Putin Ukraine in an Awkward Position
Written By: Derek Jacobs
Putin Ukraine in an Awkward Position
For those that do not know, Russia has recently invaded the eastern section of the Ukraine, around the city of Donetsk and the current military conflict between Ukraine and Russia originated as an economic conflict. Russia claimed the Ukrainian government owed them money for unpaid bills and other debts. Heated negotiations have been constant and recently Russia has cut off the natural gas lines that run to the Ukraine and as of last week, launched an invasion. Considering how hard the global recession has hurt the Russian economy, cutting those gas lines is a huge gamble. The Russian gas company and the Russian government must have conducted a cost-benefit analysis to determine if the gained political benefits outweigh the losses in business. This natural gas line is worth millions of dollars of business every year, so it is interesting to see that the Russian government decided that to them, the increased political pressure that cutting the lines would apply is worth more than money they would make from selling the natural gas. By decreasing the amount of natural gas going to Ukraine, the supply within Russia itself has increased and prices have fallen, due to the laws of supply and demand. Also, invasions are extremely expensive. The soldiers, all of the guns and ammunition, the tanks, artillery, and planes. The invasion is most likely an attempt by the Russian goverment to recoup losses by force. Economists in Russia must have also conducted a marginal-cost analysis to determine if the cost of sending each additional soldier and piece of equipment was worth the rewards. In this case, the rewards would be portions of eastern Ukraine including the major city of Donetsk.
In Ukraine, economics haven’t been so kind. Since the Russians have shut off the supply of natural gas, the reservoirs have become increasingly depleted. They will probably only last a couple more months and prices are rising every day. Again, supply and demand. The supply is dwindling and the demand is always going to rise because winter is coming. Also, not surprisingly the government of the Ukraine has also reached the same conclusion that the contested region is worth fighting for. It is also clearly worth more to the Ukranians because even before the Russian invasion, Ukranian soldiers were fighting pro-russian rebels. Now clearly to them, this region must have some major economic value or it wouldn’t be worth fighting for. Pride and nationalism are also probably factors that are influencing the Ukrainian government, but this is an economics class, so pride and nationalism are negligible.
This conflict has also has some major international economic ramifications. Many nations, the U.S. included, have imposed new sanctions on Russia to express their condemnation of the Russian invasion. Tariffs are the most common sanctions being enacted. Considering that Russia has some of the world’s largest reserves of natural gas, oil, and coal, these sanctions could be quite risky for nations that do not have their own reserves, and these tariffs by nature increase the prices of imports, which can be a burden to citizens. 
The invasion has also had the negative externality of raising prices in Western Europe because many of the gas lines have either been shut off since the start of the conflict, or due to risk of damage during fighting, been shut down in recent months.
The invasion has also had the negative externality of raising prices in Western Europe because many of the gas lines have either been shut off since the start of the conflict, or due to risk of damage during fighting, been shut down in recent months.In the end, the economics of the current war in Eastern Europe are extremely complicated with different aspects and consequences from each decision and those consequences have lasting impacts on the global economy.
"The World Factbook." Central Intelligence Agency. Central Intelligence Agency, n.d. Web. 22 Sept. 2014. <https://www.cia.gov/library/publications/the-world-factbook/index.html>.
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