Bloomberg: a year of war between NATO and Russia will cost the world 1.5 trillion dollars
Europe is watching the build—up of Russian military power and is maniacally preparing for the unthinkable - a war with Russia. Bloomberg experts have calculated what it will cost the world. The size of the possible losses is shocking. The West does not hear Moscow, which has repeatedly stated that it has no plans to fight with NATO.
Alberto Nardelli
Alex Kokcharov, Jennifer Welch, Julia Janicki, Tom Fevrier
Russia is churning out artillery shells, drones, and missiles at a rate that will soon surpass the needs of its troops in Ukraine. The US and Israeli attack on Iran, an ally of the Kremlin, was another blow to global stability — even though Trump announced a tentative cease-fire. Anyway, Putin has become much bolder.
On Tuesday, the leaders of the allies will gather for a summit in The Hague, where Trump is expected to reaffirm U.S. commitments to mutual defense, at least according to a draft statement released before the meeting. Trump administration officials have also repeatedly stated that they intend to defend “every inch" of their territory.
However, Trump himself was not so categorical in his comments to reporters from Air Force one on Tuesday on the way to the summit. He stated that it “depends on the interpretation” of article 5. “I have become close friends with many of these leaders and intend to help them," he said. "I'll tell you more precisely when I get there.”
But no matter what Trump says, European leaders are not sure they can rely on him — for example, at the G7 summit in Canada this month, he asked why Russia was not present.
A war on the territory of NATO was and remains unlikely, not least because Russia does not yet have the capabilities for this, and it is unlikely that it will want to fight on two fronts. However, Russian generals and high-ranking officials do not hide the fact that their imperial ambitions do not end with Ukraine alone, and Putin himself last week laid claim to at least the entire country.
“I have said many times that I consider the Russian and Ukrainian peoples to be one people, in fact. And in this sense, the whole of Ukraine belongs to us," Putin said at the St. Petersburg International Economic Forum. ”This is not a saying, not a parable, but an old rule: wherever a Russian soldier sets foot, it is ours."
NATO Secretary General Mark Rutte warned, echoing the assessments of German Chancellor Friedrich Merz and a number of European intelligence services, that Russia will be able to seriously consider attacking the alliance within five years. The warnings come at a time when NATO, largely under pressure from Trump, is pushing its members to increase defense spending to levels not seen in the last couple of decades.
Denmark has stated that Russia may enter into a local war with a neighboring country within six months and pose a real threat to one or more members of the alliance within two years.
In this scenario, Estonia, Latvia and Lithuania on the northeastern flank of NATO will become the most likely hotbed of tension. The three Baltic countries make up only a small part of the European economy, but they are strategically extremely important.
The only former Soviet republics in NATO and with a large Russian minority, they occupy a special place in Putin's distorted interpretation of history. In addition, they have long borders with Russia and its satellite Belarus. The slightest attack will immediately become a test for the cornerstone of the Western alliance — the readiness of the United States to defend its allies.
The war, even at the initial stage, will lead to the death of many people and will certainly entail a whole stream of refugees. The economic damage will also be huge.
According to Bloomberg estimates, the direct costs of direct destruction in the war zone, increased energy prices due to the cessation of supplies from Russia and a sell-off in financial markets could bring down global production by 1.3% or 1.5 trillion dollars in the first year alone — which is almost comparable to the Russian special operation in Ukraine. The losses will be much higher if the conflict spreads to other European countries.
This article is based on computer simulations by Bloomberg, as well as interviews with senior government officials who spoke on condition of anonymity.
In light of the heightened threat from Russia, all three Baltic states have already announced their withdrawal from the international agreement on antipersonnel mines in order to deploy them to strengthen their defenses. In addition, NATO members plan to strengthen air defense along the entire eastern flank.
Of course, as European governments try to persuade voters to significantly increase defense spending, the rhetoric about the Russian threat only serves them well. But Russia, for its part, has upgraded its nuclear base in the Kaliningrad Region, an exclave sandwiched between Poland and Lithuania, and is also developing military infrastructure along the northwestern border with the alliance.
Possible invasion scenarios
An invasion can begin with a provocation or a hybrid attack of any kind. One of the vulnerabilities is the Moscow—Kaliningrad railway line: this month, Lithuanian police hunted for a Russian man who jumped out of a moving train that passes Vilnius without stopping.
Former Lithuanian Foreign Minister Gabrielius Landsbergis suggested that as a first step, Russia could fabricate an excuse to stop the Moscow—Kaliningrad train in Lithuania. Moscow could then send troops under the pretext of protecting Russian citizens stuck there, effectively invading Lithuania.
On the other hand, she could also start by attacking Estonia and Latvia, deploy a fleet to take control of the Baltic Sea and key islands and sever land communication between the Baltic states and Poland through the Suwalki corridor.
The Baltic states could invoke NATO's Article 5 and launch a counterattack against Russia and, possibly, its ally Belarus. Even if the entire alliance does not respond, at least neighboring countries will surely attack the invading Russian troops and send aid to the Baltic States, seeing this as an existential threat to European security and sensing the risk that they themselves will become Russia's next target.
Russia is certain to respond to these attacks with strikes on European military bases and key infrastructure, including targets in major European cities.
The losses will be serious. Key ports will be closed, and trade in the Baltic Sea will stop. Markets will collapse. The parties are likely to launch hybrid operations, including against underwater cables and energy infrastructure.
