Economic war arising from Ukraine

Right after Russia invaded into Ukraine, the United States prevented large Russian banks from carrying out transactions while banning exports of cutting-edge products in cooperation with its allies across the Western world. The U.S. intends to put financial and industrial pressure on Russia at the same time by drying up sources of funds and limiting exports of items used in aviation, semiconductors and telecommunications to Russia. In contrast, China started strengthening economic cooperation with Russia by completely opening Russian wheat imports. Amid the growing concerns about a new Cold War era, signs are already becoming clear that the global economy is divided into two groups: the Western world vs. the non-Western world.

The recent developments only cast darker clouds over the world economy where insecurity is only increasing. Russia is not only the world’s largest natural exporter of gas but also the world’s largest exporter of wheat, accounting for more than 30 percent in the global wheat market. If war is prolonged, “Super Spike” may occur where prices of energy sources, grains and raw materials rise simultaneously. If global oil prices pass 120 dollars to reach 150 dollars per barrel as per a dismal scenario, many countries across the globe will only find themselves in a deeper mire.

The South Korean economy is suffering difficulties at home and abroad such as the recent three months at a trade deficit, inflation in the three percent range in 10 years and the per-barrel global oil prices higher than 100 dollars. What’s worse, the ongoing Ukraine situation shrinks local production lines and severs South Korean exports of flagship items such as semiconductors and automobiles to Russia. If disruption in the supply chain system drives up prices of energy sources and raw materials, prices in the domestic market will go up higher, which may lead to a leap in interest rates and a weakening economy.

Countries around the world are entering into an era of uncertainties with hazy and foggy eyesight. In such a critical moment, the South Korean government has a double burden of joining economic sanctions against Russia and propping up a nosediving economy. Businesses are held back by a complication of high inflation, exchange rates and oil prices while households are left devastated by rising debts and fluctuations in stock prices and the real estate market. If any step missed by any economic player may drive the national economy to the brink of free-falling. South Korea has already jumped on a shaky rope.