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Ukraine War Fallout Highlights How Russia Matter(ed?) to Global Economy

May 05, 2022
RM Staff

Prior to its 2022 invasion of Ukraine, Russia—and to a lesser extent Ukraine itself—had helped ensure a steady supply of commodities and services critical to a smoothly functioning global economy, some of them little noticed by anyone but specialists. Now, the war begun on Feb. 24, together with the subsequent waves of unprecedented Western sanctions, the corporate exodus from Russia and Moscow’s own responses to these measures have hurt major sectors of the global economy—including energy, agriculture, aviation and the production of high-tech goods like computer chips and electric-car batteries—compounding damage done by the COVID-19 pandemic.

Top officials at international financial institutions have warned that the war’s disruptions to global trade could push millions of people into poverty, causing food riots and lasting damage to poorer countries’ economies. The tremors have already been felt—from sovereign default in Sri Lanka to deadly unrest in Peru.

For many observers, the scale of these ripple effects has come as a surprise. Depending on the metric, Russia’s economy ranks somewhere between sixth- and 12th-largest in the world, but its heft has typically been attributed almost exclusively to hydrocarbons—a “gas station with nukes,” as historian Yuval Noah Harari quipped a week into the war. Both President Joe Biden and his former boss, Barack Obama, have shrugged off the country as a bit player on the international economic stage. This is understandable: No matter the measure, Russia accounts for less than 3.3% of the world’s overall economic output. But what such a mile-high view of Russia’s economy doesn’t take into account is its outsized role in several key sectors of the global economy.

Here is a snapshot of five such sectors that have thus far been significantly impacted by Moscow’s invasion and its economic fallout.


How Russia mattered: Last year Russia was the world’s largest exporter of natural gas, second-largest exporter of crude oil and third-largest exporter of coal. It also enriches more uranium for use in nuclear power plants than any other country in the world.

Impacts: The supply of Russian energy on world markets is shrinking due to sanctions and jitters among key players in the producer-to-consumer chain. Diminished supplies have been pushing up oil, gas and coal prices, some of them already high post-pandemic. The knock-on effect is straightforward: Higher energy costs drive up prices for almost anything that is manufactured or transported, from cement to cosmetics. This, in turn, creates potential political problems for incumbents worldwide.

  • Oil: Within two weeks of Moscow’s invasion, spot prices for two benchmark crudes—Brent and West Texas Intermediate—jumped by 20% and 34%, respectively.1 Prices are likely to keep climbing as the proposed EU ban on imports of Russian oil advances. In the U.S., where the price of crude makes up over half the retail cost of gasoline, prices at the pump hit record highs, forcing action as high up as the White House. Globally, industry executives warn of a “systemic” shortage of diesel fuel, with prices hitting a new high in early May. The International Energy Agency says the war could trigger “the biggest supply crisis in decades,” forecasting that by May nearly 3 million barrels of oil a day—about a quarter of Russian output—will no longer be reaching the market. Major international oil companies have lost billions divesting from Russia (but have been making up the losses on surging oil prices).
  • Natural gas: Europe, which got 74% of Russian exports in 2021, has been hardest hit. Prices there had been climbing steeply before the war, with Moscow blamed for capping supplies instead of sending more. Since the Ukraine invasion, prices have yo-yoed. Now, in light of Moscow’s brutality against civilians, European countries, especially top economy Germany, have been struggling to figure out how to punish Moscow with an embargo on gas without destroying their own economies.2 In the U.S., meanwhile, natural-gas prices have more than doubled so far in 2022, surging on May 3 to their highest since 2008. Americans’ electricity bills have followed suit, since gas fuels 40% of domestically produced electricity.
  • Coal: Prices of coal for power generation hit a record high in March, more than tripling since the start of the year amid record levels of usage. In April, following allegations of atrocities by Russian troops in Ukraine, phased bans of Russian coal were introduced in Japan, which is the world’s third-largest importer, the U.K. and the EU, where Russian coal made up nearly half of imports in 2021, threatening to drive consumers’ costs even higher.
  • Nuclear fuel: Uranium prices jumped more than 30% within three weeks of the war’s start and no one can “quickly fill Russia’s role in a complex supply chain that could take years to rejigger,” per the Wall Street Journal. Moscow said in March that it’s considering banning uranium exports to the U.S.—which got 16% of its supplies from Russia in 2020—but the impact on U.S. energy security would likely be relatively minor.


How Russia mattered: Russia was the world’s top wheat exporter in 2021-2022 and is a key producer of all three nutrients that go into fertilizerRussia was also the world’s second-largest exporter of sunflower and safflower oil, a key ingredient in many mass-produced foods.

