June has been a busy month for Russian President Vladimir Putin. In a speech at Russia’s Ministry of Foreign Affairs, he outlined his terms for peace negotiations with Ukraine and proposed establishing an alternative international security system in collaboration with China.

A week later, during a two-day visit to Pyongyang, he signed a strategic defence pact with North Korean dictator Kim Jong-un. Russia and North Korea pledged to provide each other with immediate military assistance in the event of war, leaving no doubt about the Kremlin’s determination to undermine the US-led international order by forming alliances with authoritarians around the world.

In his hour-long address on June 14, just before a Ukraine-led peace summit in Switzerland, Putin covered a wide range of topics. He began with the so-called special military operation in Ukraine, discussed the ‘inevitable’ emergence of a new multipolar world order, and addressed Western efforts to ‘restrain the development of the Global South’, noting Russia’s presidency of the BRICS+ group (Brazil, Russia, India, China, and South Africa, as well as Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates).

In addition to his usual grievances, Putin outlined Russia’s conditions for peace in Ukraine, demanding that Ukrainian forces withdraw from the four regions annexed by Russia in 2022. Ukrainian President Volodymyr Zelensky quickly rejected these terms, which bore a striking resemblance to the ultimatum issued by Putin at the outset of the invasion. Zelensky’s rejection was echoed by NATO Secretary-General Jens Stoltenberg, who emphasised that it was Russia that must withdraw from Ukrainian territory. Even prominent Russian commentators recognised Putin’s demands as unrealistic, viewing them as an attempt to pressure the West rather than a genuine attempt to achieve peace.

Putin also confirmed once again that Russia is at war not only with Ukraine, which it considers a proxy, but with the West, especially the United States. Predicting the imminent collapse of the ‘entire system of Euro-Atlantic security’ and denouncing Western strategies for ensuring Europe’s defence, Putin outlined a five-step plan for establishing a Eurasian system of bilateral and multilateral collective-security guarantees.

This framework, Putin argued, would complement Chinese global security initiatives, marking another stage in Russia’s ‘no limits’ partnership with China. Stressing that the new security alliance would be open to NATO members, Putin urged European countries to reconsider the military presence of ‘external powers in the Eurasian region’, a clear departure from NATO principles.

While these arguments were not new, the emphasis on the Global South, particularly Africa and Latin America, stood out. Like other demagogues and authoritarians, Putin highlighted the significance of BRICS+ as a geopolitical counterweight to Western power and expressed support for efforts to develop an independent payment system for member countries, free from Western control. This is part of Russia’s broader strategy to undermine the existing global financial architecture, thereby mitigating the impact of US-led economic sanctions.

The timing of Putin’s speech was not coincidental. It reflected the Kremlin’s ongoing effort to shape critical policy debates in the West and influence election campaigns in countries like France, where Marine Le Pen’s far-right National Rally could undermine European efforts to devise a coherent Russia strategy.

A significant portion of Putin’s speech was dedicated to the European Union, which he has long considered subordinate to the US. In a clear attempt to revive old divisions, he addressed ‘politicians of truly European and global scale’ who were ‘patriots of their countries and’ and who, like the former French president Charles de Gaulle, understood that Europe’s well-being depends on maintaining friendly relations with Russia.

Putin, of course, neglected to mention his own efforts to undermine the existing global order. Together with China, Russia has long acted as a spoiler in the UN Security Council. But Russia’s recent actions—such as using its veto to end a humanitarian mission to rebel-controlled areas in Syria and to shut down an expert panel monitoring compliance with economic sanctions on North Korea—have alarmed international diplomats.

The terms of the security pact with Kim mirror the 1961 treaty between the Soviet Union and North Korea and represent a significant escalation, even by Putin’s standards. In addition to North Korean support for Putin’s war of aggression in Ukraine, the agreement signals increased Russian support for Kim’s nuclear ambitions, to the detriment of North Korea’s neighbours, including China.

