The consequences of globalisation in our time are now once again being highlighted, as the recent direct conflict between Russia and Ukraine has sparked deep concerns in Europe, the USA and elsewhere over the long-run magnitude of all side effects, bringing back memories of a World War crisis from the 20th Century. The European Union and the U.S. government are observing the situation closely in recent weeks and even participate by offering aid of many (uncommon in recent history) forms beyond food supplies to the Ukrainian people and government. The social, political and economic status of all relevant member states are subject to the outcome of this recent escalation of events. This has forced the Western world to consider and even materialise the implementation of various responses to the event of invasion, with new sanctions being imposed on the Russian government and exports of Russian companies. However, what remains unclear is the level of risk with regards to the impact on economies that these moves will cause in the short and long run, especially for EU member states (some more than others).

Two main conclusions may be drawn from the recent events in Ukraine:

  • The lack of transparent fact-telling and the use of media propaganda as a tool to present and promote certain aspects of the big picture, from both sides as well as the rest of the world depending at worst on their affiliations and self-interests and at best on how they view things based on moral principles.
  • The people of the modern 21st Century world stand firmly against any type of war, regardless of reasons, right or wrong actions. This is a strong message by ordinary people across the globe.

In this article we will therefore focus mainly on the analysis of the economic implications caused by the ongoing war and a lot less on the aspect of political/social reasoning, on which our firm stance is that war should and must stop and that differences should always be resolved via diplomatic routes, given that both sides probably have valid arguments in their favour. A second article will follow, focusing specifically on the economic repercussions of the war on Cyprus.

The deep economic and ties between EU member states and Russia:

Throughout the years, there has existed a very close relationship between the Russian economy and a number of European states. Some analysts claim that the imposition of sanctions by the EU may create a boomerang effect, whereby the continent will end up hurting itself with more damage than what it will have caused. The package of sanctions is now covering areas of energy, banking and high-tech companies.

It is a well-known fact that Europe relies heavily on Russian gas. Russia supplies approximately 150 to 190 bcm (billion cubic metres) of gas per year to Europe. That is roughly around 40% of the EU’s natural gas imports (Horton & Palumbo, 2022). It is therefore only natural that gas prices in the European Union have increased by over 70% since late February 2022 (Figure A).

Nevertheless, Russian gas exports to Europe have been decreasing year after year, with the figures of February 2022 being 32% lower than the corresponding period of 2021 (Horton & Palumbo, 2022). This highlights a gradual fall in the European dependence on Russian supply. However, this dependence is still at objectively high levels, meaning that any domino-effects will still be markedly felt in European countries.

With regards to oil prices, these have risen to more than $100 per barrel for the first time since 2014, as shown in Figure B. The general consensus stating that European countries will terminate Russian oil imports means that oil prices may soar even further up in the near future.

Overall, the fact that the European Union has historically been at a position of trade deficit with Russia adds to the argument that European countries may be impacted heavily from an elongated war crisis. However, this also adds vulnerability to Russia’s economic position, as the country is heavily reliant on its exports to keep the economy active. The USA and EU are also coordinating the prevention of exports to Russia of various key western technology companies. In 2020 alone, European exports to Russia amounted to approximately €80 billion (Fleming, Foy, & Shotter, 2022). Adding to the above, Stewart supports that the heavy economic sanctions imposed by the EU and USA may have taken Russia by surprise in the sense of how swiftly these measures were taken (Stewart, 2022). The restrictions in transactions with foreign currencies (i.e., mainly the Dollar and Euro), the freezing of assets of various Russian banks, as well as the removal of most Russian banks from the SWIFT messaging system are just some of the measures taken in response to Russia’s latest actions. It has now been estimated that the country holds more than $600 billion in foreign reserves (i.e., money in other countries’ currencies and gold). As the country holds a lot of money in this sum outside its territory, it could now face a tough time trying to access these funds. As a result, the obvious may be stated here, in the sense that war will create a lose-lose situation for both sides of the chessboard.

Elina Ribakova, deputy chief economist at the International Institute of Finance, claims that the recent events may promote a global economic contagion. In trade, she supports that there will be knock-on effects which are already being witnessed with the increase in commodity prices. What is important to pay attention to is how each individual government and central bank around the world will react to global inflation, as to a certain extend this will determine the overall effect of the crisis and the knock-on effects (Stewart, 2022). In financial markets, Russia’s foreign reserves mentioned above translate into open financial positions which the country may now be unable to exercise, as it will be unable to use foreign intermediaries’ services to act on behalf of the Russian Central Bank and liquidate securities held outside the country.  Now that Russia will be forced to keep further reserves (in funds and gold) in the country, the EU and the USA will find it more difficult to impose further restrictions in the future (Jones & Cotterill, 2022).

