War in Ukraine: How one year of conflict changed geopolitics and economics

In the early hours of Thursday, exactly one year ago, on February 24, 2022, Russian President Vladimir Putin announced the launch of a “special military operation” in Ukraine. He said they would “pursue the demilitarisation and denazification of Ukraine, as well as bringing to justice those who committed numerous bloody crimes against civilians, including citizens of the Russian Federation”.

The speech came just days after Putin recognised Donetsk People’s Republic and Luhansk People’s Republic in the Donbas region in Ukraine.

The “military operation” has become one of the biggest geopolitical events in decades, leading to a huge global economic disruption. Food grains, oil, share markets, nothing has been left unaffected. For India, too, it has brought changes in its global outlook and stature.

A U-turn in geopolitics

“The global geopolitical scenario has changed because East-West tensions and confrontation which characterised the Cold War have once again erupted in their ugliest form. In a sense we have been dragged back in time by both sides to where we were in the pre-1991 era,” said Pankaj Saran, convener at NatStrat. Saran served as India’s Deputy National Security Advisor between 2018 and 2021. He also served as the Indian Ambassador to Russia from 2016 to 2018.

“The crucial difference between then and now is that even as tensions between the two continued, a third global power in the form of China has emphatically risen on the global stage,” he added.

The main debate today revolves around democracy vs autocracy. Western countries, including the US, UK, and France, have repeatedly shown their support for Ukraine and democracy. India has reiterated that the solution to the conflict can only be arrived at using dialogue.

On the other hand, Russia is drawing support from more autocratic countries like China and Belarus.

India’s role has become more important for the global order. This, according to Saran, is both good and bad for India.

“Good because India can make a difference and influence events and the global discourse. Bad because there is now more responsibility in India and what we say and do is under greater scrutiny. This is the time for us to be focussed on our core national interests and be faithful to our civilisational values such as democracy and pluralism, both at home and at the international level,” he said.

The end of war is currently out of sight. Saran believes that for it to end, the US and Russia will have to show the required will.

“The only effort required to end this war is the display of political will by the US and Russia. This assumes that they both want the war to end. If they have other strategic objectives, then no efforts will be good enough. There was no mediator to end the Cold War,” he added.

Economy shadowed by high inflation and disrupted trade

The global economy, perhaps, was a bigger victim of the war. As the countries were struggling to get out of the damage caused by the Covid-19 pandemic, the disruption to global trade made by the war reversed the progress.

Inflation in most major economies surged to a multi-decade high in 2022. In India, the inflation has been above the Reserve Bank of India’s (RBI’s) upper tolerance level of 6 per cent in 10 out of the last 12 months. The rupee fell from Rs 74.64 per dollar on February 23, 2022, to Rs 82.61 on February 23.

As both Russia and Ukraine are major suppliers of food grains and fertilisers to the world, food prices have also remained high and volatile. The impact may have been relatively lesser on India in terms of prices, but the buffer stocks have gone down.

“The buffer stocks however have come down and the procurement costs for the government to build up buffers will have an impact on the fiscal balance,” said Ranen Banerjee, leader of Economic Advisory Services at PricewaterhouseCoopers (PwC).

Russia was a major supplier of fossil fuels to Europe. As sanctions, several countries have stopped importing oil and natural gas from it, and this has led to a hike in gas prices. The world also saw petrol and diesel prices touching multi-decade highs in 2022.

Though India is getting oil at a subsidised price from Russia, it is importing more than in the pre-war era. Banerjee believes India’s current account deficits have been negatively impacted owing to the high energy import bill.

He added that the high inflation was earlier believed to be a temporary phenomenon by the authorities. But it has become entrenched now. This was also reflected in the recently released minutes of the RBI monetary policy committee meeting. Most of the members of the MPC were in favour of more rate hikes in the coming days as the inflation remains “sticky”.

The central banks have increased their benchmark rates, making loans costlier. Companies, in response, have laid off thousands of their employees.

“The coming back of demand post the pandemic given excess liquidity pumped by the central banks to support the businesses and economy during the pandemic was met with continued supply side constraints and higher input costs. This has made inflation very high in many countries impacting households in the lower income brackets even in developed countries. This has forced monetary authorities to go for aggressive rate hikes to tame demand and several countries face the risk of recession and job losses,” Banerjee said.

A war no one believed would take place

Before the war, it sounded almost unbelievable to most people that two countries of such large scale could get into a war and that the war would last this long.

Neither of the two leaders, Vladimir Putin and Volodymyr Zelenskyy, seem to be backing off. During US President Joe Biden’s recent visit to Kyiv, Zelenskyy said, “And we hope that this year, 2023, will become a year of victory”.

Just a few days later, Putin said Russia would “pay increased attention to strengthening the nuclear triad”.

It has been one year, and it is difficult to understand how long the war will continue.