In response, South Korea summoned the Russian ambassador and announced it would consider sending weapons to Ukraine. China, North Korea’s largest trading partner, has sought to distance itself from this rogue alliance. But Russia’s advances could ultimately erode China’s influence over North Korea and escalate tensions with the West, thus jeopardising Chinese President Xi Jinping’s long-term geopolitical ambitions.

Given that Putin is unlikely to abandon his efforts to erode Western unity and undermine the current international order, the West should focus on exploiting any potential rifts, even minor ones, between Russia and China. In this regard, Putin’s alliance with Kim offers an ideal opportunity to weaken the Sino-Russian partnership.

The NATO summit in Vilnius, Lithuania, promises to be anything but business as usual for the simple reason that it will be taking place against the backdrop of a European war that has been raging ever since Russia launched its full-scale invasion of Ukraine in February 2022. The agenda is long, difficult and critical.

Many participants and observers have been calling for NATO’s 31 members to invite Ukraine to join the alliance. That is unlikely to happen. Alliance membership requires unanimous consent, and several members, including the United States, are not ready to support an immediate move.

Those resisting bringing Ukraine into NATO now have it right. The North Atlantic Treaty’s all-important Article 5 extends a solemn commitment to collective defence: an attack on one member constitutes an attack on all. Ukraine is already under attack. Membership under these circumstances would turn a war between Russia and Ukraine into a war between Russia and NATO.

The result would be the wider war that the US has wisely sought to avoid. War between NATO and Russia would also increase the risk of escalation to nuclear use.

Moreover, it is unclear what NATO’s members would be signing up to defend if Ukraine were to be admitted. Would they be defending Ukraine’s 1991 borders? February 2022 Ukraine? Today’s Ukraine? Tomorrow’s? NATO is about territorial defence, but for now at least, Ukraine’s actual as opposed to legal borders are unclear.

Offering NATO membership in principle, as was done when NATO leaders met in Bucharest in 2008, seems hollow. It would do nothing to actually help Ukraine. And, as US President Joe Biden has pointed out, it would be premature, since it is impossible to know the nature of political arrangements that will follow the war. NATO membership is something to be put forward in the context of a ceasefire, armistice or formal peace, but until then it makes little sense.

But this is not to suggest that NATO should do nothing more than what it is already doing. The alliance ought to make a formal, open-ended commitment to provide Ukraine with the arms, intelligence and training it requires.

NATO also should extend a security commitment to defend Ukraine’s right to exist as a secure and sovereign democracy, without reference to precise territory. This is comparable to what the US has long done for Israel. The US security commitment signals to both Israel and its enemies that America will not allow any entity to threaten Israel’s existence, but it is not linked to any specific map of the country.

It turns out that NATO already has a means to do just this. Under Article 4 of the treaty, ‘The Parties will consult together whenever, in the opinion of any of them, the territorial integrity, political independence or security of any of the Parties is threatened.’ At Vilnius, NATO can make clear that this pledge applies to Ukraine.

There are additional issues that NATO leaders should tackle this week. NATO’s nuclear-armed members reportedly have already communicated to Russia that they would respond to Russia’s use of nuclear weapons against Ukraine by directly attacking Russian forces there with conventional weapons. NATO should build on this and make clear the price Russia would pay were it to create a catastrophe by attacking a nuclear power plant in Ukraine, in the process strengthening deterrence against any such move.

In addition to preparing for Russian actions, NATO leaders also need to prepare for Russia’s implosion. The challenge by Yevgeny Prigozhin and his Wagner Group to President Vladmir Putin’s rule may not have been an isolated incident. Or Putin could die of natural causes, triggering a chaotic fight over succession. All sorts of scenarios are possible in a country lacking consolidated institutions and political legitimacy. It may well be that the only thing more threatening to the continent’s stability and wellbeing than Russian strength is Russian weakness.

NATO also needs to consolidate enlargement. Finland already occupies a seat at the table, and Turkey has just agreed to support Sweden’s bid to join.

