In response to the invasion of Ukraine, most OECD countries have announced punishing sanctions against Russia. In addition to targeting financial markets and service sectors, some countries have begun to impose restrictions on exports of Russia's fossil fuels. We analyse a scenario whereby most OECD countries put major restrictions on Russia's energy exports. The short‐term implications are likely to be non‐trivial for the EU – Russia's largest energy export destination. Households' real income could drop by 0.7 to 1.7 percent (relative to the reference case) with energy prices growing by as much as 11 percent. But in the longer run, the cost of such restrictions for the EU is expected to be more modest (0.04 percent slowdown in the annual growth rate of real income over the 2022–2030 period), even as they lead to substantial environmental benefits reducing CO2 (6.6 percent in 2030) and air pollutant emissions (2.8 to 5.9 percent in 2030). Such emission reductions would take the EU more than halfway to its Green Deal mitigation target, reducing the necessary carbon price by around 40 EUR per tCO2. Adverse impacts on the Russian economy would be overwhelming and, in relative terms, 10 time larger than that for EU.
SummaryFood‐security implications of the war in Ukraine are exacerbated by adverse weather events, spillover effects from the distortion of energy and fertiliser markets, and domestic policies that countries around the world have implemented in pursuit of food security. Estimates suggest that the cumulative effect of these channels in terms of restricting agricultural and food trade is in the order of over 10 times larger, and their cumulative effect on global food supply is on average three times more substantial than the direct agricultural supply disruptions in Ukraine. The latter, however, disproportionally impacts low‐income countries that are particularly vulnerable to food supply shortages and price increases. In the case of the EU, although overall food availability is not at stake, food affordability for low‐income households is a concern, especially when combined with rising prices of other essential goods, such as energy and transportation. To ensure the resilience of domestic and global food systems, the EU and its Member States should extend a set of already implemented policies, including better‐targeted support for the low‐income households in the region, implementation of trade facilitation measures via international cooperation, and support for agricultural production in the most vulnerable countries, and should also facilitate the restoration of Ukraine's lost agricultural assets.
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