The Russian economy was crushed in the space of a week. Europe is questioning its dependence on Russian oil and gas. Meanwhile, nuclear power plants across Ukraine have been vulnerable to Russian strikes and potential disasters.
The repercussions of Russia’s war on Ukraine reverberate far beyond the combat zone due to the highly interconnected global economy and energy needs.
The world’s advantage over Russia: Fintech
For example, so-called “fintech” – or financial technology – may be one of Putin’s worst enemies. The international response to the Russian invasion included a rapid shutdown of Russian banks around the world and the exclusion of the SWIFT electronic payment system, forcing the shutdown of the country’s stock market.
Combined, trade sanctions and financial measures have crippled the Russian economy.
“Without access to SWIFT, a Russian importer of US computers can no longer pay the US exporter. Similarly, a Russian importer of French wine can no longer obtain a letter of credit from a Russian bank to provide its French supplier with the guarantee of the delivery of the wine,” said Rodney Ramcharan, professor of finance and economics at business at the USC Marshall School of Business.
Ramcharan said the disruption would drive up inflation in Russia and hurt its ordinary citizens.
The Russian Advantage: Oil and Gas
Russia’s expulsion from the financial world may have been swift, but the energy sector remains tied to the country’s oil and gas supply. Several European countries depend on Russia for 40% of their gas, diminishing their clout when it comes to calling for an end to the conflict.
“Germany’s reliance is even higher at more than 60%,” said Shon Hiatt, an oil, gas and other energy industries expert and associate professor of business strategy at USC Marshall School.
Prior to the invasion, demand for oil was already exceeding supply with rising prices. Now they are skyrocketing. Hiatt said experts were watching for other signs of oil and gas trouble, such as damaged pipelines across Ukraine or a slowdown in Russian oil shipments by sea.
In the worst case, “Putin could completely cut off gas supplies to Europe. Europe may need to turn to petroleum distillates and gases such as butane and propane for its energy needs, which would further increase the world price of oil,” Hiatt said.
Hiatt pointed to a possible backup plan: nearly two dozen European countries have liquefied natural gas import terminals, and the United States and Qatar have spare capacity to send more LNG.
“Europe has enough gas to last until summer,” Hiatt said. “However, alternative supplies would have to be found to restock for next winter.
“In the long term, we must refocus on energy independence with priority on sources such as locally produced methane, nuclear, hydroelectricity, geothermal energy and the storage of electrical energy.”
Another kind of disaster
Ukraine’s other energy source, nuclear power, presents a different kind of danger.
Najmedin Meshkati, a nuclear power plant specialist at USC Viterbi School of Engineering, worries about what could happen in the event of a widespread power outage. He was among researchers who assessed what was wrong after the Fukushima Daiichi nuclear disaster in 2011 and after the Chernobyl collapse in 1986.
“My biggest fear is do not accidental bombing of a reactor or spent fuel pool, but the loss of offsite power due to transmission grid power outage,” said Meshkati, Professor of Civil and Industrial Engineering and systems. “This could force reliance on fuel- and gas-guzzling emergency diesel generators, which are highly unreliable and temperamental. This vicious cycle could lead to a power failure of the station – the lack of circulation in the spent fuel pool is what happened during the Fukushima Daiichi disaster. This was narrowly avoided at the Ukrainian plant in Zaporizhzhia.
Meshkati said the maintenance and operations of nuclear power plants in Ukraine were often questioned even before the invasion.
“My biggest concerns about Ukraine’s four nuclear power plants — concerns I’ve always believed in and preached about — stem from a culture of secrecy and a lack of cooperation,” he said. “Now, in light of this tragedy unfolding in Ukraine and its potentially disastrous consequences, I believe the war could trigger a nuclear catastrophe.”