To make credible the plan to support Ukraine over the longer term and strengthen NATO’s overall deterrent capacity will require increases in defence spending, especially among European members of the alliance. But the issue is not just levels of spending. What matters more than how many dollars or euros are spent is what they are spent on. Too many resources still go into national capabilities that replicate rather than complement one another.

NATO countries should also examine their defence industrial or manufacturing bases. One can argue the pros and cons of providing Ukraine with cluster munitions, but what is unacceptable is that a major consideration in making such munitions available is that they are needed because production of artillery cannot keep up with demand.

China should be on the summit agenda as well. NATO needs a plan for what it would do in the event of major Chinese aggression (most likely against Taiwan). The most important question may be what more European countries could do in Europe while the US is preoccupied with the Indo-Pacific.

Last but not least, the Europeans should meet on their own so they begin preparing for the possibility of a second Donald Trump presidency. I am not predicting it will happen, but it cannot be ruled out. For NATO, the only future more vexing than one in which Russia is weak might be one in which the US is irresponsible.

The rocket strike that killed two Poles near their country’s border with Ukraine on 15 November  proved to be a test not so much of defence policy as of the information policy of Poland, Ukraine and NATO. Only the Americans passed. The European allies and Ukraine floundered, revealing a shocking lack of preparation for a scenario that could have been predicted almost from the beginning of the war.

Poland is the largest country on NATO’s eastern flank and serves as the most important logistical hub for a war that concerns almost the whole world. Firmness and unity on the part of the West are essential to Ukraine’s defence and Russia’s defeat, which may decide the fate of the world for decades. Tuesday’s explosion in Poland, however, surprised everyone except the United States, and triggered an astonishing sequence of events, driven by astonishing bungling.

Poles learned about the rocket impact, which took place at 3.40 pm, a little before 8.00 pm from the Associated Press. The Polish government remained silent until after midnight, when the foreign ministry issued a statement claiming that the incident involved a ‘Russian-produced missile’ and demanding an explanation from Russia’s ambassador. The government placed some military units on combat alert.

Then, when Prime Minister Mateusz Morawiecki and President Andrzej Duda addressed the public, they didn’t explain the origin of the rocket, fuelling widespread suspicion that this had been an attack (intentional or not) by Russia. Many of the three million Ukrainians living in Poland, 85% of whom are women and children, came to believe that the war they fled was about to catch up with them.

When Poles received new information, it was from the Americans. At 4.00 am, Polish time, President Joe Biden revealed that the missile was probably fired by Ukrainian air-defence forces in the face of a Russian barrage. Duda mentioned this only on the afternoon of 16 November, when the public was reassured for the first time that ‘Poland was not the target of an attack by Russia.’

In the meantime, confusion among Poland’s European NATO allies was growing. Some had already accused Russia, and some heads of government convened extraordinary government meetings, as in Hungary.

Latvia’s defence minister, Artis Pabriks, identified the missile as ‘Russian’ on Twitter, a statement he repeated on CNN. Jana Cernochova, the Czech Republic’s defence minister, called the incident an ‘unnecessary provocation’ by Russia. Bulgaria’s president, Rumen Radev, described the explosion as ‘unacceptable’. Lithuanian President Gitanas Nausėda stated that ‘Tuesday’s explosions in Poland mean a new phase in Russia’s war against Ukraine. NATO must respond accordingly’, and called on NATO to deploy more anti-missile systems on NATO’s eastern flank.

The impression that Russia really had struck Poland was strengthened by the Russian foreign ministry. In the immediate aftermath of the initial US reporting on the explosion, the Russians applied their usual formula and alleged a Western provocation.

By contrast, the Western responses, however misguided, were right about the sole party responsible for the missile strike. As NATO chief Jens Stoltenberg emphasised, ‘Ukraine has the right to defend itself against Russia’s illegal war of aggression.’

But then came an unexpected rift between NATO leaders and Ukraine. ‘I have no doubt that it was not our rocket,’ President Volodymyr Zelensky declared, adding that Ukraine had evidence and demanding access to the investigation. Surprised, Poland and its NATO allies refrained from commenting on Zelensky’s statement, evidently waiting for greater messaging coherence.

