Economies ravaged, millions killed and displaced: The cost of Russia-Ukraine conflict

In the wee hours of Thursday, Russia did what the world was dreading for days – launch a full-scale assault on Ukraine via land, sea and air. And despite high-pitched utterances by Ukraine, the odds are heavily stacked against it. 

Within a few hours of the raids, Russia managed to capture key areas and neutralise several Ukrainian military installations. Both sides have suffered fatalities, but the bigger cost would be on the economies of both countries.

Also Read | Ukraine crisis: Economic impact of the Russian attack - A preliminary analysis

Economies to be hit:

The Covid-19 pandemic has badly affected the global economy. But even before the world could tide over the crisis, the Russia-Ukraine conflict seems to be imposing fresh roadblocks for a recovery. 

The cost would be significantly greater for Ukraine, a country heavily dependent on imports, and with a GDP of only around 180 billion USD. This is in sharp contrast to the Russian economy, which is worth over 1,600 billion USD, and which dominates the global trade in oil and natural gas.

By late January, fears of an all-out Russian invasion led to the flight of capital from Ukraine. President Volodymyr Zelenskyy had said that $12.5 bn had been withdrawn from accounts in the country. Last week, more than 20 charters and private jets left Kyiv, carrying some of the country’s most prominent executives.
 
US-based Center for Economics and Business Research estimated this month that the conflict with Russia could cost Ukraine $280 bn in lost GDP between 2014 and 2020 — with those losses expected to climb this year. 

But if Russian authorities are to be believed, they are not worried about Western sanctions as Moscow has used the money received from oil and gas exports to build substantial financial defences. Russia is sitting on foreign currency reserves of about 600 billion USD and has extremely low levels of the national debt. On the contrary, Ukraine’s international reserves are only worth 30 billion USD. 

Also, Russia provides 40 per cent of Europe’s natural gas, and 20 per cent of its oil. It is the world’s biggest exporter of fertiliser and palladium, a crucial component of the auto industry. In all likelihood, Vladimir Putin would not hesitate to exploit these fronts in case of strict Western sanctions. 

German thinktank Kiel Institute believes stopping gas exports would knock 3 per cent off the Russian GDP while ending oil exports would result in a 1.2 per cent hit. But at the same time, it would lead to a global increase in energy prices, inconveniencing several countries. 

Russia also has a self-sustaining agricultural industry. 

A crashing ruble, however, will put some strain on the Russian economy. At 8.7 per cent, inflation is at a six-year high and a recent survey found that almost two-thirds of Russian families have no savings. Interest rates are at 9.5 per cent and are only expected to rise due to the conflict. Higher borrowing will hurt Russian businesses and consumers. 

Lopsided military strength:

Ukraine’s military expenditure is around $6 bn, a title compared to Russia’s defence budget of $70 bn. Russia has over one million active military personnel, while Ukraine only has a fourth of it. 

Russia has deployed a battery of heavy weaponry, including tanks, Howitzers, multiple-launch rocket systems and Iskander short-range ballistic missile systems, against Ukraine.  

However, global security experts believe holding on to Ukraine might be the bigger challenge for Russia than winning it. The war may soon be reduced to guerrilla resistance, with the US and NATO supplying arms to Ukrainian volunteers. 

A full-fledged invasion of Ukraine may well turn out to be expensive for Russia. While a large-scale invasion will require much more than 1.5 lakh troops, claimed to be involved in the war, occupation for months will need hundreds of thousands more, significantly eating into Russia’s budget. 

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The human price: 

The eight-year Russia-Ukraine conflict has had casualties numbering in tens of thousands with the humanitarian costs running into millions. The estimates of the total death toll vary from around 14,000 as per the United Nations to 16,000 according to Human Rights Watch. 

More than 3,000 of these have been civilians in eastern Ukraine. More than 7,000 people have been injured and over 1.5 million people displaced due to the conflict. 

Further, the war has resulted in vast destruction, costing infrastructures such as residential apartments, hospitals and schools, both in the regions governed by Ukraine and the separatists. 

But all these figures might be overwhelmed by the latest developments. US officials estimate a major assault could leave 50,000 civilians dead or wounded, even as Russia insists that it is not targetting civilians. 

In 2020, The Vienna Institute for International Economic Studies (wiiw) had estimated that reconstructing war-ravaged Donbas would cost a minimum of $21.7 bn or 16 per cent of Ukraine’s GDP. This cost again may be dwarfed by the scale of ongoing Russian actions in Ukraine.