Steve Mohler
Russia’s attack on Ukraine has deepened fears of the potential for an expanding war in Europe, which local officials say could unleash a fresh set of challenges for Bartholomew County’s economy, including its largest employer, Cummins Inc.
Russia launched a wide-ranging attack on Ukraine Thursday, unleashing airstrikes on cities and military bases and sending troops and tanks from multiple directions as civilians piled into trains and cars to flee, The Associated Press reported.
The attack also whiplashed global markets, initially sending stocks tumbling and the price of oil soaring as investors feared the impact of the conflict and the potential for escalating sanctions between the United States, its allies and Russia.
Local officials expressed concerns that the economic fallout from a protracted war could hit Bartholomew County residents’ wallets.
“While we think we live in Columbus, Indiana, and we’re insulated from all this, we’re actually not,” said Steve Mohler, IUPUC assistant professor of management, who is a speaker on the university’s Indiana Business Outlook Panel.
Mohler said the bulk of the local impact will be indirect, though Cummins may feel a “minor impact” as a worldwide supplier of diesel engines, Mohler said.
Cummins, which is headquartered in Columbus and employs about 8,000 people in the area, operates in about 190 countries around the world, including Russia. Cummins has operated in one way or another in Russia since the mid-1970s when it started selling engines in imported mining dump trucks, according to the company.
In 2006, Cummins formed a joint venture with KAMAZ Inc. to produce engines, according to the Cummins’ 2007 annual report. At the time, Cummins said it expected the joint ventures’ customers to include “trucks, buses and agricultural equipment produced by other manufacturers in Russia, Belarus and the Ukraine.”
Rostec, a Russian state-owned conglomerate, currently holds a 49.9% stake in KAMAZ Inc., according to the company’s website.
Cummins confirmed Thursday that the joint venture with KAMAZ Inc. is still active. In 2018, Cummins signed a memorandum of understanding with the Russian firm involving a new product line of KAMAZ battery-powered vehicles.
Cummins also sells engines in the Russian market through a Chinese joint venture called Beijing Foton Cummins Engine Co. Ltd., according to its most recent annual report.
“Sanctions would impact our operations in Russia,” Cummins spokesman Jon Mills told The Republic on Thursday.
“Cummins does not have employees based in Ukraine, but like everyone we are deeply concerned about the situation and hope that it can be deescalated quickly,” Mill said. “We continue to have a global response team in place to analyze and prepare for current and anticipated sanctions and our intent is to always fully comply with all applicable sanctions, export control requirements and Cummins’ policies. We do anticipate some impact to our business in Russia and will continue to monitor our operations and stay in contact with our employees in the country and the region who are our priority.”
But the impact of a prolonged conflict on Bartholomew County could go far beyond that, local experts say.
The conflict threatens to inflict economic damage that could mean hardships for millions of people around the world. Russia is the world’s third-biggest producer of petroleum and is a major exporter of natural gas. Ukraine is one of the world’s largest exporters of wheat and its farms feed millions around the world.
However, Ukraine and Russia are not major trading partners with Indiana businesses, according to USA Trade Online, which is published by the U.S. Census Bureau’s Economic Indicators Division.
Indiana imported $56.7 million in goods from Russia last year, including $41.5 million in iron and steel. Indiana imported $5.1 million in goods from Ukraine last year, including $2.3 million in electric machinery, sound equipment and television equipment.
Exports from Indiana to Russia totaled $122.1 million in 2021, including $39.3 million in vehicles and parts and $32.6 million in pharmaceutical products, federal figures show. Exports from Indiana to Ukraine were $38.6 million last year, 80% of which involved vehicles and parts. By comparison, Indiana’s global exports totaled $41.4 billion last year.
But the military conflict in Ukraine comes at a time when financial markets are already in a precarious spot as central banks prepare to raise interest rates to fight a resurgence of inflation, which jumped 7.5% in the United States last month compared to the 12 months earlier — the steepest annual increase since 1982.
A worst-case scenario of a prolonged conflict with escalating rounds of sanctions could impact prices for food and oil, worsen already-snarled supply chains and inflation, dampen consumer spending and ultimately impact small business around the country, including in Columbus, according to two local experts.
“If things escalate, and the West decides collectively to continue to accelerate sanctions against Russia economically — which is the plan — then it would follow that Russia could escalate economic sanctions against the West by either cutting off supplies or restricting supplies such that the price of natural gas and oil continue to shoot higher, which would have a variety of implications for Indiana businesses,” said Ryan Brewer, associate professor of finance and MBA director at IUPUC, who also is on the Indiana Business Outlook Panel.
“I think this could act as an accelerant to an already burning fire of inflation,” Brewer said.
However, with inflation already running hot, central banks may have less leeway — or inclination — to ride to the rescue with stimulus if the economy sputters in the face of the military conflict in Ukraine, according to wire reports.
It could also increase pressure on the Federal Reserve to accelerate interest rate hikes, which could impact local housing markets, consumer spending and small businesses, Brewer said.
“We’re already subject to a tight housing market and what (increased interest rates) could do is put pressure on housing,” Brewer said. “…The cost of housing would go up and the reluctance of banks to get loans going on housing would be more restrictive. So, in a sense, when households have less money to spend, then they cut back in other areas. And what that could do is it could hurt small businesses who are reliant on upon household spending money, in a sense, in a discretionary way.”
Bartholomew County residents also may feel the impacts of the conflict at the gas pump in the coming weeks, Mohler said.
“If you take the Russian oil out of the marketplace, you have a lot less out there, and the price goes up,” Mohler said. “…By spring break, we’re going to notice gas prices change because of this.”
While it remains to be seen how the invasion of Ukraine will play out, the conflict has injected a fresh round of uncertainty into the global economy, local experts said.
“How long term is this going to be? That’s up for debate,” Mohler said. “Is it going to last into 2023? I don’t know. But it’s going to make 2022 questionable. …Everybody thought this was going to be a pretty good year. Now, it’s a little more like, ‘Maybe it’ll be a good year.’”