Impact: Global food prices have struck a new high as the war in Ukraine hits supplies of grains, vegetable oils and fertilizers. Food prices in March jumped by 34% year on year, according to U.N. data—the fastest monthly rate in 14 years. Worst affected are poorer countries, already struggling from the impact of COVID-19. Humanitarian and rights groups warn that the war could leave millions hungry, especially in the Middle East and Africa, which rely heavily on Russia and Ukraine—also a major grain exporter—for agricultural products. 

  • Grains: Grain prices—already some of the highest in years—have soared in response to the war, the USDA writes. Russian exports are stymied by “exceptionally high insurance premiums for vessels” and sanctions that “make commercial transactions challenging.” Ukraine, which supplied 10% of global wheat exports in 2021-2022 to Russia’s 16%,3 has been forced to restrict farming activity and suspend port operations. Imports to Egypt and Turkey are expected to be especially hard hit, prompting analysts to recall that surging bread prices—due in part to drought-related production shortfalls in Russia and Ukraine—helped spark the protests of the Arab Spring in 2011-2012.
  • Fertilizer: Russia was the world’s largest nitrogen exporter (16.5% of global supply) in 2018 and the third-largest exporter of both potassium (16.5%) and phosphate (12.7%), accounting for a significant share of fertilizer imports to many of the countries on Moscow’s “unfriendly” list, Farm Week Now reports, citing the most recent data available. Ukraine, too, is a key producer of these chemicals.4 Now fertilizers are becoming more expensive and harder to get due to a mix of Western sanctions and “Russia’s retaliatory export ban.” The supply crunch has led to a quintupling of prices in some markets, the AP reports, “making the world's food supply more expensive and less abundant, as farmers skimp on nutrients for their crops and get lower yields.”
  • Vegetable oils: By early March, prices had more than doubled since September 2020, according to data cited by Time magazine, driven up by the same problems that hit grain exports. While Russia accounted for some 23% of the global market in 2019, Ukraine—the world’s biggest exporter of sunflower and safflower oil—accounted for up to 46%


How Russia mattered: Russia mines about 37% of the world’s palladium, according to market-research firm Techcet, a key ingredient in both computer chips and electric car batteries. It also accounts for some 11% of the world’s nickel, another crucial input for EV batteries. Russia and Ukraine5 both supply other chip-making materials, including 40-50% of the world’s semiconductor-grade neon gas—a byproduct of steel manufacturing, used to feed lasers that print minute circuitry onto silicon. Both countries were home to off-shore IT teams for dozens of foreign firms.

Impact: Post-invasion sanctions and divestment have threatened supplies of key battery materials for EV makers in the U.S. and Europe, as well as computer chip makers. They have also forced Western firms to rejigger their IT outsourcing.

  • Electric vehicles: Palladium prices have climbed to their highest level on record (since 1984) as sanctions threatened to disrupt output, and spiked even more after a ban on trading of Russian-produced metal. Prices for nickel likewise hit a new 11-year high in early March amid supply fears. The price surge, the Financial Times writes, is threatening “the car industry’s multibillion-dollar bet on electric vehicles,” built on the premise that batteries would keep getting cheaper.
  • Computer chips: The pandemic gave chipmakers practice dealing with supply disruptions, both the Wall Street Journal and Reuters have reported: Major producers have stockpiled raw materials and diversified procurement. But the prospect of longer-term scarcity has loomed large enough to get the White House involved. One fear has been that Russia would try to punish the West by curtailing exports, including supplies of sapphire substrates.
  • IT professionals: Gartner, a technology consultancy, estimates that, before the war, there were over 1 million IT professionals in Russia, Ukraine and Belarus—Moscow’s sanctioned ally—and about a quarter of them worked for consulting or outsourcing firms.6 Deutsche Bank alone had 1,500 employees in Russia developing and maintaining software and faced the loss of a quarter of its investment bank IT specialists after the war began. Russia’s IT professionals have reportedly been leaving in droves, with an industry group telling lawmakers in March that up to 70,000 had already fled and as many as 100,000 more could leave the following month.


How Russia mattered: Russia is the world’s third-largest exporter of steel, and Russia and Ukraine are the world’s biggest sellers of pig iron, the briquettes of iron ore used in steel production. The U.S.—the world’s largest buyer of pig iron most years—got two-thirds of its imports in 2021 from the two countries. Rusal, a sanctioned Russian firm, is the world's biggest aluminum producer outside China, accounting for around 6% of global supplies. And Russia is a large producer of cobalt and copper.

