#readwise # The Economic Consequences of the War in Ukraine  ## Metadata - Author: [[economist.com]] - Full Title: The Economic Consequences of the War in Ukraine - URL: https://www.economist.com/finance-and-economics/2022/02/25/the-economic-consequences-of-the-war-in-ukraine ## Highlights **OVER THE past decade intensifying geopolitical risk has been a constant feature of world politics, yet the world economy and financial markets have shrugged it off.** From the contest between China and America to the rise of populist rulers in Latin America and tensions in the Middle East, firms and investors have carried on regardless, judging that the economic consequences will be contained. **Russia’s invasion of Ukraine is likely to break this pattern, because it will result in the isolation of the world’s 11th-largest economy and one of its largest commodity producers. The immediate global implications will be higher inflation, lower growth and some disruption to financial markets as deeper sanctions take hold. The longer-term fallout will be a further debilitation of the system of globalised supply chains and integrated financial markets** that has dominated the world economy since the Soviet Union collapsed in 1991. --- **The supply of commodities could be damaged in one of two ways. Their delivery might be disrupted if physical infrastructure such as pipelines or Black Sea ports are destroyed. Alternatively, deeper sanctions on Russia’s commodity complex could prevent Western customers from buying from it.** Up until now both sides have been wary about weaponising the trade in energy and commodities, which continued throughout the cold war. Sanctions after the invasion of Crimea did not prevent BP, ExxonMobil or Shell from investing in Russia, while American penalties on Rusal, a Russian metals firm, in 2018 were short-lived. Germany’s decision to mothball the Nord Stream 2 gas pipeline on February 22nd was largely symbolic since it does not yet carry gas from Russia to the West. --- **The longer-term impact will be to accelerate the division of the world into economic blocs.** Russia will be forced to tilt east, relying more on trade and financial links with China. **In the West more politicians and firms will ask if a key tenet of globalisation—that you should trade with everyone, not just your geopolitical allies—is still valid**, not just for Russia but other autocracies. China will look at Western sanctions on Russia and conclude that it needs to intensify its campaign of self-sufficiency. **The invasion of Ukraine might not cause a global economic crisis today but it will change how the world economy operates for decades to come.** ---