2022 – The West is united against Russia. Will she keep her nerve when prices go up?

“I only hope you will not lose this sense of solidarity,” he said, again calling for maximum pressure on Moscow.

Three months after Russia invaded Ukraine, European and American leaders affirm their continued determination to support unprecedented sanctions to compel President Vladimir Putin to withdraw his forces.

“I am very concerned about what a recession in Europe might do to European resolve to stick with the sanctions and escalate further,” Jason Furman, a professor at Harvard University who previously served as President Barack Obama’s chief economic adviser, told CNN Business.

Divisions are already forming on the united European front. Hungarian Viktor Orban, who was not in Davos, led the opponents by blocking EU plans to impose an oil embargo on Russia in an attempt to cut off a major source of income for Moscow. Getting rid of Russian gas for good may be more difficult.

In the United States, including President Joe Biden and Democrats Huge pressures ahead of the November midterm elections to prove they are serious about tackling inflation, even though most of the factors behind it, for example

This may complicate efforts to maintain pressure on Russia Despite the warnings of billionaire George Soros and others that appeasing Putin would have dire consequences.

Fuel and food prices skyrocket

At Davos, government and business leaders stressed that they could not give in to Putin. They agreed, in hindsight, that the reaction to the annexation of Crimea in 2014 and the poisoning of Sergei and Julia Skripal in Salisbury, England in 2018 was too weak.

And the West’s historic sanctions against Russia this year may not be enough either. The Russian economy has taken a hit but is holding up better than expected, buoyed in part by strong oil and gas revenues. This allowed the central bank to cut interest rates on Thursday.

“We have to stop making concessions,” Slovak Prime Minister Eduard Heger said emotionally during a panel discussion. He added that the settlement with Putin had ignited a “war of aggression.”

Speaking to dinner guests, Soros warned that the invasion of Ukraine could mark the beginning of World War Three, and said that Putin must be defeated “as soon as possible” if the world is to preserve civilization.

But the economic background may make life more difficult for politicians back home. yes honestly Inflation in the 19 countries that use the euro hit an all-time high of 7.4% in April. Inflation was 8.3% in the US and 9% in the UK.

The big factor is energy costs. It was already rising due to the imbalance in supply and demand after the pandemic, but it has been boosted by Europe’s efforts to reduce its dependence on Russian energy.

Landlocked countries such as Hungary and the Czech Republic have halted oil embargoes and say it will take years to switch to other energy suppliers or sources. he is It should be agreed upon in the coming weeks.

“The economic situation is definitely challenging. I don’t think it will affect the consensus on oil,” said Mojtaba Rahman, managing director for Europe at Eurasia Group, a political risk advisory firm.

However, there will be consequences. Fears of power shortages have already driven prices up dramatically. In the United States, the average price of a gallon of regular gasoline hit a record $4.60 on Thursday. The situation in Europe is worse. Recent data shows drivers pay $8.06 a gallon in the UK and $8.43 a gallon in Germany.

At the same time, food prices are rising as the war disrupts exports of basic commodities such as wheat and sunflower oil, and some countries such as India later imposed export bans to protect domestic supplies. In April, food prices in Germany increased by 8.6% compared to the previous year.

“The effects of the war in Ukraine are becoming more visible here,” George Thiel, head of the Federal Statistics Office, said earlier this month.

European Commission President Ursula von der Leyen noted this week that it is “fragile countries and vulnerable populations that suffer the most”. She added that bread prices in Lebanon have risen by 70% and that food shipments from Ukraine’s Odessa have failed to reach Somalia, which is battling a devastating drought. Protests against price hikes erupted in Peru, leading to the impeachment of Sri Lanka’s prime minister.

But even in Europe and the United States, low-income families are increasingly forced to choose between “heating and eating”, which consumes a larger part of their budget. Economists fear that slowing spending will trigger a recession, especially if central banks raise interest rates in an attempt to tame inflation.

“There is a real danger to a lot of people,” Gabriella Bucher, executive director of Oxfam International, told CNN Business. She added that even in the “rich world”, there are people who are “currently struggling to meet their basic needs”.

The UK government acknowledged the problem on Thursday when it announced an unexpected $6.3 billion tax on oil companies to fund payments for people struggling with energy bills.

The future of Western solidarity

US and European officials and top business officials say Ukraine’s victory is vital. The brutal war and humanitarian crisis must end, and democratic values ​​must prevail at what Chancellor Olaf Schultz called a “tipping point” for the world.

“It’s hard to see an issue that unites people in the West as much as this one does,” David Rubinstein, the billionaire founder of the Carlyle Group, told CNN Business. “I don’t think the increased increases that can be attributed to that in terms of inflation will change anyone’s opinions.”

US officials also see opposition to Putin as necessary to rein in the ambitions of Chinese President Xi Jinping, who they say is closely watching how the situation develops.

“Deterrence is key here,” said US Congressman Michael McCaul, the ranking US congressman on the House Foreign Affairs Committee. “As Xi looks at what is happening in Ukraine, [he’s asking,] ‘Is it worth it?’ We have to convince him that he is not.”

But reconciling political and economic interests will not be easy. Schultz acknowledged that “politicians have an important job to do” as they juggle different parts of their mandate to the public.

Abdul Rahman said this could become a bigger problem in the event of a major escalation by Russia. This could lead to louder calls for a blanket ban on Russian natural gas, which made up 45% of Europe’s supply last year. Much is transported by pipelines, which makes it difficult to find replacements.

This is not currently on the table, although Germany, according to Schultz, is working “at full speed” to end its dependence on Russian gas as quickly as possible. But if it is seriously discussed, it will be more difficult to sell than anything the West has proposed so far.

Companies sending strong support to Ukraine are also concerned about the increasing pressure on their businesses. Herbert Dies, CEO of Volkswagen (VLKAF)CNN Business told CNN that the full impact of rising commodity costs and inflation won’t be seen for six to 12 months, creating a “really challenging” operating environment.

“We have to do something with the sanctions,” he said. So far we are basically going from escalation to escalation and we have no other choice. So I think sanctions are yes, but how are we going to end that? “

Former US Secretary of State Henry Kissinger sparked a backlash earlier this week when he appeared to suggest that Ukraine agree to cede much of Donbass and Crimea to Putin.

Kissinger said: “Negotiations must begin in the next two months before the emergence of turmoil and tensions that will not be easily overcome.” “Ideally, the dividing line should be a return to the previous situation.”

Zelensky compared Kissinger’s comments to appeasing Nazi Germany in 1938.

“I don’t want to hear the word ‘appease’ anymore,” European Parliament President Roberta Mezzola said to applause on Wednesday.

However, a slowing economy and high inflation could weigh on politicians returning home, prompting a warning from NATO Secretary General Jens Stoltenberg.

“Freedom is more important than free trade,” Stoltenberg told the crowd in Davos. “Protecting our values ​​is more important than profit.”