War, Sanctions, and Inflation
**I started on this piece a few weeks ago, and updated it yesterday to be more contemporaneous. But, even with that, I'm a bit concerned Tuesday at 10:00am is too far away. Hence this being sent out early, while the newspapers suggest an invasion could occur at any minute.**
You're probably at least tangentially aware of the potential war brewing in Ukraine. Putin, wanting to put a feather in the cap of his history as Russia's leader (or other reasons, the guy is inscrutable), is pushing over 100,000 troops to the Ukrainian border. Ostensibly this is because Russia is concerned about the threat of a united front to their west, with diplomatic talks and de-escalation between the two nations centered around Ukraine being forbidden from joining NATO. But this isn't Putin's first foray into the region; about a decade ago Russia pushed into and annexed Crimea from Ukraine, and the region has been embroiled in conflict ever since.
This matters to you and I not just because everything about this smacks of imperialism, but because both Russia and Ukraine are major world producers. Both countries export a massive amount of grain, and Russia, in addition, is critical to the supply of fossil fuels in Europe. War between the two would interrupt the flow of food and fuel across the globe. Even if outright war didn't break out, economic sanctions levied against Russia by the US and other countries could do similar damage to world economies. Thanks to COVID-19, as you're probably aware, no one is doing especially well–at least, no one feels like they're doing especially well. Sanctions being tossed about by powerhouses like the US and Russia can further destabilize an unstable economic recovery. A war creates the same possibility.
Inflation; Or, I can't believe I had to research this
I don't think you can read this newsletter without being aware of inflation. It's the overall increase in value of goods and services/the decrease in purchasing power of a unit of currency. Yesterday bread cost $1, today it costs $3. That's inflation. There are a number of reasons inflation can occur, and some inflation is an indicator of a good economy, because it reflects increased demand in the public. But inflation can also occur because of scarcity, whether artificial or not, and the weight of, say, an autocrat's thumb on the economic scales. All of this, of course, isn't something I endorse–capitalism is dumb and money is make-believe. Anyway.
Inflation can have catastrophic effects, and unfortunately there are many examples in the world today. Turkey, Lebanon, Venezuela, and Zimbabwe are all or have recently dealt with some extreme rates of inflation that are causing real pain. Lebanon has had a rough go of it for several years, but it's especially dire these days, with food prices soaring month to month and citizens struggling to feed themselves. In Venezuela, the ongoing crisis has caused years of unrest and instability. Turkey is dealing with brain drain–its doctors are fleeing the country due to the devaluation of their jobs and salaries.
It's not likely that we would see spiraling hyperinflation in America due to sanctions and increased scarcity abroad, but there would, definitively, be impacts. If the price of wheat soars in Eurasia, it will inevitably rise here. And, to be clear, I'm not certain we'd avoid some massive economic downturn–I wouldn't put anything past 2022, and there's precedent for political fuckups to make worse from bad: in the wake of World War I, a Senator Smoot and one Representative Hawley asserted that in order to protect our nation's farmers and productivity, we needed to increase tariffs. This resulted in retaliatory tariffs from other nations, which plummeted our booming export sector, and helped create the nightmare that was the Great Depression.
Recent solidification of the relationship between Putin and Xi of China means we could be facing an economic cold war–perhaps the most boring phrase for a terrible thing I've ever uttered. The brinksmanship being played here, as always, places millions of lives at risk. Russia will, make no mistake, impose their own sanctions, and we're not the only ones who will bear the burden. The countries mentioned above as victims of inflation? Countries like Yemen? They depend on the food produced by Ukraine and Russia, and in a more obvious sense they depend on un-inflated prices. This is not a good time (there is no good time) for saber-rattling.
War Itself
Sanctions aren't the worst of it. If this doesn't get resolved diplomatically, a war between Ukraine and Russia could lead to tens of thousands of deaths, and even more severely curtailed food exports, which would then lead to more deaths still. With the latest on the conflict only showing escalating tensions, war of some kind or another is appearing more and more likely. While Biden swears that there will be no direct US involvement, we're already equipping Ukraine with weaponry, and other NATO members are doing the same.
It's estimated that within two days of conflict, Russia would seize the Ukrainian capital of Kyiv with 50,000 civilian casualties. And while the war would likely be swift, it wouldn't really end–Ukraine has had nearly a decade of experience in skirmishes with Russia and Russian-backed separatists. The conflict would not be over as quickly as victory may be declared, with Ukrainian civilians–as evidenced in the past at the Maidan–willing to step up in defense of their country. Even so, it's estimated that the war would create around 5 million refugees, and be the largest conflict in the area since World War II.
Zooming out, open warfare between Russia and Ukraine is likely to further destabilize the greater region, with a number of countries already under various levels of instability. It's not unlikely that autocrats, nearby and around the world, will see Putin's seizure of Ukraine as encouragement for their own authoritarian tactics. And, of late, most of the world feels on the knife-edge with unrest. With both grain and fuel supplies threatened by war, it's possible that civilian unrest could spread across Europe. A top indicator of uprisings is, after all, food scarcity. Ultra-conservative and anti-vax movements have proliferated in the past two years, and a spark like hyperinflated food and fuel prices could help them spread.
Practically, an ocean away, what will be felt in America is likely to be only an exacerbation of what we're already feeling. It's worth remembering, though, that nothing happens in a vacuum, and the world is not as big as it used to be. Every day we spend not solving the existential crises facing the globe is a day those crises become more severe–the movement of so much military force alone is going to burn an amount of fossil fuel I don't want to linger on. The fact that Russia has hinted they could push chess pieces across the Atlantic is another reason to take this seriously.