Bloomberg has modeled a likely war between Russia and NATO: how the invasion would begin, who would be the first target, which countries would suffer the most, and how much it would cost the global economy.
European officials, closely monitoring Russia's growing military capabilities, are increasingly taking seriously the threat of armed conflict with the Kremlin – a scenario that until recently seemed unlikely.
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Russia is ramping up production of ammunition, drones and missiles at a rate that could soon exceed the needs of the army in Ukraine. The US and Israel's strike on Iran, Moscow's ally, has further undermined global stability, despite Trump's announcement of a preliminary ceasefire. The Russian president, for his part, is showing a fighting spirit.
The NATO summit in The Hague begins Tuesday, where Trump is expected to reaffirm the U.S. commitment to Article 5 of the collective defense treaty — at least according to a draft declaration. His administration has also pledged to defend every inch of the alliance’s territory.
But European leaders remain wary. Even after these statements, not everyone is confident that they can rely on Washington’s guarantees, especially after Trump publicly asked at the G7 summit in Canada why Russia was not invited to participate.
A full-scale war on the territory of NATO member states is unlikely for now, at least because the Kremlin does not have sufficient resources and is unlikely to want to open a second front. But a number of Russian officials and military personnel do not hide the fact that Putin's ambitions extend beyond Ukraine. Last week, the Russian president himself openly stated that he considers all Ukrainian territories to be part of “historical Russia.”
“I am convinced that Russians and Ukrainians are one people. And that means that all of Ukraine is ours,” Putin said during the St. Petersburg Economic Forum. “There is a saying: where a Russian soldier steps, there is Russia.”
NATO Secretary General Mark Rutte has suggested that Russia could launch an aggression against the Alliance within the next five years. Similar assessments have previously been voiced by German Chancellor Friedrich Merz and the intelligence services of several EU countries. Meanwhile, under pressure from the US, the allies are being forced to significantly increase their defense budgets – to levels not seen since the Cold War.
Denmark, in particular, reported that Russia could resort to a local conflict with a neighboring state in six months, and within two years, create a real threat to one or more NATO countries.
The likely epicentre of tension remains Estonia, Latvia and Lithuania. Despite their small share in the European economy, they are strategically important – particularly as former Soviet republics and regions with large Russian-speaking populations. At the same time, they border Russia and Belarus, making them potential targets for a military test of NATO’s resilience.
Any attack on the Baltics would inevitably test the effectiveness of the Alliance's collective defense, which is its founding principle.
Even a limited conflict could result in mass casualties and a wave of refugees, with economic losses felt around the world.
According to Bloomberg Economics, a conflict in NATO territory would reduce global GDP by 1.3% — about $1.5 trillion in the first year. This is due to direct losses in the combat zone, a sharp rise in energy prices, and panic in financial markets. The losses would be even greater if the war spread beyond the Baltics.
These calculations are based on Bloomberg economic modeling and interviews with government officials who spoke on condition of anonymity to freely share their estimates.
In response to the growing threats, the three Baltic states are already preparing to withdraw from the Ottawa Convention, which bans the use of anti-personnel mines, in order to deploy them for defense. In parallel, NATO countries are planning a large-scale air defense buildup on their eastern flank.
Scenario of possible aggression: where will the new war begin?
A possible Russian invasion could begin with a provocation or hybrid attack, which would be a formal pretext for intervention. One potential point of destabilization is the Moscow-Kaliningrad railway line, which runs through Vilnius and does not stop in Lithuania. Police recently searched for a Russian who, according to investigators, jumped from a train while it was moving through Lithuanian territory.
Former Lithuanian Foreign Minister Gabrielius Landsbergis suggested that Russia could intentionally stop the train on Lithuanian territory under a trumped-up pretext. In response, Moscow could claim to “protect” its citizens who are allegedly in danger and send in troops — a de facto invasion. At the same time, the Kremlin could attack Estonia and Latvia, use its navy to blockade the Baltic Sea and seize key islands, and try to isolate the Baltics by cutting off the Suwalki Gap that connects these countries with Poland.
