaos, uncertainty and inflation. A disturbance in economic stability affects the lowermost rung of the society in the most adverse manner.
The Economic Cost Of Violence In A Country
According to the Institute of Economics and Peace, the economic cost of violence is the most in countries that experience recurring armed conflicts. For instance, amongst the most violent countries, Syria pays about 59.1 per cent of its total Gross Domestic Product (GDP) to cover the economic cost of the war. Similarly, Afghanistan and South Sudan pay 50.3 per cent and 46.3 per cent respectively. On the other hand, the top peace countries like Iceland and New Zealand spend barely 2.8 per cent and 5 per cent to cover the cost of violence in their country.
Increasing instances of violence, internally displaced persons and high levels of interpersonal violence among individuals or large militaries- all such factors take a massive economic toll on any country. The 2021 Economic Value of Peace report shows that the global economic impact of violence is estimated to be $14.4 trillion. In addition to suffering, social conflict and interpersonal violence hinder productivity and economic growth, destabilize institutions (both industrial and financial) and reduce business confidence. The International Monetary Fund (IMF) Executive Board met on March 4 in a meeting chaired by Managing Director Kristalina Georgieva.
In the press release by the International Monetary Fund (IMF), they recognized the heavy loss of life and property caused by the Russian invasion of the Ukrainian territory. More than 1 million refugees have fled Ukraine, and the West has imposed innumerable sanctions on Russia. The war is impacting Russia and Ukraine and is also affecting the economic situation in the neighbouring countries. This causes a cascading effect on other countries globally, which thereby become the unprecedented victims of an armed conflict.
While life and property are in danger in Ukraine, they have also lost their infrastructural capabilities, which might take decades to rebuild after the war ends. The Russian military is also suffering heavy losses as all the people of Ukraine have depicted praise-worthy courage and picked up arms to fight for their country. The neighbouring countries were not prepared for such a massive influx of refugees. Countries like Poland, Romania and Hungary are amongst several other European countries. Russia and Ukraine accounted for nearly one-third of the wheat supply in the world.
Therefore, experts anticipate a shortage of fuel, wheat, edible oils, and other essential commodities. A rise in prices triggers inflation in several countries globally, thus creating a situation called 'Stagflation'. Stagflation can be defined as a period of slow economic growth and increased unemployment cases. In simpler words, the term refers to a situation wherein an economy is experiencing a simultaneous increase in inflation and stagnation of economic output. The war in Ukraine is "a catastrophe" for the world, which will cut global economic growth, the World Bank president had said, the BBC reported.
Previous Instances Where Wars Have Ravaged Economies, Disrupted Supply
While studying previous instances of war in different parts of the world, one could infer how war impacts the global economy. For example, in the Iraq invasion by the United States, the oil prices shot up. They reduced total U.S. income GDP by approximately $274 billion, a direct transfer of about $124 billion and a further GDP effect of $150 billion.
While there is a slight job creation due to war because the government expects youngsters to work on a war footing, the number of people available for employment fall drastically. One might assume that this is an opportunity for those seeking jobs to get paid better; however, that seldom happens. That is because the countries are busy channelizing their resources for the war and lesser for their people. Moreover, a war in the present is a red herring that the country's citizens might experience higher taxes in the future. Apart from the pressing need of recreating the infrastructure in an emergency, the government starts experiencing higher psychological costs since the war leaves the people scarred for life.
War often affects oil prices because there is a threat to global supply chains. For example, the Gulf war of 1990 led to rising oil prices. Prices rose from $21 a barrel in July to a post-invasion peak of $46 in Mid-October. Similarly, since Russia is a significant exporter of oil and gas, and the country is under a string of economic sanctions, the prices are likely to scale northwards since there is a potential commodity shortage. We often see a rapid rise in public sector debt during the war. The government is willing to borrow a lot more than usual because – there is patriotic support for the war effort.
The first and the second world war were a nightmare to the United Kingdom and caused a massive hole in its pocket when it was ruling over more than half of the world. After the war ended, the debt continued to rise because there was a need of recreating the infrastructure and establish welfare schemes. U.K.'s national debt rose to 150 per cent at the end of World War Two – but then increased to 240 per cent by the early 1950s.
Lastly, while one might think that good days lie ahead after the war is made, the truth is far from fantasy. The aftermath of the war is not always so positive. The war led by Hitler ravaged Germany's economy, and the country had to bear all the reparation costs. The discord around the German hyperinflation of the 1920s sowed the seeds for political extremism and future wars. However, after the Second World War, the Allies didn't make the same mistake. The U.S. gave generous aid to Western Europe – helping the rebuilding process and leading to the economic miracle of Europe and Germany in particular.
One can conclude that wars might succeed to show a country's geopolitical strength and scare the weaker country into submission. However, the most essential human and economic costs are heavily compromised.
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