War casts long shadow on world economy

Good evening

Six months to the day after Russia invaded Ukraine, the grinding conflict is still casting a shadow over the global economy, keeping energy prices at elevated levels and jeopardising the global food system.

Russia itself may be staggering under the effect of western sanctions, but as the FT editorial board points out, it is still on its feet. Half the country’s $640bn foreign exchange reserves are frozen, several of its top banks have been cut off from the international payments system and about 1,000 western companies — accounting for about 40 per cent of Russia’s GDP by one estimate — have quit the country.

In response, Moscow has imposed capital controls and sharply raised interest rates to steady the rouble. It has also still been able to profit from rising oil prices and increased sales to China, India and Turkey. Oil production is only slightly below prewar levels.

Oil aside, Russia’s overseas trade has been severely damaged. UK imports of Russian goods are at their lowest level ever recorded, according to new data today, with energy imports falling to zero for the first time. UK exports to Russia have also shrunk, or in the case of cars, ceased completely. Chemicals and pharmaceuticals remain unaffected by sanctions.

Although the collapse of trade with Russia is one of the ways in which the war has affected the rest of the world, far bigger has been the impact on energy and food markets.

The latest twist came this morning from Japan, where the government is considering new nuclear power plants as energy prices rocket, a remarkable turnround given the Fukushima disaster of 2011. Germany too is considering a U-turn on plans to exit nuclear power by the end of the year, as fears grow of shortages should Russia further restrict gas supplies. Fossil fuel companies, meanwhile, have earned a reprieve, if only until more sustainable sources are fully developed.

While the energy crisis is a priority for policymakers in richer nations, their peers in poorer countries also have to contend with a serious food crisis.

In Africa, soaring prices of nitrogen-based fertilisers, which have risen in line with natural gas prices, have forced farmers to cut output, while the consequences of the conflict have halted progress in developing economies such as Bangladesh. And hopes that the recent resumption of grain exports from Ukraine could form the basis for a broader rapprochement with Russia appear to have been dashed.

High-profile Russians meanwhile continue to be targeted. The first superyacht seized from an oligarch under sanctions was sold yesterday at an auction in Gibraltar. Dmitry Pumpyansky, the owner of Axioma, a 236ft vessel worth €55mn-€60mn, is said to be one of the businessmen closest to Russian president Vladimir Putin, with an estimated net worth of £1.84bn.

Not all western states back the idea of sanctions, pointing to the surge in energy prices. Some politicians, such as France’s far-right leader Marine Le Pen, argue sanctions hurt the French and other countries more than they hurt Moscow.

The real pain, of course, is being felt by Ukraine and its people. According to new UN data today, there have been at least 13,560 civilian casualties since Russia invaded, while the cost of reconstruction is likely to top $750bn.

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