How the EU navigating through complex economic and diplomatic state of Russia-Ukraine war

The tremors of the war are being felt strongly across the European continent

UKRAINE-RUSSIA-CONFLICT-WAR Firefighters fighting a blaze at a home after Russian strikes, in the town of Derhachi, Kharkiv region, amid the Russian invasion in Ukraine | AFP

The ongoing conflict between Ukraine and Russia has dramatically changed the geopolitics of Europe. This tussle not only redrew the boundaries of international diplomacy but also caused shockwaves in the EU economy. The European Union (EU), a peacekeeping project built on the ruins of World War II, is pioneering a new war—one in which economic policies are as important as the military policies, yet being in solidarity with Ukraine. The EU has imposed sanctions on Russia, aiming to cripple its economy and prevent further aggression.

Economic shockwaves across Europe

Though the war hit Ukraine, the tremors of the Ukrainian-Russian war are being felt strongly across the European continent, most notably in the rise of day-to-day commodity prices. The energy and food sector, in particular, is experiencing a sharp rise in prices. The war disrupted the supply chain, leading to shortages and subsequent increases in prices. This has had a significant impact on the labour market, as many EU countries see the possibility of higher unemployment rates and economic austerity. 

Case studies from countries such as Germany, Austria and the Netherlands show stress on productivity due to energy constraints. Similarly, agricultural powerhouses like France, Italy and Spain face increased production costs, affecting food prices and availability. These examples underscore the widespread economic challenges that the EU must navigate. Also, many small countries like Portugal, and the Balkan states were only recovering from the impacts of the pandemic, and now the war has made things worse. 

The oil dilemma: EU pivots away from Russian energy

The European Union (EU) ban on Russian oil imports marked a watershed moment in the bloc’s energy strategy. This bold step in response to Russian military action in Ukraine had the immediate consequence of requiring a rapid restructuring of EU energy supplies. The EU turned to other suppliers to fill the void left by Russian oil. The United States emerged as a key player in this restructuring with vast oil reserves and exports. US oil exports to the European Union grew substantially, helping to solve supply problems immediately. However, these changes have not been without challenges and criticism.

Despite these concerns, the EU’s decision to pivot away from Russian energy was also seen as an opportunity to accelerate the transition to a green economy. The demand for new suppliers has coincided with further investment in renewable energy, which could ultimately reduce overall oil consumption in the EU.

The EU’s response to the oil challenge is multifaceted. The EU ban on Russian oil imports, which affects them and 90 per cent of Russia’s oil trade, has forced the bloc to seek alternative energy sources. These changes could be costly in the short term.

Public opinion within the European Union (EU) on the shift away from Russian energy is diverse and reflects the complexity of the situation.

Here are some key points based on recent information:

A vast majority of Europeans, 85 per cent, support reducing the EU’s reliance on Russian energy to aid Ukraine. However, there are worries over the repercussions of the decision on the economy and the possibility of extending power rate controls to shield customers from the impact. 

The European Commission’s REPowerEU plan, aimed at ending the EU’s dependence on Russian fossil fuels before 2030, and offering immediate actions to stabilise alternative power sources and promote inexperienced strength, has been well received. Moreover, environmental issues have been raised about the impact of transitioning to different fossil gas providers, with a few advocating for a faster flow to renewable strength.

Unemployment

The war in Ukraine has undeniably impacted the European Union’s financial system, but it hasn’t caused major joblessness as the term “mass unemployment” may imply. The war has slowed economic development, with the EU experiencing a lesser-than-expected increase in charges. This slowdown has the ability to steer employment levels but hasn’t always resulted in widespread unemployment.

Inflation has also spiked, mainly due to soaring power fees, setting monetary stress on both companies and households. This ought to cause job losses in certain sectors. Additionally, the war has intensified supply chain issues, affecting various industries and employment, with the impact differing across sectors and EU countries.

Supply chain disruptions have notably affected key sectors within the EU. The automotive industry has been particularly affected due to a shortage of semiconductors. This shortage has exposed the vulnerabilities of the industry’s complex supply chains and reliance on timely deliveries. The computer and electronics sector too faces similar challenges, with semiconductor shortages disrupting the production of a wide range of consumer electronics. Additionally, there has also been a spike in mass imports of products from China, which is already looking to counter Amazon with online marketplaces like Temu and Alibaba.

The machinery manufacturing sector has also suffered, with disruptions impacting both production and distribution. In addition, there is a shortage of raw materials in the rubber and plastics industry, affecting many applications. Energy-intensive manufacturing companies struggle with supply chain issues and energy supply shocks, making operations more difficult.

The road ahead

The EU's policies to address the energy crisis include a multi-pronged approach that includes strengthening its renewable energy capacity, and investing in energy as they are used effectively to explore new technologies such as green hydrogen. Many countries have already started upgrading nature-driven energy sources too.

The journey of the EU through the current crisis is a testament to its resilience and adaptability. The solidarity shown by member states and international partners underscores the collective strength of the Union. Navigating the complexities of the present, the EU has its sights set firmly on a future that promises sustainability and security—a future in which energy is not a weapon of war but a path to peace and prosperity. 

Furthermore, in response to unemployment, the EU has been active, supporting member states and also providing assistance to impoverished states to relieve economic pressures. These efforts are designed to ease the economic crisis and also safeguard jobs.

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