CCG Releases Report on the Impact of the Crisis in Ukraine
March 17 , 2022
War between Russia and Ukraine broke out on February 24th when Russian President Vladimir Putin issued an order for a special military operation in the eastern part of Ukraine. The military conflict immediately became top news worldwide and marked the largest military assault within Europe since World War II. It has also caused Europe’s largest refugee crisis since that war. According to the statistics, more than 3.6 million Ukrainians have left the country and millions more have fled their homes.
After the conflict, a large number of countries particularly the U.S and Europe rapidly announced the “devastating sanctions” against Russia, which has had a major impact on the Russian economy, world financial markets, energy, agriculture, semiconductors, automobiles and supply chains overall. The sanctions also target individuals, banks, businesses, monetary exchanges, bank transfers, as well as exports and imports. Much more than a military operation, this crisis has sent shock waves through world capital markets and commodity markets, while also creating violent fluctuations in the prices of crude oil, agricultural products, and non-ferrous metals.
In response to these events, the Center for China and Globalization (CCG) decided to release a report titled The Impact of the Crisis in Ukraine on Global Supply Chains and China’s Economy.
This report begins by analyzing the massive shock caused by the Ukraine crisis and the US-European sanctions against Russia, providing initial estimates of the impact on the Russian economy, world financial markets, energy and food markets, global supply chains, the European economy and more widely the global economy. Second, the report posits several possible conclusions to the Ukraine crisis and the subsequent geostrategic impact on Europe. Finally, the report concludes by examining the Chinese economy beyond its borders and providing relevant recommendations. In summary, CCG believes that China could play the role of mediator in this crisis and potentially promote better multilateral relationships among Europe, the US and Russia.
The report is divided into five chapters. The first chapter provides supporting statistics to analyze the overall impact on global markets.
First, in stock markets, compared with the close on March 11th and February 25th, the three major New York stock indexes-Dow Jones, Nasdaq and S&P-suffered cumulative declines of 3.27%, 6.21% and 4.11%. Europe’s three major stock indexes-the FTSE100, Germany’s DAX and France’s CAC40 suffered cumulative declines of 4.46%, 6.45% and 7.29%.
Second, in currency markets, the US Dollar exchange strengthened, with its index rising by a cumulative 2.68% in two weeks, from 96.5433 to 99.1263. The Euro and the Pound fell by a cumulative 3.17% and 2.75% against the Dollar respectively. The Ruble plunged against the Dollar, from 83.8608 to 133.2500 Rubles per Dollar, while Yuan edged down 0.35% against the dollar.
Third, in energy markets, crude oil prices and natural gas prices surged. West Texas Intermediate (WTI) Crude Oil rose from$91.93 to $109.21 per barrel on the New York market in two weeks, which Brent Crude Oil on the London market rose from $94.56 to $112.30, both with a cumulative gain of 18.8%.
Fourth, in the international grain market, food prices also surged. Recent futures prices for soybeans, corn and wheat in the Chicago Board of Trade saw cumulative rises of 5.99%, 16.39%, and 29.02% respectively over two weeks, with an impressive rise in wheat in particular.
The second chapter emphasizes the impact on Russia itself and the world-wide economy.
First, for the global energy supply chains, the report shows that sanctions between the EU, the US and Russia in the energy sector have resulted in a mismatch between global energy supply and demand. The crude oil crisis is a structural problem and cannot be changed in the short term by increasing energy production by other energy suppliers. Existing global oil and gas supply chains have been disrupted and in some cases cut off, which will have a lasting negative impact on the world energy landscape and economic growth.
Second, for commodity and capital markets, the report states that the Ukraine crisis has greatly impacted on world stock and currency markets. If this trend continues, it will fuel international capital flows from emerging and developing countries to the U.S., resulting in new difficulties in maintaining balance of payments and debt burdens.
Third, in global food security and food supply chains, it is worth noting that high energy prices will have a significant impact on global food production in 2022. The report further explains that the current impact on grain exports from Russia and Ukraine may only be a prelude to a tightening of the global food supply. The long tail effect will extend to the end of this year and early next year as higher energy prices will raise the cost of food production, which in turn will affect the storage of agricultural harvests this year.
