In the event of a Russian invasion of Ukraine, the oil and natural gas markets will experience a price shock, said Clemens Fuest, head of the Munich-based ifo Institute for Economic Research. “A price shock, at least a temporary one, will occur even if gas supplies are not limited,” Fuest said on Friday, February 18. According to him, this problem will equally affect the population and industry in Germany.
So far, ifo has assumed that inflation this year will be 4 percent, the highest since 1993. At the end of 2021, its level was 3.1 percent. But in the event of the outbreak of hostilities, the inflation rate in 2022 will be even higher, Clemens Fuest noted.
At the same time, the economist recalled the mutual dependence of Russia and Europe in the energy sector. Western Europe needs Russian gas and oil, and the Russian Federation depends on the money that Europeans pay for these supplies, he stressed. A halt in energy exports by Moscow is unlikely, as it wants to continue it in the future. Otherwise, the EU could refocus on gas purchases from other countries, the head of the Munich ifo institute pointed out. He considers it expedient to create infrastructure in Germany to receive liquefied gas supplied by sea.
The economy will also suffer from possible new sanctions
In addition, the ifo reminded of the additional damage to the German economy in the event of new sanctions against the Russian Federation. As a result of the punitive measures introduced after the annexation of Crimea, the German economy is already losing about 5 billion euros a year, which is 0.16 percent of Germany’s GDP, said Lisandra Flach, head of the ifo Center for Foreign Economic Affairs.
Russia’s losses, she said, are much higher: about 1.2 percent of Russia’s GDP. This figure will rise significantly if it is decided to introduce new sanctions for the escalation of the conflict with Ukraine, she said. The ifo also indicated that in absolute terms, the damage to Russia would not be as significant as in the West, since Russia’s GDP roughly corresponds to the combined economic power of Belgium and the Netherlands.
US and NATO consider invasion possible at any moment
NATO and Washington believe that Russia has everything necessary to launch a full-scale invasion of Ukraine in the shortest possible time and it is possible at any moment. “They have enough troops, enough capabilities to launch a full-scale invasion of Ukraine with little or no warning. This is what makes the situation so dangerous,” said NATO chief Jens Stoltenerg on February 17, in particular. Since the second half of 2021, the Russian Federation has deployed more than 100 thousand military personnel to the annexed Crimea and to the border with Ukraine. Moscow denies plans to invade Ukraine and accuses Western countries of arming Ukraine and conducting maneuvers near the borders of the Russian Federation.
A whole series of international negotiations and visits by Western politicians to Moscow in order to defuse the situation and achieve a diplomatic solution to the conflict did not bring concrete results. On February 15, the Ministry of Defense of the Russian Federation announced the return of part of the units to their places of permanent deployment, however, the United States and NATO indicated that they did not observe the implementation of these promises.
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