The Price of War: Russia’s War on Ukraine Costs are estimated at $8.9 Trillion at Five-Months

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The Price of War: Russia’s War on Ukraine Costs are estimated $8.9 Trillion at Five-Months

August 4, 2022 – At the five-month mark, Russian President Vladimir Putin’s war on Ukraine has the heavy cost of US$8.9 trillion conservatively, a loss equivalent to more than four times the entire annual income of all Canadians. The estimates include human costs of $4.7 trillion, concentrated in Ukraine, but affecting people worldwide as the impacts of the war spread, according to a new report from the C.D. Howe Institute.

In “At What Cost? The Economic and Human Costs of Russia's Invasion of Ukraine,” author and C.D. Howe Institute Fellow-in-Residence Dan Ciuriak tallies the economic costs and suggests how to quantify the human costs of Putin’s “special military operation,” providing a comprehensive overview of the all-in costs of the war that have already been effectively booked over the politically relevant medium-term.

The author draws on available estimates of the value of a “statistical life” (VSL) and by derivation of a statistical life year (VSLY) to provide a sense of the scale of the rarely quantified human costs, which include: the toll of dead and wounded; the effect of war trauma in Ukraine; and the spillover effects on third parties, which include the tipping of tens of millions in Sub-Saharan Africa into extreme hunger, the heightened stress posed by the threat of nuclear war, and the shared or vicarious trauma visited on individuals worldwide in this, the first social media war.

Arriving at the total of US$8.9 trillion as a conservative estimate, Ciuriak explains that this figure is comprised of about US$4.25 trillion in economic costs and US$4.7 trillion in human costs, of which $3.5 trillion is the long-term cost to the world in terms of life-shortening war-induced trauma. “This study confirms what is often stated rhetorically – that the human costs are indeed greater than the strictly economic damage,” says Ciuriak.

In terms of economic costs, the physical damage to Ukraine’s economic and civilian infrastructure is now likely at about $180 billion as of five months, with this figure growing by the week. Additionally, the combined loss of forgone output for Russia, Belarus and Ukraine’s economies over the medium term is calculated to be $2.2 trillion at 2022 prices in present value terms.

Further, noting that the present economic age is one of intangibles, Ciuriak underscores the implications of the flight of global capital and Russia’s own young technology entrepreneurs for the value of Russia’s intangible assets. He places the destruction of Russia’s intangible assets at about $260 billion.

Examining the economic spillover costs of the war on third parties, based on forecast revisions by the International Monetary Fund that reflect the impact of the war, Ciuriak attributes a total 1.55% short-term hit to global GDP from the war, or about $1.55 trillion.

“Russia suffers significant costs but by far the greater share of the costs are borne by Ukraine and third parties,” writes Ciuriak.

He also highlights three important non-quantified impacts: (i) the loss of the “peace dividend” as the need to rearm is impressed upon governments confronted with the reality that the mechanized destruction of 20th Century wars is unfortunately still with us; (ii) how finding alternative sources of energy to Russia’s oil and gas has meant the re-starting of coal-fired energy plants, resulting in a costly delay in addressing the escalating cost of climate change; and (iii) intensified concerns about the weaponization of supply chains that was already driving a decoupling dynamic, which inevitably will result in a reduction in overall global trade and investment.

“Vladimir Putin’s war of choice has cost the world immensely, even under conservative assumptions,” concludes Ciuriak. “Perhaps, instead of shaking hands with Mr. Putin at the G20 summit later this year, they might wish to hand Mr. Putin the bill.”

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