Zelensky’s rigidity may also reinforce the impression among some Western leaders that the Ukrainian authorities are behaving arrogantly while Europe is not only paying for arms and humanitarian aid, but also suffering from record inflation, which in Poland is approaching 20%. For example, if Hungary under its pro-Russian prime minister, Viktor Orban, had been in Poland’s position—serving as the main conduit for armaments, energy, food and other supplies flowing to Ukraine—Russia almost certainly would have prevailed by now.

Following the latest Russian missile barrage, the EU should strengthen the ninth package of sanctions against Russia, which Orban has predictably opposed. But the explosion in Poland may make Hungary—Poland’s closest ally within the EU—more compliant.

Another obvious consequence should be NATO’s strengthening of air defences over its eastern flank. Warsaw, the Polish capital, has only a Soviet-era system, built in the 1960s and 1970s. Poland has purchased eight Patriot anti-missile batteries from the US, but they won’t arrive for another decade, and the two that are already in place won’t be ready to use until 2023, at the earliest.

The transport routes carrying US arms to Ukraine and the transmission line that connects Ukraine with the EU’s energy system (which, incidentally, runs very close to the site of the recent explosion) are well within range of the Russian missiles raining down on the other side of NATO’s eastern border. The recent explosion in Poland was an accident. The next one may not be.

Zelensky knows this, so he has already begun to say that he is not completely sure about the origin of the rocket that fell in Poland. The origin may not have been Russia, but the explosion certainly originated there.

NATO’s 2022 summit has transformed the alliance’s approach to Russia after Vladimir Putin’s invasion of Ukraine. The organisation’s updated strategic concept says the Russian Federation is the most significant and direct threat to security and to peace and stability in the Euro-Atlantic area. ‘It seeks to establish spheres of influence and direct control through coercion, subversion, aggression, and annexation,’ the concept says. This is a marked shift from the 2010 concept which focused on terrorism as the main threat and saw Russia as a ‘strategic partner’.

The view of Russia as a major threat to Europe is backed by changes to force posture flagged before the summit by secretary general Jens Stoltenberg who said forward defences would be strengthened. Stoltenberg said NATO would enhance its battlegroups in the eastern part of the alliance up to brigade levels, and increase the number of high-readiness forces to well over 300,000 from its current 40,000. He said this constituted the biggest overhaul of collective deterrence and defence since the Cold War and flagged a significant boost in spending with the target of 2% of GDP ‘increasingly considered a floor, not a ceiling’.

The Biden administration will significantly increase the US military presence in Europe. This includes deploying additional destroyers to Spain’s Rota naval base, establishing a permanent headquarters for the US Army’s V Corps in Poland, placing an additional army brigade in Romania, increasing rotational deployments to the Baltic States, sending two additional F-35 squadrons to the UK, and providing additional air defences to Germany and Italy. This represents a substantial boost to the existing US military presence in Europe, which currently numbers more than 100,000 troops.

The United Kingdom looks set to follow, with chief of the general staff General Sir Patrick Sanders announcing ‘Operation Mobilise’ in a speech at the Royal United Services Institute that will see a focus on preparing to fight Russia to deter Russian aggression. Sanders warned:

‘This is our 1937 moment. We are not at war—but we must act rapidly so that we aren’t drawn into one through a failure to contain territorial expansion. So surely it is beholden on each of us to ensure that we never find ourselves asking that futile question—should we have done more?’

Sanders’s reference needs to be treated with some caution given that Russia is regarded by many as a declining power while Germany in 1937 was on the rise. However, Russia does have the world’s largest nuclear arsenal.

Sanders went on to say: ‘We don’t yet know how the war in Ukraine will end but, in most scenarios, Russia will be an even greater threat to European security after Ukraine than it was before.’

