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The modern world is closely focused on globalization and mobility, and that is why all countries globally are tightly entwined in some terms

It can be surprising how the conflict in another part of the world may affect the lives of ordinary people in the USA. Unfortunately, it can, and the influence is actually significant for all of us Americans.

The modern world is closely focused on globalization and mobility, and that is why all countries globally are tightly entwined in some terms.

In our previous posts, we already discussed the reasons why you should prepare yourself for a situation similar to the Great Depression now and the history of the conflict between Russia and Ukraine with the description of possible repercussions.

Here we will focus more on the financial sphere of our lives in connection with the increasing tensions between Russia and Ukraine.

Even though the situation is still uncertain in these countries, there is an effect of the conflict on our budgets. You should be prepared for every way his situation might develop to be able to protect yourself from its negative consequences.

Continue reading this review to be aware of the financial processes that are happening now in the world and make your budget unaffected by the global conflicts.

Significant Inflation Growth

Inflation Rate

One of the key characteristics of the economy that will be influenced by the developing conflict between Ukraine and Russia is the growth of inflation on a global scale.

We know that high inflation was already a problem for Americans, even before the start of this collision.

As a matter of fact, nowadays, the inflation rate in the USA equals 7.9%. It is believed that an increase in this rate will lead to a miserable situation that has not been seen in America since 1981.

The RSM estimated the possible growth of inflation affected by the crises in Ukraine and Russia: it can reach as high as 10%.

It will cause many additional problems, such as a rise in costs for electricity and heating, oil and gas, and others, as they are dependent on the natural gas price. Moreover, every sphere of economics is interconnected, and that is why every American will notice the difference in living costs.

For instance, businesses will need to augment prices for products as they will have bigger expenses for transportation and heating. The energy price will cause changes in prices for flights and other types of transportation.

Also, the production of particular goods will face a crisis as both countries that participate in the conflict export materials. Russia is a great exporter of metals and wheat; Ukraine also exports wheat and corn. It means that there will be a shortage of these products if the export is stopped.

The USA is not the only country that will face the rise of the inflation rate. Almost all countries in Europe use the natural resources of Russia and that is why they will have a shortage in energy as well.

Knowing this information you will be able to understand the changes in prices for the goods that you buy regularly. Do not be surprised when your expenses sky-rocket, as it is the most likely scenario taking into consideration the development of the Russia-Ukraine conflict.

Energy Crisis

The costs for energy have already increased, even though the supply of energy sources is still operating. According to statistics, the energy prices now are as high as it was in 2014 which will negatively affect all spheres of our lives.

How The War In Europe Will Affect The US EconomyHow The War In Europe Will Affect The US Economy

It happens because Russia is the biggest player in this field of the market and it exports a big amount of energy to many countries.

For example, Russia produces 9.7 million barrels every day and it places Russia in second place of the world energy producers after the USA.

How the possible Russian invasion of Ukraine can influence the energy costs? The thing can in many ways disable the export of gas and oil.

Firstly, war can destroy the constructions that are used for the transportation of energy materials. Secondly, many countries will create new sanctions for Russia and this activity will change the way how energy is exported. Thirdly, war requires shifting focus to other spheres of the economy such as weapons and military equipment.

Now, the demand for energy in the world is higher than its supply and the situation may become even worse. So the crisis between Russia and Ukraine might be the reason for the increase in oil prices up to 120 dollars per barrel or even 150 dollars.

The only way to compensate for the shortage in oil supply is to decrease oil consumption and activate the production of energy by OPEC.

Gas Station

Changes in oil prices affect the prices for pumps as well. We have already noticed that the cost for gallons of gas increased to 3.5 dollars while the last time we saw a similar value was seven years ago.

We hope to reduce the level of conflict tension. Such events that show the prevention of war help to lower the price.

Freezing of Economic Growth

The pandemic has significantly influenced the speed of economic growth of the USA and other countries. The time is yet to come for us to be able to recover from previous damages, when the Russia-Ukraine conflict again created problems in the economy of America.

In addition to the rise of the inflation rate, the GDP will also increase by one point, according to estimations. This effect is not as significant as the rise of inflation, but still, it will hit the finances of every American.

The economic crises that happened due to the COVID pandemic produced financial difficulties almost in every American family.

If you think that such a local thing as the conflict between two countries on the opposite part of the world cannot affect you, the provided information proves that it can.

Undermining Cybersecurity

One of the less obvious ways to attack nowadays is to start a cyberattack.

Recently, President Biden has announced that Russia may cyberattack any of its opponents, including America. Even though the consequences of such action are hard to predict, we know that the effects can be harmful to the USA.

How The War In Europe Will Affect The US Economy

An example of a cyberattack that was significant for the economic development of the USA is the attack on the Colonial Pipeline in 2021.

This event caused unpredictable behavior of buyers, as they started to panic because of the news that the pipeline was destroyed.

This led to the termination of business for gas stations located in the South of the USA.

The most damageable cyberattack that can happen is the hacking of the financial system of the USA. It is impossible to estimate the losses that such action can cause. That is why we should be prepared for every outcome of the war developing between Russia and Ukraine.

We never know the next step that will be taken by any of these countries. A cyberattack can become one of the ways for Russia to eliminate opponents in this conflict.

Uncertainties on Market

Investors start to panic when they cannot predict the prices and situation on the market in general. It leads to various consequences such as mass sales on the stock because of the preparation for the financial crisis.

Thus, investors will be afraid of oil shortage, financial instability, unclear sanctions, and other factors that influence people’s decisions on the market.

All these events will be harmful to every citizen of the USA and not only investors. The thing is that all financial systems are interconnected. It means that the bank and retirement accounts of residents are dependent on the financial market.

So, the unpredictable behavior of investors will erase the wealth of some families, decrease the number of compensations for the unemployed, and change the banking system.

Of course, the same situations have already happened, but we cannot estimate the severity of the situation now. The most important message is that even if you do not participate in sales in the financial market, the crisis there will affect you as well.

Effect on Interest Rates

How The War In Europe Will Affect The US Economy

If you are interested in borrowing money from banks, be prepared for sharp growth of interest rates. The increase in interest rates is most probable as it is one of the ways to balance the inflation rate.

Maybe, you’ve noticed the interest rates rise after the start of the pandemic.

That time it affected the real estate market a lot, but now every type of credit line will be influenced by the Russia-Ukraine conflict.

The development of the situation also depends on the approach of the Fed to the crisis. Last time they wanted to stop the rise of the inflation rate, treating it like a temporary one.

However, it illustrated that such an approach cannot help to cool off the inflation rate. Thus, the Fed may introduce other measures and will treat the inflation crisis as a constant one for the American economy.

Even if the government can compensate for the inflation rate growth without raising the interest rates, it will shift the focus of their activity from the development of the economy to struggling with occurring problems.

The conflict between the Russian Federation and the Ukraine is a crucial event for the economy of the USA, even though this country cannot control the way it will be developing.

Every American will feel the effect of this conflict on their finances for the reasons described in this review. It is a complicated task to predict the power of the hit to America’s economy, but we can be sure that it will influence the economic sphere of citizens’ lives.

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