Mar 12, 2022

EconExtra: Economic Impacts of War

EconExtra is a series of posts that go beyond the textbook, relating current events and recent developments in economics to content standards, and providing resource suggestions to help you incorporate the current events into your lessons.

War is not a topic often discussed outside of history class. However, the Russian invasion of Ukraine is a major world event and it has brought some issues into current focus that can be put into an economic framework, like supply and demand, elasticity and substitution, international trade, the role of central banks and foreign exchange.   The issues can be grouped into three broad categories: commodity prices and global markets, sanctions and corporate withdrawals from Russia and boycotts of Russian business, and the financial situation in Russia with the ruble tumbling, the stock market closed, and sanctions essentially freezing the Russian Central Bank’s assets. Related to this third issue is the role cryptocurrency may play for both sides.

Below find a brief description of the current situation for each category, with at least one reference article for students to read for detail. Pick the topic(s) relevant to your current curriculum, or something students have been asking about. Suggested discussion questions for each topic/sub-topic are found below the description.

Commodity supplies/global trade threatened by war

Oil and Natural Gas

The commodity getting the most press in the US is oil. Russia produces 10% of the world’s oil. It comprises 7% of US imports, and as of this week, the US will no longer purchase any Russian oil. Oil prices started rising as the conflict became imminent, and gas prices in the US have topped all-time highs. US oil companies have also stated their intention to pull out of Russian investments, although it is not clear how and when they will actually do that. All sources of oil are assessing their capacity to increase production to fill the gap. By Wednesday (3/9), the price of oil had stabilized and come down from the recent high. Russia has said they would fulfill contracts, but the impact of those shunning Russian oil remains unclear. (CNBC) There is much speculation on where the market for oil will go now.

Europe relies much more heavily on Russian oil and natural gas. The EU has pledged to wean itself off of Russian oil and gas, but can’t do this overnight. They get 30% of their natural gas from Russia. CNBC explains the current situation.

1) Using the basic concepts of supply and demand, elasticity and substitution, explain the difference between the expected impacts in the US and Europe of eliminating (US) or reducing the supply of oil (and natural gas for Europe).

2) Europe relies on Russia for oil and natural gas. Russia relies on the money from selling its oil and natural gas. Which side do you think may hold the upper hand here and why? What options (sources for Europe, markets for Russia) does each side have?


“Russia and Ukraine combine for nearly a third of the world’s wheat and barley exports. Ukraine also is a major supplier of corn and the global leader in sunflower oil, used in food processing. The war could reduce food supplies just when prices are at their highest levels since 2011.”

This article from the Times Of Israel gives an international perspective on this threat. Supplies in the US, which produces more than what it needs and imports some from Canada, are not directly threatened. However, if the world’s supplies are disrupted, the price will be.

1) Using the basic concepts of supply and demand, elasticity and substitution, explain the difference between the expected impacts of grain shortages in the US and another region of the world.

2) Track the path from the onset of war to potential global famine. Which parts of the world are most at risk?


Nickel is a key input for stainless steel electric vehicle batteries. Russia is the world’s third largest producer. The price of nickel more than doubled to over $100,000 per metric ton before trading was stopped on the London Metals Exchange. It is a market that is not driven solely by supply and demand, but players on both sides often speculate on the price. Again, CNBC explains the situation, and does a good job of explaining the short selling that has been going on.   Yahoo Finance explains the role of the demand for electric vehicles in all of this.

1) How much of the increase in the price of nickel do you think is from the potential supply shortage, and how much to do think is from speculation?

2) What do you think will happen to the supply, price (and demand) for electric vehicles?

Corporate response to the invasion of the Ukraine

Here are some fairly up-to-date lists of companies who have shut down operations in Russia. Morning Brew provides a list of retailers. Axios compiled a list of global businesses that have either restricted or shut down operations in Russia. Yahoo Finance, on the other hand, provides a list of companies that continue to operate in Russia. Forbes provides some commentary on companies pulling out. Some are following or anticipating sanctions that would prohibit their operations. For others, public relations are a key driver.

1) If you were the CEO of one of these companies, what factors would you consider when deciding what to do with your operations in Russia?

2) Consider the closing of one of your favorite companies on this list. How would that impact you? What impact do you think shutting down Russian operations will have on the average Russian citizen?

The Russian Central Bank and Global Sanctions

Between this CNN article, and this episode of the Indicator (Planet Money/(NPR)) explains how the prohibition of dollar denominated transactions with Russia is expected to impact the Russian Central Bank and limit how Russia can use “Fortress” Russia, $640 billion in foreign reserves it has built up in an attempt to be “sanction-proof.” On top of that, Russian banks were shut out of the SWIFT system by which banks around the world communicate in order to facilitate transactions. (Reuters) The ruble’s value dropped by half, and the Russian stock exchange was shut down. (You can check on the current value of the ruble here.) The AP published a comprehensive look at the economic situation and prospects for Russia and its people given the sanctions and falling ruble.

1) Which transactions are exempted from the sanctions? Which country has not sanctioned Russia?

2) What portion of the $640B “Fortress” is actually accessible at the moment?

3) How does the drop in the value of the ruble impact the country? How will it impact Russian citizens?

Crypto’s role in this war is something new.

This Wired article provides an in depth but accessible description of the role cryptocurrency is playing in the war. Ukraine has encouraged donations be made in cryptocurrency. The government is using crypto holdings to fund the military, and private organizations are accepting crypto for humanitarian relief. As for Russia, the question is whether or not the use of cryptocurrency will help either the government or individual citizens get around the sanctions the rest of the world has placed on them.

1) From what you know about cryptocurrency, and what you have read in this article, would you have anticipated that cryptocurrency would come into play if war broke out anywhere in the world? Why or why not?

2) What are the concerns about the use of cryptocurrencies in Russia? Crypto exchanges seem to be complying with sanctions on the Russian government and named individuals, but not necessarily on all Russian citizens.


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About the Author

Beth Tallman

Beth Tallman entered the working world armed with an MBA in finance and thoroughly enjoyed her first career working in manufacturing and telecommunications, including a stint overseas. She took advantage of an involuntary separation to try teaching high school math, something she had always dreamed of doing. When fate stepped in once again, Beth jumped on the opportunity to combine her passion for numbers, money, and education to develop curriculum and teach personal finance at Oberlin College. Beth now spends her time writing on personal finance and financial education, conducts student workshops, and develops finance curricula and educational content. She is also the Treasurer of Ohio Jump$tart Coalition for Personal Financial Literacy.

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