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Militarization of the West, green energy boom and microchip shortage: analysts predict the consequences of the war in Ukraine

The war between Russia and Ukraine appears to have drawn a line under the world order that existed for decades. It is already evident that major changes are imminent, from the accelerated energy transition in Europe and the new «Arab Spring» to «silicon nationalism» and the rise of private space companies. The Insider has compiled predictions of what's in store for the world. Video version.

Content
  • Poverty and the New Arab Spring

  • Accelerated transition to green energy in Europe

  • The Militarization of the West

  • A blow to the chip market

  • Time for private space companies

Poverty and the New Arab Spring

The hostilities in Ukraine have disrupted trade flows from the entire Black Sea region, with supplies of agricultural raw materials and agro-industrial products particularly affected. Russia and Ukraine together account for more than half of the sunflower oil traded on the world market, about a quarter of wheat and barley and a fifth of corn. In addition, Russia (along with Belarus) is a major exporter of fertilizers and feed grain. Russia will not be able to export grain because of the sanctions, and Ukraine because of the war; all this is superimposed on a poor harvest in India because of the abnormal heat wave.

Grain, agro-industrial goods and commodity prices have already reached levels that promise social upheaval and political instability, akin to a new Arab Spring, in the most vulnerable developing countries dependent on food imports (especially in Africa and the Middle East).

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The economic situation is worsening not only because of rising grain prices. According to UN estimates, the Russian-Ukrainian war threatens to increase prices for all food and energy resources and cause an overall deterioration of the financial situation around the world. In the worst-case scenario, a «cascade effect» is likely with each of those processes overlapping and reinforcing one another, primarily in the least economically well-off countries, already severely affected by the coronavirus pandemic. As a result, 1.7 billion people in 107 countries will face the threat of deteriorating quality of life, malnutrition and impoverishment.

The Organization for Economic Cooperation and Development (OECD) believes that the armed conflict will reduce global economic growth by more than 1 percentage point and increase consumer inflation by 2.5 percentage points. The World Bank cut its forecast for global GDP growth in 2022 from 4.1% to 3.2%, the International Monetary Fund from 4.4% to 3.6%. Since the fighting is still far from over, and more and more voices in Western capitals are being heard in favor of a full embargo on Russian oil and gas (restrictions have already been imposed on some categories of commodity exports), a global recession (a drop in the economy) cannot be ruled out. In the worst-case scenario, we will see stagflation as in the 1970s, when low or even negative growth rates accompanied high inflation.

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Accelerated transition to green energy in Europe

Immediately after the invasion of Ukraine by Russian troops, Europe reflected on its dependence on Russian energy resources. Russia provides about 45 percent of Europe's gas and coal imports, as well as 25 percent of its oil imports. The European Commission decided to abandon Russian supplies much sooner than the 2030 target (by 2027, according to preliminary data) and announced an urgent program to diversify gas purchases, develop renewable power and improve the efficiency of the energy sector.

The consulting company Roland Berger calls the decisions a catalyst for fundamental changes that should allow Europe to switch to a predominantly green energy in the medium term. According to Wärtsilä calculations, the share of renewables in Europe's final consumption may grow from 33% in 2021 to 50-60% in 2030.

For Russia, an accelerated energy transition in its key sales market does not bode well. According to Daniel Yergin, the author of the famous book «The Prize: The Epic Quest for Oil, Money, and Power,» Russia's days as an «energy superpower» are coming to an end. For too long, the Kremlin has used energy as a tool of foreign policy, and now it is reaping the rewards: no one in the West wants to depend on oil and gas of Russian origin any longer.

For more on accelerating the transition to green energy, see «If you want to hurt Putin, save energy!» The West's rejection of Russian fuel is bringing a green future closer.

The Militarization of the West

Russia's attack on Ukraine was the first major interstate military conflict in Europe since 1945. Geopolitical risks have reached their 20-year peak. If Vladimir Putin really tried to ensure Russia's security from external threats in this way, the result was exactly the opposite.

Two new members, Sweden and Finland, are almost certain to join NATO as soon as this summer. Both countries remained neutral during the Cold War but have revised their attitude toward membership in the alliance because of the Russian aggression. As a result, the balance of power in the Baltic Sea region is not changing in Moscow's favor.

The role of NATO as the main guarantee of military and political deterrence of Russia will inevitably grow, as will the military expenditures of its members. For many years, they have been economizing on defense spending, allocating less than the recommended 2 percent of GDP. Since the outbreak of the Ukrainian conflict, several countries have announced plans to increase this figure even above the target. Germany alone is going to allocate an additional €100 billion for the upgrade of its armed forces, which is half again as much as Russia's total known military expenditures for the year.

The growing military threat is also reflected in cyberspace. Digital security challenges are rarely discussed in the context of the armed conflict in Ukraine, but according to the consulting company KPMG, businesses and government agencies will have to respond to much more complex and frequent cyber threats in the future. Boston Consulting Group analysts note that Russia's capabilities in the field of hostile cyber activities aimed at physical and digital infrastructure far exceed its economic, military and diplomatic leverage. Hence, there is a high probability of the Kremlin using cyberattacks to cause damage to, or influence the actions of, Ukraine's allies.

A blow to the chip market

Before the war with Russia, Ukrainian companies supplied the world market with approximately 50 percent of the neon needed for high-precision laser systems that produce microchips. Semiconductor manufacturers in the United States received 90 percent of their neon from Ukraine.

Ingaz, Ukraine's largest neon producer, had its production facilities in Mariupol, which has been virtually razed to the ground by Russian troops and the DNR and LNR militias.

The neon shortage threatens to exacerbate the global chipmaking crisis caused by the coronavirus pandemic. UBS predicts the rise of «silicon nationalism» - the abandoning of years-long practice of outsourcing raw materials and technology in the production of semiconductors indispensable for high-tech industries.

Time for private space companies

The world is shaping its attitudes toward the war in Ukraine with the help of private space companies. Satellite images reveal the scale of war crimes committed, videos from the war zone are uploaded to social media via Starlink Internet terminals, shocking photos from the destroyed Mariupol appeared online thanks to satellite communications.

Since the start of the conflict, the U.S. government has doubled its purchases of images of Ukrainian territory from companies like Maxar, BlackSky and Planet, which operate commercial constellations of low Earth orbit satellites. The impressive capabilities of geospatial intelligence in the context of tracking Russian forces promise high future demand for such services from government agencies and businesses.

U.S. officials compare the widespread use of commercial satellite data to the rise of mass industrial production during World War II or the use of GPS technology during the Persian Gulf War. After the wars were over, the innovations that had been put to the test became part and parcel of ordinary life.

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