Ukraine crisis matters to the global economy

Ukraine crisis matters to the global economy

Ukraine crisis matters to the global economy

Between 10,000 and 15,000 Russian soldiers remain amassed along Ukraine's borders despite Moscow's pledges to withdraw them, Ukrainian Deputy Prime Minister Vitaly Yarema said on April 4.

As the situation with regards to Ukraine develops, what were relatively sector-specific outcomes will take on more global significance – making policy and economy yet more difficult to separate, the U.K.-based international consulting firm Oxford Analytica has said in a special report released this month.

According to the report, tensions over Ukraine are accelerating or otherwise exaggerating existing negative trends in the Russian economy. As the crisis takes a toll on the Ukrainian economy, too, “increased food price volatility and higher overall grain prices can be expected this year.”

On the other hand, “global markets are observing the current crisis largely through the prism of potential contagion to Russian assets,” the report said. 

Energy is the fourth, the last and probably the most important area with regards to the crisis in the 18-page analysis. Although it is expected that Russian supply disruptions are likely to rise in winter 2014-15, they will primarily affect the pipelines running through Ukraine, the report suggests. 

“Any scenario in which Moscow interferes with gas flows to Europe will add urgency to supply diversification efforts; however, eroding Russia’s market position would take years,” it also said, stressing that diversification can only be possible with new pipelines and LNG imports from the United States.

Meanwhile, Prime Minister Arseny Yatseniuk told Reuters that the Kiev government will stick to unpopular austerity measures "as the price of independence" as Russia steps up pressure on Ukraine to destabilise it, including by raising the price of gas.

Yatseniuk, 39, who stepped in as interim prime minister last month after Viktor Yanukovich and his ministers fled the "Euromaidan" protests, conceded that it would be very difficult "under the current Russian presence" to undo what he described as Russia's "international crime" in seizing Crimea.