The world is experiencing hard times with the invasion of Russia into Ukraine. In recent weeks, Russia has increased the severity of attacks. The world reacted to the invasion by implementing harsh sanctions, from removing most of the banks in Russia from the SWIFT system to freezing property belonging to Russia, to be put an embargo on Russian media by the European Union. All things and other sanctions placed on Russia affect the Russian economy adversely. The Russian Ruble lost approximately 30% value per dollar till now from the beginning of the invasion, which is incredible volatility in the market and shows a tremendous loss of credibility. While such sanctions damage Russia's economy, whether Russia can damage these countries that apply these sanctions is a question. As of 4 March, Brent has been sailing around 112 dollars per barrel, while West Intermediate Texas, WTI, has been sailing around 110 dollars per barrel. These prices were about 60-65 dollars per barrel only a few months ago. This increase is mostly because of the Russian invasion and the "silence of OPEC'' against prices going into space. I will explain how Russia causes oil prices to increase worldwide in this writing.
Firstly, let's introduce the energy weight in the Consumer Price Index published for January. The item of energy rose by 0,9% in January. Brent and WTI were about 90 dollars per barrel at the end of January. When taking the price of Brent and WTI right now, approximately an increase by 20%, into consideration, predicting how this increase will put pressure on inflation itself and compose more chunks of inflation is not a hard thing to think. In an environment where everyday complaints about the increasing cost of living are rising, dealing with inflation increasing at an accelerated rate will be harder and more hurtful for the whole globe. Therefore, the institution responsible for controlling inflation, Federal Reserve (FED), will take action is about curiosity.
The FED was expected to increase the federal reserve rate in the 15-16 March meeting. Whether the increased level will be 0.25% or 0.50% has been questioned in the economic environment. However, most experts are on the side for a 0.50% increase to keep inflation under control. After the invasion, since the economic outlook becomes more uncertain and will dark scenarios such as starting a new war between Russia and NATO, the probability of an increase of 0.50% seems to decrease. In that sense, The Chair of FED, Jerome Powell, made a speech a few days ago, on Wednesday. In his speech, he points out they have to determine the interest rate level. Afterward, he stated that the FED would be "prepared to move more aggressively" if rising inflation required it. The current war and sanctions implemented on Russia make the statement of the world highly uncertain. In this environment, operating an effective monetary policy requires an acceptance of the fact that the economy shows development unexpectedly. Therefore, FED will be "nimble" in showing reaction to incoming data. He also specified that he is "inclined to raise the interest rate about 0.25%". The interest rate is likely to increase in the March meeting, but whether the increase will be enough against fighting inflation or not is also about curiosity.
If the FED could not successfully fight against inflation, increasing oil prices would put more burden on the whole society and the cost of living. As a matter of fact, in a news article published in Financial Times, Scott Sheffield, chief executive of Pioneer Natural Resources, said that the US is unable to close the gap of supply in the short term if an energy embargo is put on Russia. Therefore, he acknowledged that such action or sanction causes the oil prices to increase. Looking from an objective perspective, we should accept that Russia still has some power that can change the rule of the game. This means that while US and European countries can damage the Russian economy, Russia can also damage the world's economy, including US and European countries.
If they damage their economies one another, no one can rescue their economies. However, there is a country, Ukraine, whose economies can be rescued. In an article published by International Monetary Fund (IMF), Managing Director Kristalina Georgieva said that the IMF continues its Stand-By Agreement, now available additional 2,2 billion dollars for Ukraine.
After all, the answer to who will be the winner is in the upcoming days. Nevertheless, it can be understood that those who will be crushed after this war are the people living on this planet.