Why Putin’s Use of Nuclear Weapons Would Be Disastrous Economically

Mohit Oberoi, CFA - Author
By

Feb. 28 2022, Published 9:44 a.m. ET

While conquering Ukraine was expected to be a cakewalk for Russia, which is among the top three military powers globally, Ukraine's armed forces and civilians have put up a brave fight. Russian President Vladimir Putin has put the country’s nuclear forces on alert. Will Putin use nuclear weapons against Ukraine and what would happen if he does?

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Nuclear weapons were used for the first and the last time in 1945 when the U.S. bombed Hiroshima and Nagasaki in Japan. Currently, the U.S., U.K., France, Russia, and China are the five nuclear-powered states. Pakistan, India, and North Korea also have nuclear weapons. Israel is believed to have nuclear weapons, while Iran is working secretly on nuclear weapons.

Can Putin use nuclear weapons against Ukraine?

Russia is believed to have the largest stockpile of nuclear weapons globally and estimates of its warheads are anywhere between 4,500 and 6,000. Every nation with nuclear weapons has a policy on its usage, including Russia. In 2020, Putin approved the “basic principles” of its nuclear weapon use policy.

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Under these rules, Russia would use its nuclear weapons only if one of the following four conditions are satisfied.

  • When Russia is attacked with nuclear weapons
  • When territories of Russia or its allies are attacked with ballistic missiles
  • When Russia faces an existential threat
  • When any of Russia’s nuclear weapons sites are attacked
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Currently, none of these are conditions are met. That said, unlike mature democracies, Putin isn't under any obligation to honor the country’s nuclear doctrine. On more than one occasion, from increasing the president’s tenure from four to six years to making himself eligible to be Russia’s president until 2036, Putin has changed the Russian constitution.

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What happens if Russia uses nuclear weapons?

Simply put, only Putin can stop himself from using nuclear weapons against Ukraine. The consequences of using nuclear weapons could be severe though. While there would be loss of lives and risks of nuclear radiation, there would be economic costs, both for Russia as well as the entire world.

If Putin uses nuclear weapons, Russia might become a pariah state. Even Russia’s friends, especially China, which has so far been frugal with its criticism of Russia, might not want a nuclear war considering its economic consequences.

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There would be economic ramifications if Russia uses nuclear weapons.

The West would respond with unprecedented sanctions on Russia, which in the short term might lead to an increase in energy prices. We might also see a crash in global risk assets similar to what we saw in the first quarter of 2020 when uncertainty over the COVID-19 pandemic led to a massive sell-off.

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The global economic recovery is getting off track amid the increase in energy prices and supply chain woes. Nuclear war is the last thing that the world economy needs right now.

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While it's too early to put a number on the financial impact of Russia using nuclear weapons, it would shave away a lot of global growth in 2022 and we might even go into a recession.

In the long term, it would mean that countries would spend more on their defense budgets, including on nuclear weapons. This would especially hold for countries having tensions with China and Russia. Germany has already responded with an increase in its defense budget. Defense stocks are going up for a reason even though the broader markets have headed southwards.

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Meanwhile, higher defense spending comes at a cost because the same money would have been otherwise allocated for social spending. For the record, Ukraine might regret the day when it gave up the nuclear weapons that it inherited from the Soviet Union. Other countries might also realize that having nuclear weapons is possibly the best way to ward off nuclear-powered states from your territory.

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