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At the four-month mark, the costs of Vladimir Putin’s “special military operation” have both soared and spread. The war already has moved well up the ranks of the bloodiest modern wars on record, the direct economic costs have mounted steeply, and the spillover effects have gone global.

For Ukraine, the physical damage is now likely on the order of US$150 billion as city after city in the path of Putin’s army is shelled into rubble. Ukraine’s economy will contract by 45 per cent in 2022, based on recent World Bank estimates. This reflects the mass destruction or shutdown of businesses, the blockade of Ukraine’s main export routes through Black Sea ports and the dislocation of one-third of its households and workers. For the medium term, even under optimistic assumptions for an early end to the war and start on reconstruction, Ukraine will book a total loss of GDP on the order of close to $550 billion through 2027.

Russia also faces a steep short-term contraction given supply chain disruptions from border closure, the disruption of shipping into the Russian market even of non-sanctioned goods, the shutdown of airspace, which interrupts the supply of high-value, time-sensitive airborne cargo, the exodus of foreign firms and the flight abroad of hundreds of thousands of young people, many of them closing up technology businesses and moving abroad to start over.

The medium-term consequences for Russia are even greater. The new “iron curtain” that has descended along Russia’s western border will bring a harsher version of what Brexit has been for the U.K. A recent study of the British economy estimated it was 5.2 per cent smaller than if the Brexit vote had been “Remain.” Applying a similar growth discount to Russia’s economy results in forgone output through 2027 on the order of US$ 1.8 trillion. Belarus suffers a similar decline in percentage terms.

Then there are the spillover costs on the global economy. In the IMF’s review of the world economy in January there was not even the hint of a global recession. Just three months later its April outlook factored in a reduction to global growth of 0.8 per cent in 2022 and 0.2 per cent in 2023 compared to the January forecast. The only significant new factor was the war. Global GDP is currently about US$100 trillion so the forecast loss is roughly US$1 trillion over two years.

To this must be added the destruction of intangible assets. The 21st-century economy runs on intangibles: intellectual property, data, technology, and branding. Stocks on the Moscow Exchange (MOEX) sank by 33 per cent the day after the invasion, reflecting market views. MSCI, a division of Morgan Stanley that manages various indexes used by portfolio investors, declared the Russian market to be “uninvestable” following the invasion and removed it from its global indexes. Expected rates of return on investment in Russia have fallen sharply, which has wiped hundreds of billions of dollars off the value of Russian equities. Nor will Europe be spared. In fact, though the proportional loss will be smaller the European equity market is much bigger so the value destruction in dollars likely will be too.

And then of course there are the human costs. Any individual life is obviously priceless. But governments do put a value on a statistical life (VSL). In making such grisly calculations for the war, we have to take into account: deaths and injuries to Ukraine’s civilian population; the rapidly rising death and injury totals for the two militaries; the impact on life expectancy of war trauma — effectively PTSD — for the Ukrainian population at large; the hidden cost of the destruction of community in Ukraine; the impact of war-related life-shortening stress on European populations that now face the re-awakened fear of nuclear war and the no-longer-negligible risks of Russian invasion of EU member states, as openly discussed on Russian media. Under any reasonable estimate of the value of a statistical life, the total costs are in the trillions of dollars.

And finally, difficult as it is to put numbers on the plight of people in drought-stricken Africa, the impact of Putin’s war on them cannot be ignored. Estimates put the number of people across the Sahel and the Horn of Africa recently pushed into life-shortening extreme hunger at up to 47 million. The cost of such a loss in terms of the value of statistical life would be in the hundreds of billions of dollars.

The bottom line is that Mr. Putin’s war has been very expensive for the world — certainly on the order of US$10 trillion — most of it footed by people who are not Russian. Many third parties have refused to condemn the invasion, implying they willingly embrace these costs. For that, there is no accounting.

Dan Ciuriak, Director and Principal at Ciuriak Consulting, is a Fellow-in-Residence at the C. D. Howe Institute.

Published in Financial Post