The Economics of War: When Explosions Ripple Through Wallets - Janhvi Anjana

The Economics of War: When Explosions Ripple Through Wallets 

War. It’s been reshaping the world since forever, and not just with trenches and treaties, but the real impact digs much deeper—right into our pockets. We might think the battlefield is where the action happens, but in reality, the economic explosions are just as loud. 

History’s Roller Coaster 

Let’s hop into a time machine, back to the days of World War II. It’s 1940, and the world is engulfed in conflict. Factories in countries across Europe and North America have been converted to churn out military equipment—tanks, planes, and weapons roll off production lines instead of cars and consumer goods. Women, previously confined to domestic roles, are stepping into factories as men go off to fight. 

Sounds like an economic miracle, right? Well, sort of, everyone’s got a job, unemployment dropped, and industries boomed as men went off to fight and women filled their roles in factories. The hidden cost? Governments sinking into debt faster than we can say “inflation.” Borrowing becomes the norm, leading to huge debts. So, guess what? Everyday goods became scarce because factories were focused on producing military supplies. People faced rationing, and prices began to rise. 

Struggle to Rebuild 

Once the war ended, nations were left to pick up the pieces. Europe was in ruins, with roads, factories, and cities destroyed. Countries like Germany and France, once strong economic powers, had to start from scratch. This is where help like the U.S. Marshall Plan came in, providing financial aid to help these countries rebuild their infrastructure and industries. Factories that had produced war materials now had to shift back to making consumer goods like cars and household items. 

But not every country was as lucky. Some had no financial support and struggled for years with debts and economic instability. Without the resources to rebuild quickly, many nations saw slow recovery, which widened the gap between stronger and weaker economies. 

Financial Impact of War 

War leaves a deep mark on a country’s finances. One major effect is the rise in military spending. According to Elliot Garside, a Middle East analyst at Oxford Economics, there was a 93 percent increase in military expenditure in the last three months of 2023, compared to the same period in 2022. In 2024, monthly data suggests military expenditure will be around double the previous year,” Garside said. 

This spending is usually funded by borrowing, which leads to higher national debt and forces governments to cut spending in important areas like healthcare and education. 

Another big impact is economic contraction, meaning the economy shrinks. In Israel, for instance, the economy shrank by 20.7% after conflict broke out. When war disrupts trade, reduces consumer spending, and makes businesses pull back on investment, the economy slows down significantly. 

Global Ripple Effect 

Now let’s zoom out and talk about how wars hit the world economy. Oxford Economics estimated that escalating the conflict in the Middle East would spike oil prices up to $130 and knock 0.4 percentage points off global output growth next year, which the International Monetary Fund currently sees at around 3.3%. 

Across advanced economies, more than half (including the United States and the euro area) had inflation rates of over 5 percent even before hostilities, so that the war made an already difficult situation worse.

Prior to the Russia and Ukraine conflict, they both accounted for a quarter of global wheat exports, and Russia is a major supplier of fossil fuels, especially to Europe. Disruptions to supplies of these commodities are driving up prices. So, when the Russia-Ukraine war disrupted, it didn’t just hurt the countries involved; it sent food prices soaring worldwide. The rising cost of raw materials for industries like semiconductors also made things worse, adding to the tech shortage we’re already dealing with. 

Now let’s talk about India, one of the world’s largest importers of crude oil, feeling the impact of global wars even if it’s not directly involved. For example, conflicts in the Middle East led to higher oil prices, which makes importing oil more expensive for India. In FY24, of the total imports of $ 675 billion, India’s oil bill was $ 180 billion, and with global prices rising, this number is only expected to grow. This drives up inflation, making everyday goods more expensive for Indian consumers. 

And it’s not just oil. Disruptions in key shipping routes, particularly through the Suez Canal and Red Sea, have forced vessels to take longer paths around the Horn of Africa, leading to a 15-20% increase in shipping costs. As per a recent report by think tank Global Trade Research Initiative, this is especially tough for industries that rely on low-cost, high-volume exports, like textiles, engineering products, and other labour-intensive goods. And as if that wasn’t enough, geopolitical tensions often lead to stock market instability, with investors pulling out of emerging markets like India, causing further financial strain. 

The Silver Lining 

However, war is not just about destruction. In some cases, it can spark innovation. World War II, for example, led to the development of technologies like radar, jet engines, and early computers. These innovations, though born out of necessity for war, went on to shape industries and fuel economic growth in the post-war era. 

Nations that could adapt these wartime technologies for civilian use, like the United States, saw their economies grow rapidly. The aerospace industry, for instance, took off after the war, transforming military advancements into commercial aviation. 

But adaptability was key. Countries that remained stuck in a war economy, unable to shift to civilian needs, lagged behind. Those that could quickly move from military to civilian production, rebuild their infrastructure, and promote economic inclusion were the ones that thrived. 

Final Thoughts: War’s Long Shadow 

So, what have we learned? War leaves lasting economic damage, from skyrocketing military spending to shrinking economies and disrupted trade. The financial costs are immense, and the effects ripple out globally, affecting everything from oil prices to food costs. While war can drive innovation (hello, jet engines!), it also leaves deep scars both human and financial that can take generations to heal. 

Whether we’re a small business owner in India or a policymaker in Washington, the economic consequences of war are hard to escape. The key to survival is adaptability: those who can pivot quickly from war to peace, from tanks to tech, are the ones who make it through. 

War may leave destruction in its wake, but history teaches us that recovery—while difficult—holds the promise of renewal. We just have to survive the storm first.