The World Bank recently released a report titled “The Impact of the War in Ukraine on Global Trade and Investment” in which it highlighted the impact of the war in Ukraine on the global economy, particularly with regards to world trade and investment. According to the report, the war came at a difficult time for the world economy as the recovery from the recession induced by the COVID-19 pandemic is decelerating amid the continued flare-ups of the virus. Furthermore, the World Bank revealed that inflation is rising in several countries and large economies are increasing interest rates to tame the rising inflation. In the same vein, the report added that disruptions to trade and investment will limit growth in developing countries and add to price pressures, especially if countries opt to impose trade restrictions to protect their economies. From another perspective, the World Bank identified in its report five direct trade and investment channels stemming from the war in Ukraine that will affect countries, namely disruptions to the commodity markets (particularly food and energy), logistics networks, supply chains, Foreign Direct Investment (FDI), and specific sectors. The report mentioned that food and energy trades were the first to suffer the consequences of the war. In details, the report revealed that Russia and Ukraine are among the top seven global producers and exporters of wheat, corn, barley, sunflower seeds, and sunflower oil. Most of these products, according to the report, are shipped to North Africa, the Middle East, Europe and China (corn from Ukraine). Ukraine is also a major supplier of sunflower oil, accounting for more than half of global production. The report added that Russia is a major supplier of fossil fuels (crude oil and natural gas) and of fertilizer & agricultural commodities. The report noted that disruptions to these supplies are fueling an increase in prices with asymmetric effects on exporting and importing countries. More specifically, and always according to the World Bank report, exporting countries will realize a gain from higher commodity prices and are able to increase production and shipments which will partially cover for the drop in exports from Ukraine and Russia. Importing countries, on the other hand, are negatively affected by the war as they consume these commodities and use them as inputs to produce other goods & services for export. The report also mentioned that the disruption to the aforementioned supplies have resulted in negative consequences on trade and welfare. Accordingly, the World Bank has prepared a “Computable General Equilibrium” model (CGE) in order to quantify the effects on trade and welfare. In figures, the World Bank findings reveal that global income dropped by 0.7%, with low-income countries losing as much as 1% as a result of a drop in global exports. In addition, manufacturing exporters (namely Vietnam, Thailand, and Mexico), especially in energy intensive sectors, saw a large decline in their real income while net exporters of crops (namely Turkey, Brazil, and India) and of fossil fuels (such as Nigeria and some MENA countries) witnessed a rise in their exports which somewhat tamed the negative effects of the war. In parallel, the World Bank stated that trade-policy interventions risk to further destabilize food markets. Delving further into the specifics, the report highlighted that Ukraine and Russia combined are responsible for 25% and 15% of global wheat and corn & fertilizers (prior to the war) exports respectively. In addition, the disruptions to the supply of these commodities have resulted in price hikes (the price of wheat rose by more than 40% since the beginning of the war). From another perspective, the report unveiled that since the onset of the war, 53 new trade policies (67 including subsidies) have been imposed, with export restrictions accounting for 31 of these measures. These export restrictions, according to the World Bank might lead to a global food crisis which will result in higher food costs for net importers (mainly low and low-middle income countries in Sub-Saharan Africa and the Middle East). The World Bank also noted that the sanctions imposed on Russia following its invasion of Ukraine have disturbed the trade connectivity of these two countries and have affected the logistics of the region. In this vein, the report stated that Russia’s connections to European ports have been severed and commodity exports to other destinations have been constrained. Furthermore, Ukraine’s Black Sea ports have either been deserted or occupied, thereby limiting export routes for the country. According to the World Bank, the war has resulted in the closure of the air space between Russia and 36 countries which led to longer routes and higher prices for air freight between Europe and East Asia. From a supply chain perspective, the report mentioned that there are some critically dependent sectors (mainly from the European Union) on inputs from Ukraine, namely steel, heavy manufacturing, semiconductors, among others. As for Russia, the report revealed that heavily dependent sectors include metals, chemicals, fertilizers, and other commodities noting that the largest trade partners of Russia are the United States, China, and Germany as they act as importers of Russian commodities and exporters of goods produced via the global value chain. It is worth mentioning in this respect that the biggest effects of trade disruptions as per the World Bank will be felt by the Eurasian Economic Union and the Commonwealth of Independent States. The report added that the war is expected to restrain FDI in neighboring countries and in the energy sector. As per the World Bank, neighboring countries such as Armenia, Moldova, and Kyrgyz Republic (where more than 20% of inward FDI is from Russia) could suffer from limited inflows of FDI and losses on their outward FDI in Russia. In the same vein, the report revealed that European Countries (Finland, Germany, and Norway) have sizeable investments in Russia’s energy sector and Europe is highly dependent on Russian oil and gas. The report noted, however, that the direct impact of the war on global FDI is likely to be subdued as both Russia and Ukraine have a limited role in global FDI networks. Indirect effects, on the other hand, could be more significant as a result of a high degree of uncertainty and geopolitical risks which could reduce investor confidence. The report commented that the long-term effects of the war on global trade and investment will mainly hinge on how governments respond to the changing geopolitical environment. The World Bank noted that the risk of a damaged world trade and investment system has rapidly increased, and with it a reversal of globalization. The report further commented that firms will respond to the shock by re-assessing security-related risks which could lead to changes in the structure of the global supply chain as firms move production away from riskier countries, noting that the process is likely to be gradual rather than sudden and will affect sectors and products differently.

With regards to Lebanon, the report noted that the country imports 86% of its total wheat for consumption from Russia and Ukraine. Lebanon also imports large quantities of cereal, seed oil, coal, and petroleum & coal products from both countries. The World Bank mentioned that on average, Lebanon imported wheat amounting to $89.74 million from Ukraine between the years 2018 and 2020, which represents 67% of the country’s imports of wheat. According to the World Bank, since Lebanon imports far more than 40% of its total imports of wheat from Ukraine, it will likely face difficulties in quickly switching to other export sources of the grain, which could cause supply shortages in the short-term. Similarly, the report noted that Lebanon is among the top ten countries relying the most on Ukraine for its imports, with $188 million spent on agricultural products (rank: 2) and $157 million spent on intermediate goods (rank: 8). From another perspective, the report stated that Lebanon imposed a new trade policy on March 11, 2022 of restrictive type on its exports on some food products, namely meat, potatoes, fruits & vegetables, only to name a few.