Mar 8, 2022 - Economy & Business

Interconnections of global economy hard to unravel

Illustration of a Newton's cradle whose middle ball looks like the Ukrainian flag and it's sandwiched between the active ball, with a Russian flag, and another still ball that looks like the earth.
Illustration: Gabriella Turrisi/Axios

The economic and market ramifications stemming from the Russian invasion of Ukraine illuminate the interconnectedness of the global economy, even when direct relations between countries are limited.

Why it matters: The U.S. doesn’t do much business with Russia — at least compared with more significant trading partners like China and Canada — but the chain-reaction effect of the war shows how there’s no escaping economic tumult in the event of seismic geopolitical instability.

  • The war has sent shockwaves through the markets for oil, gas, wheat and nickel — all products made in high volumes in Russia or Ukraine — as prices soar due to fears of disruption or actual supply issues.

State of play: The U.S. doesn’t import much petroleum from Russia, but the Biden administration’s decision today to ban imports of Russian oil and gas still marks another key step in the excision of a previously significant player from the globalized economy.

  • U.S. gasoline prices hit an all-time average high of $4.17 per gallon on Tuesday, topping the previous record of $4.11 from July 2008, according to AAA. And they're likely to continue marching higher.
  • The world should be poised for "a potentially enormous oil supply shock," Goldman Sachs analyst Damien Courvalin warned in a research note.

Threat level: Despite the economic ramifications of sudden withdrawal, association of any kind with Russia is turning out to be so politically toxic that few American businesses are choosing to keep their doors open there. Even more announcements came this week.

  • Shell said Tuesday it's ceasing its business in Russia, after apologizing for its decision last week to buy a heavily-discounted cargo of oil from Russia.
  • McDonald’s announced Tuesday that it’s temporarily closing its 850 restaurants in Russia, most of which the company owns.
  • PepsiCo is halting sales of its main soda brands in the country, and is considering writing off the value of its Russia business, the Wall Street Journal reported.
  • Coca-Cola Company today said it is suspending its business in Russia, and "will monitor and assess the situation as circumstances evolve."

What we’re watching: How the ripple effects of the spike in commodity prices affect the global supply chain crisis.

  • The shocking increase in the price of nickel, a major Russian export, could affect the price of new vehicles if it lasts. Nickel is a key component in electric cars.

The bottom line: The global economy is dealing with the effects of whiplash as it careens from all-out globalization to the harsh realities of partial isolationism.

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