The summit backed the bids by Sweden and Finland to join NATO in the face of growing threats to Baltic and Arctic security, highlighted by Russian threats against Lithuania as it implements European Union sanctions against the Russian enclave of Kaliningrad. The decisions of Finland and Sweden to join NATO are perhaps the most important development, representing a decisive shift by two neutral states to actively support the alliance in the face of Russian aggression. Given that one of Putin’s declared rationales for invading Ukraine was an expanding NATO, it’s ironic his aggression has generated an even larger alliance. This spectacular own goal by Putin also reinforces the importance of the Baltics and the Arctic as key new areas for NATO’s operational focus.

NATO’s strategic concept didn’t just focus on Europe. It noted that China’s ‘stated ambitions and coercive policies challenge our interests, security and values’, it highlighted the ‘deepening strategic partnership between the People’s Republic of China and the Russian Federation and their mutually reinforcing attempts to undercut the rules-based international order’, and identified the ‘systemic challenges posed by the PRC to Euro-Atlantic Security’. Meia Nouwens, of Britain’s International Institute of Strategic Studies, suggests NATO will seek constructive engagement with Beijing, but also work with allies to enhance resilience and preparedness against Chinese coercion that seeks to undermine that order, including freedom of navigation. NATO efforts would include enhancing dialogue and cooperation with partners in the Indo-Pacific on ‘cross-regional challenges and shared security interests’. There’s an important role for Australia working with NATO to support efforts to counter the challenge posed by Beijing, given its ‘enhanced opportunities partner’ status. This will be explored in a future post.

The recognition of Russia’s broader strategic ambitions beyond Ukraine, as noted by Sanders, reinforces the importance of NATO’s decision to return to its traditional role of deterring major-power aggression, specifically as posed by a revanchist Russia. NATO must make firm commitments to avoid the worst-case outcome—a Russian attack on a NATO member such as a Baltic state or Poland.

Russia cannot be allowed to achieve any degree of victory in Ukraine, and it’s vital for NATO and its partners across the globe, including Australia, to sustain and expand military support to Kyiv to blunt Moscow’s ability to sustain operations in key areas. This will be challenging given the very long timeframe now emerging. US Director of National Intelligence Avril Haines suggests the war will continue and Putin’s objective is still to capture most of Ukraine, with immediate Russian efforts focused on the Donbas.

A failure of Western resolve to sustain support for Kyiv and expand the shipment of materiel to defeat Russian advances would probably see a Russian breakout from the Donbas and a renewed offensive towards Kyiv. Defeat for Ukraine would be catastrophic for European security. Accepting any degree of Russian success, including by offering ‘off ramps’ as part of efforts towards a negotiated settlement, would embolden Putin to launch further acts of aggression.

And with that requirement to ensure Russia is decisively defeated, NATO must consider a growing risk that Putin will be tempted towards either vertical escalation, by using weapons of mass destruction in Ukraine, or horizontal escalation, by attacking supply lines of NATO support, including those beyond the Ukraine’s borders.

Moscow could also continue to make implicit and explicit nuclear threats to coerce NATO, such as Putin’s announcement that Russia will transfer nuclear-capable Iskander-M ballistic missiles to Belarus, while also raising the threat of hybrid warfare against NATO members. Lithuania and Norway are already coming under cyberattack from Russian based hackers and Putin is set to ruthlessly exploit food and energy as weapons to coerce NATO states into stopping support for Kyiv.

NATO needs to mobilise for possible war by deploying sufficient force to deter Russian aggression across its eastern frontier while strengthening resilience against hybrid and grey-zone threats. It also needs to boost the credibility of its nuclear deterrence against Moscow. The naming of ‘Operation Mobilise’ is apt, but NATO must face down Russia to avoid an even larger and more disastrous European war.

The death, destruction and disruption caused by Russia’s war in Ukraine suggest that short-term savings achieved by running down defence capabilities in peacetime can incur huge costs in the longer run. The cost of investing in military capabilities to deter coercive authoritarian regimes could be far cheaper than the costs of war.

