War in Ukraine: Twelve disruptions changing the world

In this article, we refer frequently to two scenarios, one milder and one more severe:

• Scenario 1B: Contained disruption with moderate policy response. In this scenario, the end of hostilities occurs within a few more weeks. Sanctions do not escalate further and may even be scaled back; energy exports from Russia to Europe keep flowing. Before the end of 2022, natural-gas prices in Europe fall to about $30 per million British thermal units (MMBtu); Brent crude returns to $70 to $80 per barrel. GDP growth (and thus jobs and incomes) across the eurozone reverts to its precrisis trend, albeit with a first-quarter slowdown, reflecting the shock of the invasion. Inflation expectations remain elevated relative to prepandemic norms but are stable, and the European Central Bank continues to reduce monetary stimulus. Consumer confidence reverts to its prepandemic level, and businesses continue their COVID-19-exit investment plans through most of the eurozone by the second quarter of 2022.
• Scenario 3C: Severe, escalating disruption with restrained policy response. In this scenario, protracted conflict intensifies the refugee crisis in Central Europe. Western countries and Russia further extend sanctions, leading to the shutdown of oil and gas exports from Russia to Europe. European gas prices rise to about $50 per MMBtu in mid-2022, from their already-high level of about $30, and Brent crude jumps to $135 per barrel. Eurozone headline inflation spikes to more than 7 percent on the year. The continent can replace some of its natural-gas shortfall in part by buying on the spot market and in part by slowing the shift away from coal. Producing and consuming nations can build new liquefied natural gas (LNG) export/import infrastructure over time, but in the near term, higher prices, lower real incomes, and reduced consumer spending will result in some demand destruction. Central banks move assertively to combat inflation, with potential risk to economic growth.

For more on the full set of scenarios, see “War in Ukraine: Lives and livelihoods, lost and disrupted.”