Who Is Prepared To Pay The Price Of A War Over Ukraine?

Wars Are Never Cheap

To hear Joe Biden tell it, a Russian invasion of UkraIine is going to happen—the “if" has devolved into “when".

The big question that remains is: given any "incursion" or "offensive" by Russia into Eastern Ukraine, will Biden order a military response in support of Kiev, or will the US stop short by merely ramping up sanctions? Biden began early in the Q&A with journalists by underscoring his belief that Putin is planning to invade Ukraine: "my guess is he will move in," he stated.

To hear the Russians tell it, Joe Biden and the White House staff are full of “disinformation”.

Russia’s top diplomat angrily rejected U.S. allegations that Moscow was preparing a pretext to invade Ukraine, as Russian troops that are amassed near the Ukraine border launched more drills Monday.

The White House said Friday that U.S. intelligence officials had concluded that Russia had already deployed operatives to rebel-controlled eastern Ukraine to carry out acts of sabotage there and blame them on Ukraine in a “false-flag operation” to create a pretext for possible invasion.

Speaking to reporters Monday, Russian Foreign Minister Sergey Lavrov dismissed the U.S. claim as “total disinformation.”

According to Joe Biden, Russia will pay a “heavy price” if they follow through with an Ukrainian invasion.

Biden, speaking at a news conference to mark his one-year anniversary in office, also said he believes that Russia is preparing to take action on Ukraine, though he doesn’t think the Russian president has made a final decision. He suggested that he would limit Russia’s access to the international banking system if it did further invade Ukraine.

According to the Russians, this fracas ultimately comes down to Russia’s own security, for which they demand strong security gains from Europe and the United States, including a permanent ban on Ukraine joining NATO.

Russia maintained a tough posture Wednesday amid the tensions over its troop buildup near Ukraine, with a top diplomat warning that Moscow will accept nothing less but “watertight” U.S. guarantees precluding NATO’s expansion to Ukraine.

Deputy Foreign Minister Sergei Ryabkov, who led the Russian delegation at the security talks with the U.S. in Geneva last week, reaffirmed that Moscow has no intentions of invading Ukraine as the West fears, but said that receiving Western security guarantees is an imperative for Moscow.

Going by the media narratives, Russia and the United States are talking themselves into war over the Ukraine, and Europe is going along for the ride.

Setting aside the political talking points being bandied about on the major media outlets, a serious question must be asked—and is being largely ignored by those same media outlets: what are the foreseeable ramifications from such a war, over and above the obvious casualties that would be suffered by both sides?

What are some of the foreseeable costs of a Ukrainian war, and who stands ready to pay them?

Europe Is Russia’s Biggest Customer

Europe is currently the recipient of the largest share of Russia’s exports—in particular energy exports in the form of fossil fuels—and provides over one-third of Russia’s imports. According to the European Commission:

Trade picture
• Russia is the EU's fifth largest trade partner, representing 4.8% of the EU’s total trade in goods with the world in 2020.

• The EU is Russia's biggest trade partner, accounting for 37.3% of the country’s total trade in goods with the world in 2020. 36.5% of Russia’s imports came from the EU and 37.9% of its exports went to the EU.

• Russia is the origin of 26% of the EU’s oil imports and 40% of the EU’s gas imports*. Energy price volatility directly affects the volume of bilateral trade.

• Total trade in goods between the EU and Russia in 2020 amounted to €174.3 billion. The EU’s imports were worth €95.3 billion and were dominated by fuel and mining products – especially petroleum (€67.3 billion, 70.6%), agriculture and raw materials (€4.3 billion, 4.5%), chemicals (€4.1 billion, 4.3%) and iron and steel (€4.0 billion, 4.1%). The EU’s exports totalled €79.0 billion. They were led by machinery and transport equipment (€35.0 billion, 44.1%), chemicals (€16.7 billion, 21.1%), and manufactured goods (€7.6 billion, 9.6%) as well as agriculture and raw materials (€6.9 billion, 8.7%).

• Two-way trade in services between the EU and Russia in 2020 amounted to €27.7 billion, with EU imports of services from Russia representing €8.9 billion and exports of services to Russia accounting for €18.8 billion.

• The EU is the largest investor in Russia. In 2019, the EU’s outward foreign direct investment (FDI) stock in Russia amounted to €311.4 billion, Russia’s FDI stock in the EU was estimated at €136 billion.

* Data from 1st semester of 2020

Should an actual shooting war break out with Russia, this trading activity at a minimum would be curtailed, if not canceled altogether. While the loss of ~5% of trading activity would be damaging to Europe's overall economy, the loss of 37.3% of trading activity can only be described as catastrophic for Russia.

It is also worth noting that trade between the European Union and Russia has increased significantly during the past year.

The value of Russian exports to European countries from January to August 2021 reached $109.7 billion, allowing Russia to remain the third largest EU exporter, European statistics agency Eurostat announced this week.

The volume of Russian exports in the reporting period increased by 48.7% compared to the same period in 2020, to $73.7 billion.

War over Ukraine will only disrupt a growing trading relationship, a disruption from which all sides will take years to recover.

Russia Is Importing More

The value of Russian imports reached a ten-year low in 2016, but has been steadily climbing ever since.

While China historically has had the largest share of imports to Russia, Germany and the US are next in line.

Russia main imports are: machinery, equipment and transport (45 percent of total imports), chemical products (19 percent) and foodstuffs and agricultural products (14.5 percent). Main import partners in 2015 were: China (19 percent of total imports), Germany (11 percent), the United States (6 percent) and Belarus (5 percent).

German and American imports to Russia would almost certainly be disrupted by war with Russia, at least for the duration of hostilities.

Russia Is The World's Largest Wheat Producer

Nor should it go unnoticed that Russia is the world's leading exporter of wheat, just ahead of the United States.

While neither Europe nor the US depends on Russia for food, an escalation of hostilities in Ukraine into a major European war could easily disrupt Russian grain shipments to the rest of the world. Countries no connection to nor interest in Ukraine could easily see a spike in food price inflation as a result of such a war.

War Would Have Global Economic Impact

These are just a few of the economic statistics involving Europe and Russia. These are what is at risk should war break out over tensions in Ukraine. These are just a few of the obvious costs of war.

This data, however, is enough to underscore the global impact such a war would have. People and nations with no interest in what happens in Ukraine would bear the consequences of war's inevitable disruption of global trade, and those consequences are not cheap. Billions of dollars’ worth of essential trade hang in the balance.

I have not discussed here the underlying disputes with Russia regarding Ukraine. Such conflicts are intrinsically political questions and not easily reduced to simple facts and statistics. I am not arguing either for war or peace—not yet.

The data does not—indeed, it cannot--establish a legitimate casus belli over Ukraine. What the data does establish is who will bear the consequences of war with Russia: Everyone. The world will feel the pinch of disrupted Russian grain shipments. Europeans will endure the inevitable surge in energy costs when they are deprived of their major energy supplier. Energy costs will likely rise globally as Europe is compelled to shop further abroad for supplies of petroleum and natural gas.

Regardless of the legitimacy or illegitimacy of any conflict with Russia, these are just the most obvious costs of allowing that conflict to escalate into actual war. Regardless of how just or how righteous war might be (or might not be), these are but a part of the price that will be paid.

Before the world hurls itself into war over Ukraine, it is only prudent to pause and ask: are we prepared to pay the price?