Weeks have passed since the start of the Russian invasion in Ukraine, an occurrence that shifted the dynamics in the economies of Russia, Ukraine and other countries across the world. There were multiple Western sanctions targeting the Russian economy that were meant to make the country accountable for their aggression against Ukraine. Countries such as the United States, United Kingdom, Japan and Switzerland condemned Russia with economic and financial decisions that made the country's stocks and currency tank.

These sanctions shifted the economic and financial dynamics of not only Russia, but also that of other countries. There has been much speculation regarding the possible economic crisis that will arise in Russia and how the country will handle these multiple economic attacks. However, how can these economic sanctions be analyzed? More importantly, what is at stake for the economy worldwide due to this conflict?

The IGM Forum at Chicago Booth invited its panel of leading European and U.S. American economists to express their view about this conflict where they concluded that “the fallout from the invasion will both reduce global growth and raise global inflation over the next year.”

The stagflation we might encounter could play a major role on what the bigger picture in economics worldwide would look like. “Stagflation” refers to an economy that is experiencing a simultaneous increase in inflation and stagnation of economic output. One of its consequences that is now visible is the sudden increase in the cost of oil. After Russia’s invasion of Ukraine, the crude oil prices briefly rose above $100 a barrel, before retreating back to $90. Over the following two weeks, crude oil prices climbed steadily as the U.S. and its western allies imposed crippling sanctions on Russia. Christopher Pissarides at the London School of Economics (LSE) explains: “The effect will be through oil and other resources. Supply will be reduced so prices and production costs will rise.”

However, there are opposing views on whether it's possible that the world might soon have to face stagflation. Economists agree on the “negative supply shock” that is affecting the dynamics in the economy worldwide. This is the first step to consider the increase in inflation. We can see that the prices of oil, gas, wheat and palladium spiked as a result of the conflict, all of which Russia is one of the main producers. As a result, the costs of food, as well as commodities and goods like smartphones, may also rise.

The uncertainty of possible stagflation comes from the unknown output in the economy. During the European Economic Experts Panel hosted by the Initiative on Global Markets,

Olivier Blanchard from the Peterson Institute commented: “I am reasonably confident about inflation, but less sure about output. Demand may be strong for other reasons.” As we have previously seen, something that is at stake for the American economy and worldwide is the skyrocketing of oil prices. However, Europe is also facing a set of hard repercussions due to their dependence on oil and gas. Their previous main supplier of this good was Russia — countries such as Germany, France and many others were highly dependent on the supply of gas. They are now facing the challenge of transporting and obtaining these goods from countries such as America. Economists such as Christopher Pissarides concurs that “Germany is totally dependent on them. A recession in it and some others will bring recession to Europe.” and others such as Jose Scheinkman at Columbia explains, “The recessionary effect will come mostly from banning gas imports, since the effect from oil will be partially diluted by reshuffling supplies.” Certainly, the constant tension on this matter could raise a series of hardships for the European countries that will be affected, as well as the world economy.

Russia’s invasion of Ukraine is certainly negatively impacting the global economy. Only time will tell what the outcomes of this attack will be, as there are still so many variables to consider. However, so far the outcomes in terms of inflation have demonstrated a global negative impact in one of the most important industries worldwide, such as the energy sectors.