Russia-Ukraine conflict: Two‑year toll on economies and the reshaping of geopolitical landscape

What changes have the two years of conflict imposed upon Russia, Ukraine, and the rest of the world? XTB experts investigate these consequences of the invasion. They are convinced that Ukraine has borne the brunt of the conflict—it is, after all, subjected to near-daily and extensive bombing.

Research carried out by the National Institute of Economic and Social Research reveals that Russia suffered losses amounting to slightly more than 11 percent of their GDP for 2022 and 2023 combined, a direct outcome of the clash and ensuing sanctions. The losses sustained by Ukraine have been more critical, accounting for a sizeable portion of its GDP, spotlighting the military operation's direct destruction of infrastructure and the economy, as explained by XTB analysts.

Russia's role in global inflation

On a global scale, the conflict's impact is relatively small, estimated at about 1 percentage point, whilst the euro area suffered more, incurring losses of between 1.2 and 1.5 percentage points over the two years.

The war led to significant trade route disruptions and a sharp increase in commodity prices, directly influencing inflation. Russia, a requisite producer and exporter of primary resources and commodities such as crude oil, natural gas, wheat, corn, aluminium, palladium, and synthetic fertilisers, came under sanctions, leading to a drastic surge in these resources' prices worldwide.

XTB analysts evaluate that the conflict potentially contributed nearly 1.8 percentage points to global inflation in 2022 and roughly 0.9 percentage points in 2023.

European nations, due to the conflict's proximity, were particularly succeptible to the effects of inflating energy commodity prices, which induced substantial price surges in Poland, Slovakia, the Czech Republic, Hungary, and the Baltic States.

Despite initial availability fears, raw material prices have regained normality relatively quickly. The price of crude oil, having floated above 100 dollars per barrel, declined by 50 percent from its 2022 peak to its nadir in 2023. This drop was due to Russia redirecting the commodity to the Asian market and Europe sourcing alternate suppliers. A similar case occurred with wheat exports from Ukraine, following an accord with Russia which allowed sales to seek other markets by sea.

Europe, transitioning to LNG gas, is beginning to experience a return to pre-pandemic gas prices, a result of intensified competition within the liquefied gas market. However, the conflict disclosed vulnerabilities in the European energy mix and necessitated the exploration for new energy sources, according to XTB experts.

The conflict has also led to shifts in geopolitical and military strategies. The United States' attention now extends to other regions, such as Taiwan and the Middle East, which could alter the dynamics of global politics and security. A potential change of power in the US, particularly concerning Donald Trump, may create additional tensions and alter the approach to NATO and support for Ukraine.

"We could probably foresee another trade war, which could snowball into a larger clash. Trump, from a military standpoint, could direct his attention towards the Middle East, which could also trigger substantial shifts in the energy commodity market," reads the analysis.

The two-year conflict in Ukraine has significantly remodelled the global economy, politics, and security, accentuating mutual relations and international dependencies. These effects will leave a lasting imprint on the global economy, geopolitics, and future international relations.