The cost of war is never local

CNBC reports that Ukraine has signalled it is open to halting attacks on Russian energy infrastructure, following claims by President Trump of a deal in progress, and Trump himself has argued — in a social media post cited by CNBC — that rising diesel prices worldwide are driven primarily by the Russia-Ukraine war rather than by Iranian actions. Whether or not one accepts that precise attribution, the underlying logic is sound: a major war between two of the world's significant energy producers does not stay neatly within their borders. Its costs radiate outward through commodity prices, supply chains, and the inflation that falls hardest on those least able to absorb it.

This is precisely the lesson I tried to press upon the architects of the Versailles settlement in 1919, and which I fear is still imperfectly understood. Political negotiators tend to focus on the territorial and diplomatic terms of any agreement. They underestimate — sometimes catastrophically — the economic consequences that flow from those terms for third parties who had no seat at the table. The farmer in sub-Saharan Africa who fills a diesel tank to run an irrigation pump is as much a participant in this war's economics as any combatant; he simply has no voice in its resolution.

The immediate question now is whether a ceasefire on energy infrastructure — if it holds, and that is an inference on my part, not a recollection of events I have lived through — would actually relieve the commodity pressure CNBC describes. I would counsel measured expectation. Energy markets price risk as well as current supply; so long as the underlying conflict is unresolved, the risk premium does not disappear merely because one category of strike is temporarily suspended. Markets, like investors, are governed by what I once called animal spirits — the state of confidence about what tomorrow will bring — and confidence requires more than a tactical pause.

There is a second-order question here that is more squarely in my domain: who bears the fiscal burden of these elevated commodity prices? In a well-governed economy, the state has instruments — targeted transfers, strategic reserve releases, investment in domestic energy alternatives — to cushion the household sector from price shocks that originate abroad. The danger I would warn against is the counsel of austerity that tends to emerge precisely at the moment it is most harmful: when external shocks are already compressing household purchasing power, a government that also withdraws demand from the economy compounds the injury. The paradox of thrift operates at the national level no less than at the level of a single anxious saver.

The deeper architecture matters too. I spent the better part of my final working years at Bretton Woods in 1944 trying to design an international monetary system that would allow nations to manage external shocks without beggar-thy-neighbour adjustment. The institutions that emerged from that effort — whatever their present imperfections, about which I cannot speak with authority — were meant to prevent precisely the kind of cascading commodity dislocation that a major war produces. Whether those institutions are today adequate to the scale of the shock is a question I cannot answer from this vantage; but the principle that international economic architecture is a public good, requiring deliberate design rather than improvised reaction, remains as valid as it ever was.

If a genuine settlement is within reach, I would urge its negotiators to think beyond the ceasefire line. The economic consequences of this war — the disruption to food and energy supply, the inflationary burden on the world's poorest consumers, the uncertainty that continues to suppress investment across the European continent — deserve as prominent a place at the negotiating table as the disposition of any disputed territory. History's verdict on political settlements is written not only in the diplomatic communiqués that announce them, but in the prices that ordinary people pay in the years that follow.