Fourth, in global industrial supply chains, the report specifically mentions three areas: semiconductors, automotive and aerospace. The conclusion is that the crisis in Ukraine will clearly have a negative impact on global supply chains and economy. Europe will have to bear the impact of significant inflation in the short term because of the “decoupling” from Russia. However, the specific performance of the relevant impact, affected by the conflict situation and its knock-on effects, remains to be further analyzed.
The third chapter predicts possible outcomes of the Ukraine Crisis and long-term changes in the geopolitical landscape of Europe.
The report puts forward three possible short-term outcomes of the Ukraine crisis at the beginning of this chapter. First, continued mediation of the international community and the participation of China, France, Germany and Turkey in mediation that could result in the Russian and Ukrainian sides agreeing to a ceasefire for a relatively short period of time. Second, the intensity and depth of the war may continue to deepen, but the Ukrainian government and the Russian side would reach a ceasefire agreement on an official level. Third, the two sides continue to hold each other off for a long period of time-six months or even longer.
However, in the long-term, the complex history between Russia and Ukraine, the role of the United States in the conflict and military aid from western countries all make it very likely that the war will continue. While the Russian-Ukrainian conflict may end in a temporary compromise as powers vie for influence, the geopolitical landscape of Europe will change significantly and its impact will still be long-term. This report provides four points in this area worth considering: 1. a deepening of European countries’ confrontation with Russia; 2. NATO status will be strengthened; 3. U.S control of Europe will be strengthened; 4. European-Russian trade will recover, but will not see any major growth.
The fourth chapter particularly analyzes the impact on China from the aspects of foreign exchange and capital markets, import and export, energy security, food security, and supply chain security.
In the near term, China will be affected by the war between Russia and Ukraine mainly in terms of upstream of energy, transportation and chemical industries triggered by rising energy prices. However, due to the size of China’s economy and the integrity its industrial chain, China will remain extremely resilient and maintain medium to high growth rates.
For long-term positive impact, the report shows that Europe will expand and strengthen cooperation with China in long run, especially in terms of exports to China, mutual investments and cooperation in the fourth industrial revolution. Europe will also pay more attention to Asian markets and focus on China, which will bring new opportunities to China. For long-term negative effects, the outbreak of the Russia-Ukraine conflict has not changed US strategies to contain China, and changes in the European strategic landscape will bring the EU closer to the US politically. Moreover, the West’s radical sanctions against Russia will also provide various possible policy references for future “extreme pressure” in the event of a possible deterioration in US-China relations. Therefore, this report concludes that China may face some collateral sanctions from the US and the China-Europe railway express may encounter certain geo-political difficulties.
In the fifth and final chapter, we provide four recommendations regarding the resolution of this conflict.
First, China should maintain a correct and fair position and work to promote peace. Second, China should continue to calmly and prudently maintain and develop normal trade relations with Russia and Ukraine. Third, China should also strengthen communication and cooperation with the EU. Fourth, it should strengthen dialogue and cooperation with the United States to stabilize Sino-US relations.
Since it was founded in 2008, CCG has been committed to studies on global governance, China-US relations and China-EU relations. CCG regularly releases reports on critical world events that provide both analysis and recommendations from the Chinese perspective. Previous reports include: China and the US in the Biden Era: Trends and Policy Responses; Understanding the US-China Trade War: Analyses and CCG recommendations; Prospects for China-US Trade: Seeking a rational resolution via the “Argentina Consensus”; China-US non-governmental cooperation in response to COVID-19: Current conditions, challenges and prospects; CPTPP, New Opportunities for China in Future Free Trade; China-US Trade Relations and Challenges: Past, Present, Future and Policy Options and Infrastructure Cooperation-New Opportunities for China-US Relations.
In 2021, travel restrictions due to the Covid-19 pandemic prompted CCG to launch the “CCG Global Dialogue Series”, which has successfully held around 30 online meetings and dialogues with dozens of experts from the US and EU to discuss and communicate the most pressing issues of the moment. In the future, CCG will continue to study, analyze and predict international trends at key moments, provide policy briefs and recommendations, and work to promote international cooperation, multilateral relations and track two diplomacy.
Research Group
Topics and Planning: Miao Lu
Overall Composition: He Weiwen
Writing and Editing: Wu Mengqi Xu Haiyu
Materials and Research: Cai Jing Yang Fan
