Oil and Natural Gas
When war broke out between Russia and Ukraine, and later Hamas, Hezbollah, Houthis and Israel, expectations were that these wars would be short in duration and settled in months. But years later they continue to rage on. Impacts have been far-reaching, from prices and supplies to concerns about energy security and the imposition of sanctions.
What can we say about these impacts and their severity today?
Prices of oil and gas have soared. Crude oil prices rose from about $76 per barrel January 2022 to over $110 per barrel in March 2022, but today are back down close to where they started. The initial reaction was fear and overreaction, apparently, and today supplies have continued to meet pre-war demand although the supplier picture has changed somewhat.
The war disrupted supply chains, most especially Europe's energy supply. Sanctions and export controls were imposed upon Russia, but to an extent Russia continues to produce and export oil and natural gas.
Russia can still send gas to Hungary, Turkey and Serbia through the TurkStream pipeline across the Black Sea. This year Russia’s oil price increases resulted in export revenues growing slightly. And the EU is still buying Russia’s natural gas, as their largest customer.
Countries dependent on Russian oil and gas have had to seek alternative sources, leading to increased investment in renewable energy and other alternatives. The industry is now focusing on strengthening resilience and relevance in a rapidly changing energy landscape. This includes diversifying energy sources and increasing investment in renewable energy.
Defense Stocks
During times of conflicts and wars governments respond by increasing defense spending. The higher revenues for defense contractors and manufacturers in turn bid up prices of these defense stocks. War creates uncertainty in the markets, and that can mean stock selling even as the defense stocks may perform better during these periods.
Despite fear and overall negative reactions to conflicts, markets do recover quickly as the situation begins to stabilize and an end to the war seems closer. But broader economic implications that effect commodity prices, international trade, and overall economic growth may slowly but steadily appear. Defense stocks oftentimes will continue to perform well, simply due to the wars leading to government’s new policies and initiatives to increase their military spending going forward.
Wars have significant and even profound long-term financial and economic impacts on nations and the global economy:
Negative Impacts of Wars
Wars destroy physical capital: buildings, roads, and factories, the cost and time of which can stretch decades-long. War injuries and chronic and long-term disabilities, along with the loss of life, populations displaced, education and healthcare systems disrupted. This is hugely negative on the overall workforce.
Besides persistent GDP per capita loss, especially in civil wars such as Syria and several African nations, have suffered for years, the chaos and catastrophic destruction can impact the national psyche, the culture can turn from community and trust in peace and safety to fear and an emphasis upon self-survival and personal protection.
Financing wars results in public debt and the need to raise taxes to pay for it. The U.S. has $36 trillion in national debt, rivaling world war levels, much of it from the wars in Iraq and Afghanistan, but also the aid we have been sending to Ukraine and Israel to help finance their war efforts.
This will be a financial drain on future economic growth since interest and debt service is unproductive and cannibalizes otherwise direct economic investment. Finally, wars - like pandemics - disrupt supply chains which can lead to inflation.
Positive Impacts of Wars
Wars mean increased governmental military spending, and that stimulates certain sectors of the economy and increases the prices of defense stocks as we pointed out. In addition, military research and development during wartime leads to technological innovations that benefit the economy.
DARPA, the Defense Advanced Research Projects Agency, is an agency of the United States Department of Defense. It's responsible for the development of emerging technologies for use by the military. The agency has driven such world-changing innovations as the internet, self-driving vehicles and stealth technology.
Finally,, the rebuilding process that follows when the war is finally over creates jobs which in turn stimulates economic growth. Job opportunities are directed towards rebuilding the nation’s infrastructure, restoring services, and revitalizing the communities.
Reconstruction spans a wide range of sectors:
1.       Repairing and constructing buildings, roads, bridges, and other essential infrastructure.
2.       Reestablishing medical facilities and services.
3.       Rebuilding schools and other educational institutions.
4.       Providing support for displaced families, veterans, and others who have been impacted.
5.       Addressing ecological damage and ensuring sustainable practices get implemented.
Global Impacts
Wars can disrupt global trade and lead to economic instability, affecting countries far beyond the conflict zone. Suffice to say that the wars at the present affect the entire world, maybe just to different degrees depending upon each nation’s place in the world and their needs in terms of trade.
These wars create humanitarian crises, straining the international aid resources, leading to long-term economic challenges for the affected regions. Wars are complex and chaotic events with far-reaching consequences, as their economic impacts can vary widely depending on the scale, duration, and nature of the conflict.
Geo-political tensions are high today, and wars tend to enlarge and involve more and more nations in their conflicts. Let’s hope 2025 is the year for the return of nations’ sanity and the end of these devastating and costly wars.
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