In the event of an attack, the Baltic states would activate Article 5 of the NATO treaty and launch a counter-offensive, possibly including strikes on Belarus. Even if NATO as an entity does not intervene promptly, neighboring countries that feel threatened by the conflict spreading will likely provide military assistance to avoid becoming Russia’s next target.
In response, Russia could attack military installations in Europe and critical infrastructure, including in megacities. This would cause significant losses and chaos. Key ports would be paralyzed, trade in the Baltic Sea would be suspended, and financial markets would plummet. Both sides would step up hybrid operations, including attacks on undersea cables, energy systems, and digital networks.
In a situation of general information chaos, with the Kremlin deliberately sowing disorientation, Trump may adopt a wait-and-see attitude. Instead of taking the decisive action his allies are hoping for, he may resort to statements on his Truth Social platform calling for peace rather than war, or urging Europeans to negotiate with Putin.
The White House has not commented on the speculation.
Trump, however, has repeatedly demonstrated tolerance for Putin. At the G7 summit this month, he called the Russian leader a “friend,” suggested that Putin was the man to broker a peace deal with Ukraine, and rejected ideas about imposing new sanctions on Moscow.
The Kremlin's possible threats to use nuclear weapons could have a deterrent effect, particularly for the United States and certain Western European countries. At the same time, in Eastern Europe and the Baltics, such rhetoric is perceived as yet another form of blackmail. However, the risk of nuclear escalation could force European nuclear states to refrain from direct strikes on Russian territory.
The cost of a possible war for the global economy
Analysts at Bloomberg Economics have estimated the possible economic impact of the first year of the war using a range of models. They took into account direct losses from combat operations in the conflict zone, disruptions in European supply chains, reduced Russian energy exports, widening credit spreads, increased EU defense spending, and global financial uncertainty.
The Baltic states, which will be at the epicentre of the fighting, will suffer the most, with economic losses of up to 43% in the first year, comparable to the decline in the Russian-occupied regions of Ukraine. Other European countries – including Finland, Sweden, Poland and Germany – are also suffering significant economic losses due to infrastructure damage and missile attacks.
While higher defense spending will offset some of the losses, overall EU GDP will still fall by about 1.2%, and public debt will grow at an accelerated rate. The UK economy, further from the front lines, will feel a smaller hit, with a loss of about 0.2% of GDP. The US will see a 0.7% drop due to market volatility, while China’s GDP will fall by 0.8%, impacted by rising energy prices and tighter financial conditions.
The Russian economy will lose approximately 1%. This relatively small figure is explained by the fact that the country is already partially isolated from the Western economy, and the increase in defense spending creates the illusion of stability.
Without a clear response from the United States, the conflict could widen. Russia could respond to the strikes by intensifying attacks on major European cities, pouring more resources into the war. This would increase the risk that the fighting would spill over into the Baltic region.
While there are no concrete signals that the Kremlin is ready to immediately invade NATO, analysts warn that Russia is rebuilding its forces far faster than the West. This month, Dutch Prime Minister Mark Rutte said that Russia is producing ammunition four times faster than all NATO countries combined.
While the all-out war scenario remains the most worrisome, alternatives are possible. One less likely, but potentially stabilizing option is a peace deal between Russia and Ukraine. This would require the active participation of the United States and Europe, resolving differences in approaches and security guarantees. In such a scenario, China, the Kremlin’s main partner, could use its influence to persuade Moscow to come to the negotiating table.
A peaceful settlement could pave the way for Ukraine to join the EU and normalize relations between Washington and Moscow. The lifting of sanctions, new trade and energy deals, and a return to pre-war economic cooperation boosted European and Russian GDP by 0.5% and global GDP by 0.3%, according to Bloomberg Economics.
But a return to business as usual looks unlikely. Europe has already paid a high price for trying to break its dependence on Russian energy and is unlikely to want to fall into that trap again.
Moreover, China seems more interested in maintaining a strategic partnership with Moscow than in forcing it to make peace. Beijing views a protracted conflict as a tool to distract the US and its allies. Putin himself, despite Trump’s loud statements about a ceasefire, has shown no willingness to make real compromises.
The most realistic scenario is that the conflict continues. Many Western officials acknowledge that neither side has the potential to win decisively, so ending the war will inevitably require difficult and lengthy negotiations.
