SPECIAL: US, Europe Face Major Economic Crisis

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US-based academic Dr Rajan Menon says recession in the US and a major economic crisis in Europe may occur as a result of the Russia-Ukraine war … Interview by Abhish K Bose

Dr Rajan Menon is the Director of the Grand Strategy Program at Defense Priorities based in Washington DC. He is also the Emeritus Anna and Bernard Spitzer Chair in Political Science at the City University of New York.  He is a Senior Research Scholar at the Saltzman Institute of War and Peace Studies at Columbia University and a Global Ethics Fellow at the Carnegie Council on Ethics in International Affairs. He has authored books including ‘ Conflict in Ukraine: The unwinding of the post-cold war order, Energy and conflict in Central Asia and the Caucasus, Russia, the Caucasus and Central Asia. 

In an interview with Asian Lite’s  Abhish K. Bose, he discusses the repercussions of the Russian invasion of Ukraine in Europe and other parts of the world.

ABHISH K BOSE: Russian troops are suffering significant losses, and countries across the world are dealing with acute food shortages, a meteoric rise in inflation and other challenges brought in by a severe conflict that has no sign of subsiding soon. What will be the long-term economic ramifications brought about by the war on the economy of Europe? 

Rajan Menon: Food prices have actually declined for the past several months, in part due to the grain export agreement between  Russia and Ukraine that was mediated by the  UN and Turkey in July. But so long as the war continues, food exports from Ukraine could be blocked again. Adding to this western banks’ raising of interest rates and the appreciation of the dollar will increase food import prices,  making it especially hard for poor countries. All indicators point to the possibility of the economic situation in Europe and the UK getting worse, and they are already bad. There is technically  (DEFINED AS TWO-QUARTERS OF DECLINING GROWTH ) no recession in the US now, but the federal reserves raising of interest rates to tame inflation, now higher than it has been in 40 years, could bring one about, though that remains to be seen.

ABHISH K BOSE: As per the statistics of the United Nations refugee agency, since February 24th, a third of Ukrainians who number over 41 million, have been forced out of their houses.  The UN agency data says that more than 6.6 million Ukrainian refugees have been registered across Europe. What will be the additional burden these migrants cause on the economy of Europe?

Rajan Menon: The recent  Russian attacks on Ukraine’s energy and water infrastructure have once again increased refugee flows from  Ukraine, and at a time when the countries with substantial numbers of Ukrainian refugees —Poland, Germany, and the Czech Republic —are finding it hard to take in more. On top of that, Ukraine’s government, facing electricity and water disruptions have asked  Ukrainian refugees not to come back for now. As Europe’s economy gets even worse the refugee burden will become harder to bear.  

ABHISH K BOSE: The war and the resultant sanctions which made an adverse impact on the Russian economy thereby restricting Russia’s access to western financial markets are also causing trouble for Russia.  The sanctions also restricted Russia from obtaining essential goods and materials.  How long Russian economy will take to recover from the aftereffects of the war?

Rajan Menon: It’s impossible to state with any certainty how long Russia’s economy  will  take to recover . For now , though  the sanctions have undoubtedly  caused  pain, the Russian economy  is benefiting  from high oil and  gas prices  and  stepped-up imports  of  Russian and energy  by China , India , and  Turkey.  Energy  is critical  to Russia’s economy : IT accounted for  45% OF Russia’s state budget  in 2021 and close to the  same proportion of  its total  export earnings. 

ABHISH K BOSE: Following Russia’s invasion of Ukraine global oil prices increased to record heights.  What will be the impact the war has on the oil imports of Russia vis a vis the  European countries?

Rajan Menon: The European Union ban on Russian  oil imports  will take effect  on DEC 5 but as OF SEPT the  EU was still buying about  One million barrels of Russian oil  per day .For Europe , the much bigger problem is the effects  on the slashing  of Russian natural gas exports, which  provided 40% of Europe’s imports  before  the  war began on FEB 24.

ABHISH K BOSE: According to the reports Putin is facing the biggest challenge in his career since he became the President following the continuation of the war. How long can he pull it off with a debilitating economy and increasing opposition from the international community?

Rajan Menon: No one can answer this  question , but  the  worse Russia fares in the  war, the more tenuous  Putin’s political position becomes because he owns  this  war and  his  fate is tied to  it. That  said, so  far I see no sign of a split within the leaderships nor protests  from  below  (which  there have  been) that  are so large  that  the  Russian government, which  has formidable coercive  powers , cannot contain.

ABHISH K BOSE: What will be the environmental hazards caused as a result of the war? Going by the nature of the war, the environmental imbalances created by the war could be irredeemable. Especially the catastrophic nature of the impact of the war in a highly industrialised country such as Ukraine can create havoc. Please explain your views on this.

Rajan Menon: The war itself will release carbon dioxide and  other global warming gases into the air because they  are  produced  when  large urban areas  suffer massive  destruction, which they  have  in  Ukraine. In the long term the energy price surge created by the war  may hasten a global move to  green energy  (though that will take  a long time  before  it amounts to a revolutionary  shift), but in the  short term  countries  are, in the aftermath  of the Ukraine  war, rushing to lok in imports of  oil, natural gas and , in the  case of India and  China , for example, even coal, which , per unit, emits much more CO2 than  do  oil and natural gas. 

ABHISH K BOSE: The war is estimated to cause a heavy impact on the world economy which includes weaker economic growth, stronger inflation and a long-standing assault on the supply chain. What do you think about this?

Rajan Menon: Europe’s economic crisis, the possibility  of a recession  in the US, and lower -than expected growth rates in China are bound to  have  knock-on effects  on the global economy  given that  these three areas account  for around  45% of global  GDP.