The Ukraine War and the Cost of Living Crisis

Andy Kilmister writes about the increasingly perplexing impact of the war in Ukraine on economic circumstances elsewhere.



Analyses of the impact of the war in Ukraine on economic conditions elsewhere have become increasingly bewildering. The UK government has used the war throughout the last year as an excuse for its economic failure. Early estimates of the war’s impact from the National Institute of Economic and Social Research and from the Centre for Economics and Business Research painted a bleak picture, with the NIESR arguing that:

“the war in Ukraine has further raised the prospects of stagflation and is likely to have a significant effect on the UK economy

and the CEBR suggesting that:

“Russia’s invasion of Ukraine is likely to have a large effect on the UK economy

including a reduction in GDP of more than £90 billion over two years. At the same time, The Economist, in its January 28, 2023 issue, pointed out that:

“the global economy has held up better than expected

and reported that:

“economists expected (energy) prices to remain high in 2023, crushing energy-intensive sectors such as heavy industry. They were wrong.

What is actually happening here? To what extent is the war responsible for the economic pressures people are facing?

The economy

The central problem with the kinds of analyses of the impact of the war put forward by orthodox economists is that they treat the economy as a “natural system,” which is passively undergoing a shock from outside. This replicates the kind of analysis we have seen previously with developments such as Brexit and the COVID-19 pandemic. In reality however events like the war do not happen in a vacuum; they take place in a world where economic conflict has been intensifying and their impact is shaped by that conflict. War involves the destruction of economic resources and to that extent is inevitably costly. But the extent of those costs and who bears them depends upon political choices and struggles.

The Ukraine war started at a time when such choices and struggles were intensely contested. The dominant underlying theme of the last two years as Western economies have emerged from the pandemic has been the attempt by capital to increase profitability. Paul Donovan, chief economist at UBS Global Wealth Management (and certainly no radical), laid out the case with great clarity in the Financial Times (FT) of November 3, 2022:

“This is the current inflation story. Companies have passed higher costs on to customers. But they have also taken advantage of circumstances to expand profit margins. The broadening of inflation beyond commodity prices is more profit margin expansion than wage cost pressures.

Taking the price of bread as an example, Donovan argues that only 10 to 15 percent of the price can be attributed to the cost of wheat but that companies have been able to construct a narrative in which inflation can be attributed to rises in the price of raw materials:

“consumers seem to be buying stories justifying price rises but which really serve as cover for profit margin expansion.

The consequence of this as Johanna Kyrklund (co-head of investment at Schroders and again no radical) points out in the January 27, 2023 issue of the FT is that:

“after a prolonged strong period, underlying US profit margins are at record levels.

A similar story can be told for the UK and EU.


The effect of this determined effort to increase profits in the markets affected by the Ukraine war has been highlighted in research done by the Corporate Europe Observatory and the Fossil Free Politics coalition. In their October 2022 report, “Fuelling the Cost of Living Crisis: How the fossil fuel industry turned the Ukraine war into an opportunity for extra profits and further lock-in of gas” they detail a massive lobbying offensive with over a hundred meetings between the fossil fuel industry and the European Commission between February and September 2022, along with dozens of meetings between the petrochemical chemical industry and the Commission. The report points out that:

“just as with the COVID crisis, under the pretext of “emergency”, an industry directly interested in EU policy decisions has been granted regular top-level access to EU leaders and invited to co-write EU policy.

The watchword was no interference with market mechanisms and the “EU Energy Platform Industry Advisory Group” set up to reduce dependence on Russian gas is effectively a gas industry cartel.


The consequences of this are unsurprising. The report looks at the profits of four major European energy companies, Shell, Total Energies, Eni, and Repsol, and finds that they made €78 billion of profit between February and September 2022. This pattern has continued, with Shell announcing this month (February 2023) a record annual profit of $39.9 billion for 2022, while ExxonMobil made $55.7 billion and Chevron made $36.5 billion. In the February 3, 2023 issue of the FT, Helen Thomas reported that Shell returned $26 billion to its investors during 2022, of which over $18 billion came through purchases of its own shares. It has just announced a $4 billion buyback plan for the first quarter of this year. Along with rises in profits for energy producers, we have seen corresponding rises for energy distributors; for example, Centrica’s adjusted operating profit for the first six months of 2022 rose to £1.34 billion, compared to £262 million for the equivalent period in 2021, and it reinstated its dividend.

The same patterns that have occurred in the energy markets can be seen in food. In his analysis of the global food crisis in the London Review of Books (12 May 2022), Tom Stevenson points out that:

“Russia’s invasion of Ukraine took place at a time when global grain prices were already at extremely high levels.

The FAO argues that the war didn’t cause the crisis so much as reveal:

“the fragility of the dominant global food system.

Stevenson attributes much of the rise in food prices to investor speculation in:

“poorly regulated commodities markets, dominated as they are by a handful of financial institutions and corporations.

The vulnerability of both energy and food markets to the search for profit is compounded by the ecological fragility created both by fossil fuel extraction and global agribusiness.

Political conclusions

The political conclusions of this are clear. We shouldn’t see inflation and the cost of living crisis as “caused” by events such as the invasion of Ukraine. They result from ongoing economic conflict, and we need a political response to these that both defends the living standards of working people in the west and in the global south and supports the struggle for Ukrainian self-determination against Russian imperialism in the east.

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Andy Kilmister is a member of Oxford Brookes UCU and a delegate from that branch to Oxford and District Trades Council

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