All Economies Feeling The Pinch As The Spoils Of War In Europe And The Middle East Spill Over

Based on the experience from past wars, experts estimate that the Russian invasion will lead to an output loss in Ukraine to the staggering tune of $120 billion by 2026 and a concurrent reduction in Ukraine's capital stock of more than $950 billion. At the same time, the economic costs on non-belligerent third countries are also substantial with a GDP loss of about $250 billion, of which a fraction is borne by EU and Germany. Wars destroy communities and families and often disrupt social and economic fabric of nations. The effects include long-term physical and psychological harm to children and adults, as well as reduction in material and human capital. The Economic Growth Theory explains that war can be expected to result in depleting human capital and physical capital stock, increasing or slowing the development of technology, strengthening or weakening existing institutions and affecting prices. War is typically fought by a country or group of countries against an opposing force to seek an objective. They are fought for a variety of reasons, including economic, territorial, religious, political, civil, revenge and ideological.

The world has grown more polarized during these two years of war, with many countries supporting Ukraine, some trying to maintain working relations with both and some countries like Belarus, Iran and North Korea openly supporting Russia, this is even as Russia's influence seems to be growing in Africa. The United States has so far supported Ukraine with approximately €70 billion in terms of financial, humanitarian and military support. However, public opinion, especially among Republican voters, has increasingly turned against the war effort. Since day one of Russia's offensive, the EU has stood by Ukraine, united and determined. This will continue for as long as it takes. According to a recent estimate, 'the total cost of reconstruction and recovery in Ukraine would be to the tune of $486 billion (€452.8 billion) over the next decade, up from $411 billion (€383 billion) estimated a year ago'. The Bank of Israel had estimated in May that costs arising from the war would total $66 billion through the end of next year, including military outlays and civilian expenses, such as on housing for thousands of Israelis forced to flee their homes in the north and south.

The economic toll of the war may cost Israel an estimated $400 billion in lost economic activity over the next decade, threatening the country’s economic future. The U.S. administration signed a commitment to provide Israel a minimum of $3.8 billion per year from 2019 for the next ten years. In the event of Iran becoming a war site, the costs for the global economy in terms of lost output could touch $1.7 trillion over a five-year period. The low level of global trade integration of Iran, which is also due to sanctions, implies that the external costs are likely on the upper end in this case. Although the ongoing war with Hamas is causing unprecedented financial strain on Israel’s finances, the Jewish country’s strong pre-war economic performance and low debt-to-GDP ratio seem to be providing room to navigate the crisis. Still, a significant loss of wealth may be observed in the country.