While the invasion has cost Ukraine dearly in human, economic and physical terms, Russia, too, is enduring great cost, probably in ways that President Vladimir Putin didn’t anticipate. Europe will endure higher energy costs for some time. Around the world, food insecurity will be exacerbated for those least able to manage it, potentially leading to political instability.

It’s difficult to know what level of European defence spending could have deterred Putin, and military equipment alone is not enough. Resolve and a willingness to use those capabilities are just as important.

The greatest cost to Ukraine is the loss of lives caused by Russia’s invasion. Civilian and military casualties carry substantial intangible and financial costs.

Ukrainian President Volodymyr Zelensky provided a figure of 2,500 to 3,000 military personnel dead by mid-April. For the same period, US intelligence agencies estimated that between 5,500 and 11,000 Ukrainian soldiers had died, with more than 18,000 wounded. The Russian estimate of Ukrainians killed in action was more than 23,000 by mid-April. Estimates for civilian deaths also vary. The UN gave a figure of 3,930 by 23 May, but said it believed the number to be far higher. The mayor of Mariupol stated that more than 10,000 civilians had died there by mid-April.

As of 23 May, more than 7 million of the 41.9 million Ukrainians were refugees in other countries, while 7.1 million had been internally displaced. This disruption and the destruction of major infrastructure have generated considerable food, water and electricity shortages across the country.

The Ukrainian economy has been hit hard by the conflict and mass exodus. The World Bank projects a 45% GDP contraction this year, predicated on collapsing investment, mass displacement, shipping blockages, declining exports and imports, loss of incomes and equipment losses.

Reconstruction will place a huge strain on Ukraine’s post-war economy. The Kiev School of Economics’ economic calculations show it’s suffering around US$4.5 billion in damage to civilian infrastructure each week. Zelensky referred to a US$600 billion reconstruction bill in early May.

The dire situation won’t affect just Ukraine, but also countries caring for its refugees. Poland estimates the cost of hosting 3.5 million refugees this year at €24 billion. The Economist Intelligence Unit estimates that supporting 5 million refugees could cost Europe around €50 billion in 2022.

Ukraine’s 29 May estimate of Russian dead was 30,000. Moscow gave a figure of 1,351 by 25 March. British estimates for Russian military deaths by 23 May suggest 15,000. The number of seriously wounded is likely to be at least double the killed-in-action figure.

Pentagon estimates from 26 May calculate that Russia had lost roughly 1,000 tanks, 350 artillery pieces, 36 fighter-bombers and more than 50 helicopters.

The World Bank projects that sanctions and the cost of wartime operations will cause Russia’s real GDP growth to shrink by 11.2% this year and inflation to jump from 6.7% to 22%.

In response to sanctions, Russia has banned some exports, seized foreign-owned businesses and assets such as aircraft, and prevented foreign investors from selling their stocks. But nationalising foreign-owned businesses won’t necessarily keep them going, seizing aircraft won’t keep Russia’s aviation industry flying, and spares from the US and the EU are under sanction. The rouble initially depreciated by 30% against most major currencies. It has recovered due to action by the Russian central bank and measures such as requiring foreign purchasers of Russian oil and gas to pay in roubles. However, a strong rouble isn’t useful if there’s nothing to purchase with it.

Russia is the world’s second largest crude oil exporter after Saudi Arabia, and it’s still raking in oil and gas revenue for now, helping to fund its war effort. Western European customers are seeking to diversify away from Russian energy imports, either to other suppliers or to renewables, and many plan to ban or at least limit their Russian energy imports as soon as possible.

The Kiel Institute for the World Economy has traced at least €64.6 billion in 37 government-to-government commitments to Ukraine from 24 January to 10 May this year, of which the US is providing over 65%. At least 25 nations are providing military equipment. International aid has included goods and money to assist with military logistics, refugee support and settlement, energy resources, economic packages, medical equipment, emergency services equipment and other humanitarian goods. Australia has provided $285 million in military and humanitarian aid.

Military supplies have escalated from shoulder-fired missiles to long-range weapons such as 155-millimetre howitzers and armoured vehicles. Javelin anti-tank missiles cost US$178,000 each.

