Causes of Russia - Ukraine conflict

After Russia announced the annexation of Crimea in 2014, Russia’s relationship with NATO has been negative since NATO considers Russia's action an act of aggression. NATO has also organized several training sessions with their allies and strategic partners, as well as providing military support for troops to fight against rivals backed by Russia.  

In the last few years, since Ukraine is increasingly making moves to support the European Union and recently requested to join the European Union and NATO, Russia considered this as carrying enemies toward the border. Because of Ukraine’s geological position, if Ukraine joins the EU, Russia will be surrounded by the Western countries. And to prevent this, Russia decided to invade Ukraine as a deterrent until they stop joining the EU.    

Impact on Russia Economy

Sanctions from United States & EU

Sanctions have caused the Russian currency (Rubble) to depreciate significantly to its bottom (1 Rubble = 0,0072 USD), the inflation rate was all time high (9,15%). In addition, consumer goods and finance markets were in turmoil, Russian enterprises facing difficulties to sign export contracts, gas & oil were not purchased by Western countries, airlines had difficulty in ensuring and maintaining aircrafts, etc. At present, the EU has conducted 7 rounds of sanctions on Russia, with over 11000 sanctions on Russian companies, making the economy of Russia losing billions of dollars.

Russian government’s policies to support economic

To reduce the shortage of goods when more than 1000 Western corporations leave Russia, the government has applied the “parallel import mechanism” from May 2022. helping Russians be able to access to Western goods during the embargo. With this mechanism, Moscow successfully imports a wide range of goods, such as electrical appliances, consumer goods, etc. Moreover, Russia is still able to export oil and natural gas to many countries (including countries in the EU) during the embargo.

One argues that the sanctions will need time to really affect the Russian economy in the long term. At present, however, Russia can put pressure on the world economy by limiting oil and natural gas exports, making the global energy price increase significantly.

Impact on the global market

First, Ukraine, the country in direct conflict with Russia, has suffered a loss of more than $120 billion after only 1 month of the conflict, and the invasion is estimated by the World Bank to shrink the Ukraine economy by 45% this year. According to EMF, even if the conflict ends in 2022, Ukraine’s economy will still suffer sequelae leaving up to 10% of the GDP every following year, and with a more negative case, the economy will just get worse and worse. 

To the global market, the retaliation of Russia, including closing the Nord Stream 1 pipeline, selling crude oil in Rubble, Russia has indirectly created the energy crisis in the EU. The EU inflation rate reached 10% in September 2022, with 16/27 countries recorded double digit inflation figures. The latest forecasts are also pointing to a recession risk for the European Economy. On the side of enterprises, the sharp rise in energy cost has forced them to reduce supplied quantity and reduce earnings.

Challenges and Opportunity on Vietnam Economy

The Russia - Ukraine conflict has also caused several difficulties to the Vietnam economy. The disruption of supply change caused by COVID-19 pandemic has not been resolved, the Russia - Ukraine conflict has even caused it more seriously. This heavily affects the supply of raw materials, oil, etc. for production in our country, directly affecting the development of businesses. The damage to the travel industry of Vietnam is also remarkable. Before COVID-pandemic, Vietnam welcomed 4.5 million Russian tourists (25% of international visitors), furthermore, on average, a Russian tourist spends about $1600 for a visit, higher than $900 for international travelers. Currently, due to the devaluation of the ruble, the Russian economy is facing a crisis that will affect the Russian decision to travel. Besides, Russian airlines are not allowed to bring Russia abroad for vacation. Based on an estimate made by the General Statistics Office of Vietnam, the tourism industry has lost over 7 billion USD in 2022 because of Russian travelers alone. This figure shows the damage of the Vietnam economy during the invasion of Russia. 

Besides some disadvantages, opportunities are open to Vietnamese enterprises when foreign businesses leave, leaving accessible market shares. To be more specific, with the validation of EVFTA and EVITA, Vietnamese companies have a great opportunity to access and increase export value into the EU market, mainly in the field of agricultural and food industries (previously belonging to Russia and Ukraine).

More broadly, during the crisis, many multinational enterprises will accelerate the process of market diversification, supply chain shifting, and finding safer addresses. This is a favorable point for Vietnam when our country has a stable political situation, stable economic growth, and improved business environment. One expects that soon, Vietnam will attract companies to build factories and machining a wide range of goods in our country.