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April 18, 2022

How War in Ukraine Affected Financial Operations?

The war in Ukraine not only caused human losses but also severe economic losses for both countries. Let’s discover how this war affected financial operations.

The war in Ukraine started on February 24 with Russia’s invasion of Ukraine. Actually, there was a crisis going on between Ukraine and Russia since 2014.  This reason with some other ones, have led to the war in Ukraine. Since the first day, there has been casualties in both countries. Ukraine has lost more than 2500 civilians. More than 4 million Ukrainian citizens fled to neighbour countries. Furthermore, both Russia and Ukraine have lost many soldiers and troops. Undoubtedly there will be severe effects of Ukraine War on financial operations as well.  

How Wars Affect Finances?

Wars cause heavy losses including severe economic losses for both parties. In fact, the war in Ukraine had economic effects not only for both countries but also for the entire world.  

Let’s try to understand how wars affect economies of fighting countries and other countries.

Firstly, wars have enormous economic impact for fighting sides. Wars cause damage in the infrastructure and buildings of countries. Governments need to fix these damages after war ends. Furthermore, along with the armies of countries, working citizens participate in the army and they fight as well. This leads to decrease in working population for countries involved in a war. Normal economic activities stop, and economy is shaped to win the war only.  

Fighting countries get debts to support the army. Governments might even increase taxes on their citizens to get extra money to manage the war. As a result, citizens may become poor, and their purchasing power may decline. In addition to all of these, there is the terrific opportunity cost of wars. Money spent on wars could have been spent in other areas such as health care, education, innovation and new technology, etc. Moreover, almost all wars cause inflation in the societies.  

Wars also affect neighbour countries and the countries which fighting sides have business/commercial relations with. Those countries get hurt economically too. Since those countries get hurt economically, other countries which have business relations with those countries get affected as well. As you can see, wars not only affect the fighting countries. Wars affect many countries. Once again, this is what’s happening currently. The effects of Ukraine War on financial operations and economy are felt on a global scale. According to IMF’s analysis of the current situation, prices for energy, grains, and metals have increased dramatically since the war started.  

IMF Inflation Analysis

Are Sanctions on Russia Affecting the Economy & People of Russia?

After all these information, now let’s look at how the war between Russia and Ukraine had influences on Russia and people of Russia. There have been many sanctions on Russia during the war in Ukraine. The US, the UK, European Union (EU), Canada, Australia, Japan have imposed sanctions on Russia.  

Moreover, numerous international companies have stopped their businesses in Russia. Some of these companies are Apple, Netflix, Starbucks, Coca-Cola, H&M, Inditex brands, IKEA, Toyota, Volkswagen, Airbnb, etc. Withdrawal of various global firms from Russia has affected the lives of people of Russia. Welfare level of Russian people has decreased significantly. Their right to choose as consumers have diminished due to the withdrawal of many brands.  

There’s even more. Prices of many goods have increased, and people started to stock things due to the uncertainty of the future. MasterCard, Visa and American Express stopped their services in Russia. This essentially affects foreign payments, meaning local consumers won’t be able to use their Russian cards for online international payments. Furthermore, Russian people who own MasterCard, Visa or American Express cards issued by Russian banks won’t be able to use those cards outside of Russia.  

Additionally, many Russian banks were excluded from SWIFT (Fundamental international payments network in the world). The goal behind this was hitting Russian trade and making it more difficult for Russian companies to do business. SWIFT (the Society for Worldwide Interbank Financial Telecommunication) is the leading safe messaging system which banks use to make fast and secure cross-border payments. SWIFT has become the primary system for financing international trade and letting international trade to run steadily.  

What are the Expected Effects of Ukraine War on Financial Operations in the Future?

The war in Ukraine had some effects for the world’s economy as well. According to the president of the World Bank, the war in Ukraine is a catastrophe for the world which will cut global economic growth. Besides, he adds that the global inflation and increases in global energy prices will affect the poor the most. He says that rising food prices in the world will affect the poor countries very badly.  

In addition, Ukraine and Russia will experience deep recessions according to the International Monetary Fund (IMF). IMF also says that the war might fundamentally reshape the global economic order in the long period. As IMF already stated effects of Ukraine War on financial operations and economy will be bigger than regional.