Supplying Ukraine has revealed many European countries’ meagre holdings of modern equipment. Many have provided weapons no longer in frontline use, and some was unusable.

Even the US will need to restart or expand its own production lines, particularly for its low-stock and older items. This a major issue, as the US has donated roughly a third of its Javelin stock (around 7,000 Javelins). Current production rates are low and it will take years to replenish stocks.

While Western militaries don’t have troops in Ukraine, they’re supporting Ukrainian forces including by providing intelligence, which adds the higher cost of effort by surveillance aircraft.

It’s clear that Putin didn’t feel deterred by NATO’s military power. That failure of deterrence is, in part, a consequence of many NATO states enjoying a post–Cold War peace dividend. That, along with an unwillingness to take Russian revisionism at face value and an overreliance on American taxpayers to foot the security bill, was behind past low military spending. Many NATO members pledged in 2006 to commit 2% of GDP to military spending but have fallen short. NATO reaffirmed the 2% benchmark in 2014 after Russia annexed the Crimea, but only three members met it.

Russia’s invasion of Ukraine prompted many NATO countries to pledge substantial increases to their military spending.

Japan is also likely to increase its defence budget, a trajectory that pre-dates the invasion of Ukraine but has no doubt been reinforced by it.

The disruption to trade caused by the fighting, sanctions and Russia’s blockade of Ukraine’s Black Sea export lanes continues to generate extensive flow-on costs around the globe. World Bank data from April indicates that Thailand, Vietnam and low-income countries have experienced some of the sharpest declines due to their reliance on imported energy for key sectors, while major net exporters of crops or energy, such as Nigeria, have experienced export surges.

The Russian occupation of Ukrainian ports and blockade of Ukraine’s shipping are having a dramatic impact on global food prices. Surges are primarily a response to the gap left by reduced Russian and Ukrainian exports, which previously accounted for nearly 25% of global wheat exports and 15% of corn and fertiliser exports. Wheat prices have jumped by 40%. Many countries have sought to secure their own food supplies. India, for example, banned wheat exports in mid-May, citing concerns over heatwaves reducing stock and the war in Ukraine raising domestic prices.

The war and resultant policies have potentially created conditions for significant political and social instability. Higher prices are predominantly affecting food importers such as Somalia, which bought 90% of its wheat from Ukraine and Russia.

The price increases have driven the global food crisis to famine levels. Before the Ukraine conflict, many low-income nations were already at risk of famine due to war, extreme weather conditions in Africa, high livestock prices, increased food demand after Covid-19 and global supply-chain disruptions. Just prior to the war, the UN estimated that more than 140 million people were suffering from acute hunger and urgently required food assistance.

The disruption to the interconnected global economy is also affecting prices for raw materials and metals. Russia is a large exporter of aluminium, iron, steel, copper and nickel. While some can be sourced elsewhere, the war is likely to result in substantial cost increases and interruptions.

The war’s impact on production and sanctions against Russian crude oil, petroleum products and gas have generated a massive increase in energy prices. Europe has been hit hardest since it relied on Russia for 35% of its natural gas, 20% of its crude oil and 40% of its coal, but developing economies have also been hit hard.

In Australia, the average retail petrol price reached 182.4 cents per litre in late February, the highest inflation-adjusted price since 2014. Average prices in Australia’s five largest cities reached nearly 215 cents per litre in mid-March.

As a large energy and food exporter, Australia can help fill the gaps in Ukrainian and Russian production and will enjoy higher commodity prices. Australian government forecasters expect commodity exports to rise to $424.9 billion for the fiscal year to 30 June, up a third from earnings in 2020–21. That growth is likely to be driven by higher iron ore prices, which increased from projections of US$118 a tonne to US$160 in 2022. Forecasters also project that earnings from liquefied natural gas exports will almost double from $32 billion in 2020–21 to over $70 billion in 2021–22, while the average price of coking coal is expected to increase from US$123 a tonne in 2020–21 to US$348 in 2021–22.