As a matter of fact, the country is now preparing a presidential decree with the purpose of preventing foreign investment (assets) from leaving the country, as stated by the Russian Prime Minister, Mikhail Mishustin, on Tuesday March 1st (AFP, Russia to Limit Foreign Investment Being Pulled From Country, 2022). As thousands of Russians have already rushed to cash machines for withdrawals in fear of the plunging of the value of the ruble, the Russian Central Bank has doubled interest rates, while President Vladimir Putin has now banned residents, individuals and companies from transferring their money abroad to foreign accounts, in a dramatic emergency attempt to bring the vast bleeding of the economy to a halt after the imposition of western sanctions (AFP, 2022). Timothy Ash, specialist in Russian government debt, supports that “Putin is himself now cutting Russia off from international capital markets for a very long time. Russia’s financing costs will stay elevated for a long time — even the Chinese will not lend” (AFP, 2022). The way in which the whole situation will unfold in the following days or weeks will help determine just how large the overall hit to economies will be for both Russia and the EU. 

Concluding Remarks:

In contrast to the negative outlook created by what has been mentioned above, there is, of course, always room for immediate de-escalation of sanctions which will help global economies revive to a certain extent, or at least create an environment for a quicker comeback. Even so, economic tools are always applied as a consequence of / in response to foreign policy. Therefore, even if it may be in the best economic interest and well-being of everyone involved to cut back on sanctions after a certain point, there are other obvious factors affecting these decisions, these being political and military amongst others.

Socially, during recent days the world has seen most Russian representatives/sponsors being withdrawn from various European events one by one (e.g., see major sports tournaments, social events, etc). It still remains unclear as to where this whole situation will lead us with regards to economic and social welfare implications. What stands as a fact is that Russia is a modern world superpower which inevitably affects the rest of the world through such events due to its size, exposure and ties with international markets and economies. It currently ranks in the top 5 countries globally in terms of resources, be it petrol, wheat, precious metals and other commodities, a fact which needs not to be ignored. It will also be interesting to pay attention to the gradual stance of another superpower, China, which certainly has the ability to affect the balances on the international scale and has remained quiet and in some sense neutral until now (China holds 14% of Russia’s foreign exchange reserves, the highest percentage Russia keeps in any single state (Jones & Cotterill, 2022)). The sad truth is that, beyond politics and economics, innocent masses are now suffering as a result of the decisions of their “leaders”. Especially when in most cases the people have a lot more in common than differences. After all, the future of war has always been in the hands of a few and affecting everyone.


AFP. (2022, February). Putin Bans Russians, Companies From Transferring Cash Abroad. Retrieved from The Moscow Times:

AFP. (2022, March). Russia to Limit Foreign Investment Being Pulled From Country. Retrieved from The Moscow Times:

Fleming, S., Foy, H., & Shotter, J. (2022, February 07). Ukraine: EU wrestles with how to inflict sanctions ‘pain’ on Russia. Retrieved from Financial Times:

Horton, J., & Palumbo, D. (2022, March). Ukraine conflict: How reliant is Europe on Russia for oil and gas? Retrieved from BBC:

Jones, C., & Cotterill, J. (2022, February). Russia’s FX reserves slip from its grasp. Retrieved from Financial Times:

Stewart, E. (2022, March). Sanctions will have a “devastating” impact on Russia. Retrieved from Vox:


Σημείωση: Τα άρθρα και τα δημοσιεύματα της εταιρείας μας, σκοπό έχουν να παραθέσουν στοιχεία για συγκεκριμένα θέματα καθώς και απόψεις που βασίζονται σε εμπειρία και γνώση που έχει αποκτηθεί. Απώτερος σκοπός μας είναι η επιμόρφωση των αναγνωστών στο σύνολο τους και όχι η παροχή συμβουλών για συγκεκριμένες περιπτώσεις. Για όλα τα προηγούμενα άρθρα της εταιρείας μας, μπορείτε να επισκεφτείτε την σελίδα μας στο Facebook, όπως και το blog στην ιστοσελίδα μας.