The war in Ukraine

I heard recently from a reliable source that the cost to the world economy of the war in Ukraine is estimated so far at $1 trillion. I’ve seen much higher estimates as well. This is not to minimize the human cost of those killed cruelly and needlessly. But figures such as these show us that the true human cost of the war is very great. Money that could have been spent on poverty alleviation, on climate change mitigation and on public health is being spent instead on weapons and explosives, and the shock to the world economy has further reduced resources everywhere. Also, competitiveness challenges for Russia are emerging. Apparently Russia is now dependent on arms and equipment supplies from North Korea and Iran. This shows an unprecedented level of technological weakness on the part of a country known for its good scientists and engineers, and reasonable manufacturing capabilities. (This was the country that brought us the Kalashnikov). Russia’s exploitation of its natural resources may have caused neglect of the manufacturing sector.

UNCTAD has an interesting index of a country’s readiness for using, adopting and adapting frontier technologies. China and Russia appear not to be far apart. But if we look at the sub-indices, a different picture emerges. Russia is ahead of China in terms of skills and of ICT deployment, but China is far ahead of Russia in things that are arguably more important now: relevant industrial activity, R&D, and access to finance.

With the ability of countries to switch supply sources for oil and gas ( whose future is in the long term very limited) Russia’s weakness can only grow. Already the price cap on Russian crude is having dramatic effects. This ingenious scheme forces all countries who wish to buy Russian oil at a price higher than the cap to do so without using any western-based services, whether shipping, insurance, logistics, finance and otherwise. The effect has been striking. Oil is now trading from Russia at half world prices. The wider effects are that the long-term move away from oil is given further encouragement.