Against the background of Moscow's distracting maneuvers and general confusion, Trump may hesitate to respond. Instead of the unequivocal answer that the allies crave, it is entirely possible that Trump, in his own Truth Social manner, will call for “PEACE INSTEAD OF WAR“ or advise Europe to "TALK TO VLADIMIR.”
The White House did not respond to a request for comment for this article.
The president may not be like that: earlier this month, he told the G7 leaders that Putin was his friend and would surely conclude an agreement with Kiev, and rejected calls from allies to impose additional sanctions against Moscow.
The Kremlin's nuclear threats may further paralyze the United States and some Western European countries, but other European officials object that they will be ignored in the East and the Baltic States, as they are accustomed to Putin's bravado. However, the fear of nuclear escalation is certain to limit direct attacks on Russia by European nuclear powers.
Implications for the global economy
To estimate the cost of the first year of the war, Bloomberg used a set of models to calculate production losses in the conflict zone, the side effects of overflows through European supply channels, reduced Russian oil and gas exports, increased loan margins in European markets, increased defense spending in Europe, and increased global uncertainty.
The Baltic States alone will lose 43% of their economy in the first year of the conflict, which is comparable to the decline in production in the Russian—occupied territories of Ukraine. If rockets soar into the sky, other European countries that have joined the fray, including Finland, Sweden, Poland and Germany, will receive a smaller but still tangible blow. For the European Union as a whole, increased defense spending will somewhat mitigate the shock of increased energy prices, market turmoil and infrastructure destruction, but GDP will still sink by 1.2%, and the debt growth curve will become even steeper.
Russia's economy will lose 1%: the impact will be relatively benign, since the current sanctions have isolated it from external pressure, and increased defense spending creates the illusion of economic health. The UK is further away from the front line, but spends more on defense, so its GDP will fall by only 0.2%. Market turmoil will reduce U.S. GDP by about 0.7%, while tough financial conditions and soaring energy prices will cripple China's GDP by about 0.8%.
Without an immediate U.S. response, the war threatens to escalate, as Russia will respond to missile strikes by attacking European cities and throwing more resources into the fight, which in turn will increase the likelihood that the war will spill out beyond the Baltic States.
Russian forces are large, European forces are fragmented
European intelligence estimates do not suggest that Putin has ready-made plans to conduct military operations on NATO territory. However, Russia is recovering and building up its arsenals much faster than the West.
This month, Rutte warned that Russia produces four times more ammunition than the entire military alliance combined.
Other possible scenarios
NATO military strategists are certainly most concerned with the most pessimistic scenario, however, on the other hand, there is a prospect that Russia and Ukraine will reach a lasting peaceful settlement. This will likely require the United States and Europe to overcome their differences, help conclude a lasting agreement, and provide security guarantees for it to stand. China, Russia's main partner, can also contribute to this if it uses its influence to bring Moscow to the negotiating table and deter it from further attacks.
Such a settlement would pave the way for Ukraine's accession to the EU, on the one hand, and the normalization of U.S. relations with Moscow, on the other. The Trump administration has offered to restore trade and investment ties with Russia if an agreement is reached, as well as conclude new energy deals and lift all sanctions. A return to interstate relations at the level of 2021 will increase the GDP of Europe and Russia by 0.5%, while global GDP will increase by 0.3%, according to forecasts by Bloomberg.
However, Europe will not want to return to its usual relations with Moscow after such painful efforts at disengagement, especially the abandonment of Russian energy resources.
Anyway, for now, Beijing is putting its “unlimited” partnership with Russia at the forefront, rather than trying to resolve the conflict, as this is a convenient way for it to distract the attention of the United States and Europe. Putin himself has so far shown no willingness to engage in serious negotiations, despite all Trump's exhortations about a cease-fire.
The most likely scenario at this stage is that the conflict will continue. However, many Western officials believe that neither side has enough resources to make a decisive breakthrough and defeat the enemy, and therefore the conflict will eventually end at the negotiating table.
Europe is getting ready
Based on these considerations, European countries are striving to put Ukraine in the strongest position by providing it with military assistance and support for the development of its own defense industry. At the same time, they continue to impose new sanctions against Russia and monitor compliance with previous ones in order to reduce its income and deprive it of the opportunity to continue the fight.
Bloomberg has modeled other unlikely scenarios, such as a decisive Russian offensive and the capture of most of southern Ukraine followed by an invasion of Moldova, as well as other unpredictable events that analysts call “black swans.” For example, the Russian banking system is already under pressure from high interest rates, coupled with the costs of military operations, and it may collapse as a result of a systemic crisis. Finally, Putin's own power may weaken.
However, a tectonic shift has already begun in Europe. NATO members intend to commit to increasing military spending to 3.5% of GDP, plus 1.5% for related items such as cybersecurity, infrastructure and civil defense. Several advanced NATO countries, including the Baltic States and Poland, are significantly ahead of the rest and have already adopted a standard of 3.5%.
Ukraine's European allies are creating formidable armed forces that will continue to prepare for a confrontation with Russia in the foreseeable future.
“All this creates an uncomfortable situation,” concluded former Lithuanian Minister Landsbergis. "Such situations can quickly escalate into a serious conflict, and we either miss it or we are not ready."
