As Russian soldiers bear down on Ukraine, increasingly desperate Ukrainians are running out of food and medicine. The economic fallout from the invasion is beginning to spill over to the rest of the world, too.
Forecasts for global growth are being slashed and the chance of a US recession in 2023 has risen to 35%, according to Goldman Sachs.
But war in Europe is no longer a theoretical, off-in-the-future concern for economists to discuss in research papers and notes to investors. It’s tangible. It’s here. And it’s causing pain for millions.
Sanctions and other supply-chain disruptions have sent consumer prices surging across the world as oil and other commodity prices have spiked. Soaring gas and diesel prices are also adding to the cost of food, heightening fears that the world is on the brink of a hunger crisis.
France’s government is considering food vouchers to help residents afford to eat. A commodities trading company said diesel is in such short supply it may soon have to be rationed.
Desperation in Ukraine
Millions of refugees are pouring out of Ukraine and little ability to pay for their needs. Inside Ukraine, some towns have less than a four days’ worth of food, the aid agency Mercy Corps said Tuesday, warning that the humanitarian system in the country “is entirely broken down.”
At least 70% of the population of Kharkiv and Sumy is entirely dependent on aid, estimated Steve Gordon, Mercy Corps’ Ukraine humanitarian response adviser.
Food and medical supplies have almost run out in the southern Ukrainian city of Kherson, according to spokesperson for Ukraine’s Foreign Ministry Oleg Nikolenko.
The domino effect of Russia’s invasion of Ukraine has sent food prices higher. As gas prices surge, fertilizer supply is shrinking. That has sent wheat, corn, vegetable oils and soybean prices through the roof — particularly troubling for countries already struggling with food insecurity.
But developed economies are starting to feel the pain too.
French President Emmanuel Macron said his government is considering food vouchers to help middle and low-income families afford to eat, calling the problem a “worldwide food crisis.”
“I want to put in place a food voucher [system] to help the most modest households and the middle class facing these additional costs,” Macron said in an interview with France Bleu radio on Tuesday.
Global wheat prices have skyrocketed as supplies from Russia and Ukraine have been largely cut off from the rest of the world. Together the countries export 30% of the world’s wheat. Fertilizer supply is low, too as energy prices surge.
The shockwaves have even reached the world’s biggest economy. US food prices rose 1% in February, the largest monthly increase since April 2020. Over the past 12 months, overall US food prices increased 7.9%, the biggest jump since July 1981.
Egypt this week fixed the price of bread to limit surging prices caused by supply chain disruptions. In the three weeks since Russia’s invasion of Ukraine, the price of unsubsidized bread had jumped by as much as 25% in some bakeries.
Energy prices have surged across the world as the globe has shunned Russian crude. The country’s oil has been banned by the United States, Canada, the United Kingdom and Australia, and oil companies in Europe (Shell, Neste, Total) are phasing it out too.
If Europe were to adopt a full embargo, that could force Russia to reduce supplies by 3 million barrels per day, putting the world at risk of an extreme oil supply shortage unless OPEC nations begin to quickly ramp up production – an action they’ve been hesitant to take.
The CEO of Dutch commodity trading company Vitol said this week pulling Russian oil off the Western market will force drivers and truckers to ration diesel fuel.
“The thing that everybody’s concerned about will be diesel supplies. Europe imports about half of its diesel from Russia and about half of its diesel from the Middle East,” said Russell Hardy, Vitol’s CEO, at the FT Commodities Global Summit in Lausanne, Switzerland on Tuesday. “That systemic shortfall of diesel is there.”
Meanwhile, the UK government is cutting taxes to help keep fuel affordable. Finance minister Rishi Sunak said Wednesday that he would cut gas and diesel taxes for one year. The government will also raise the income threshold for a payroll tax for about 30 million people.
– CNN’s Matt Egan, Alex Hardie, Chris Liakos and Antonia Mortensen contributed to this report