Impact: Exports of Russian metals are threatened by the war and its economic fallout, which have already pushed prices to record highs. These problems are compounded by disruptions to supplies from Ukraine—a major producer of metals in its own right, ranking No. 8 among world steel producers.

  • Steel: “Russia’s invasion threatens to turn steel into a luxury commodity,” according to The Washington Post. Prices have surged: The cost of hot-rolled coil steel hit a record high in mid-March, up nearly 250% from just before the pandemic, as did the price of rebar—the corrugated steel rods used to reinforce concrete in construction projects worldwide—which was up 150%. Prices for pig iron have nearly doubled since “fighting brought Ukrainian shipments to a halt and importers have stopped ordering from Russia,” the Wall Street Journal reports.
  • Aluminum: "Of all the major industrial metals, aluminum seems to be the most exposed,” one analyst told Reuters in early March as prices headed toward record highs amid fears of diminished Russian supply. As of March 30, prices were up 26% this year.


How Russia mattered: Russia is the world’s third-largest producer of titanium, widely used in airplane and aeroengine manufacturing; the country also offers the shortest air routes from Asia to Europe.

Impact: The war is disrupting supply chains in the European aerospace and defense sector, including key metals deliveries, Fitch Ratings says. Global titanium prices have jumped as supplies drop, due both to sanctions on Russian banks and to secondary effects, like major freight companies’ unwillingness to keep going to Russian ports. In the skies, overflight restrictions stemming from the war have driven up costs for air travel.

  • Aerospace construction: Until recently, Russia accounted for 15-20% of the global output of titanium. The metal’s unique properties—lightweight yet very strong, able to withstand high temperatures and resist corrosion—make it popular not only in the aerospace industry but others, from medical implants and surgical devices to chemical processing and parts for industrial plants. North American ferro-titanium prices rose sharply in early March after nearly half a year of little change. Western aerospace companies tried to stockpile titanium before the invasion, so seem to have a cushion for perhaps six to nine months, Fitch estimates. “But if disruptions continue beyond 2022,” the ratings agency wrote May 3, “supply availability and elevated prices may reduce aerospace companies’ profit margins and production volumes.”
  • Transportation services: Russian airspace is closed to aircraft from dozens of countries in retaliation for a ban on Russian planes. Consequently, international airlines, already suffering from high fuel costs and pandemic-era slumps in demand, need longer routes to bypass Russia. These, in turn, drive up ticket prices and freight rates. Moscow claimed in March that foreign airlines were spending an extra $37.5 million a week circumventing the country. (And much has been written already about the $10 billion worth of foreign-owned jets stuck in Russia, unlikely to ever be retrieved.) Railroads have not provided as good an alternative for freight as some had hoped. And ocean shipping has its own woes; last month, insurers deemed all of Russia’s waters high risk, promising still higher costs and more complications. The EU’s latest moves to ban Russian oil could impact global shipping even further, amid reports that restrictions will affect companies that provide “any service related to the shipment of Russian crude.”


  1. As of May 2, spot prices for Brent and West Texas Intermediate were, respectively, 9% and 14% higher than on Feb. 23, the day before Moscow’s invasion.
  2. Lithuania was reportedly the first EU country to fully cut off supply from Gazprom.
  3. The respective shares of Russian and Ukrainian global barley exports were 13% and 17%. Ukraine is likewise a major producer of corn, as well as rye, oats and millet.
  4. Together, Russia and Ukraine export 28% of fertilizers made from nitrogen, phosphate and potassium, according to Morgan Stanley data cited by CNBC. Another major exporter is Belarus, whose exports have also been hit by sanctions: Together with Russia it exports about 40% of the world’s potash (made from potassium).
  5. More than 90% of U.S. neon supplies are sourced from Ukraine, according to Reuters, and prices for the gas rose 600% in the run-up to Russia's 2014 annexation of Crimea. But even if neon prices were to increase tenfold, one analyst was cited by the Wall Street Journal as writing, neon “would represent a tiny fraction of the industry’s cost structure.”
  6. Amsterdam-based IT outsourcing company Daxx has estimated that there were 200,000 software developers in Ukraine in 2020, meaning that (if Garnter’s estimate of 1 million is correct) hundreds of thousands more are split between Russia and Belarus; Russia’s population is about 14 times larger than Belarus’s, suggesting that the former likely had a higher share of those outsourced IT professionals than the latter.

Image courtesy of Piqsels, in the public domain.