Russia-Ukraine conflict impact on the global market

The Russia-Ukraine conflict has threatened the already fragile global recovery after COVID-19. The US and the European Union (EU) have imposed sanctions on Russia, and Russia has retaliated with its own countermeasures. All this is likely to restrict global trade and its growth.

6 Ways in which the Russia-Ukraine conflict will hit global markets

The global economy had just started to emerge from the impact of the COVID-19 pandemic - the Omicron variant, in particular. Many countries had begun to lift restrictions, and economic activity had started to pick up. However, the Russia-Ukraine conflict has once again cast uncertainty on the global market. The Russian invasion of Ukraine has led to a sharp fall in global markets and caused a sharp increase in the price of energy, food, and other commodities.

The economic sanctions imposed on Russia and the retaliation by Russia will restrict global trade. This article discusses the economic damages that are occurring in the wake of the Ukraine crisis.

Also Read: 9 Pandemic-Inspired Financial Lessons From Top CEOs

1) Impact on equity markets

The global market news of the Russian invasion of Ukraine has led to panic in stock markets. All major indices across the globe have experienced a sharp sell-off. The global stock markets are uncertain about how long the conflict will last, its consequences, which other countries will get involved, etc. The volatility across global indices has shot up.

Impact of Russia-Ukraine crisis on US Indices

The above chart shows how the US major indices had started correcting as the news of the Russian invasion of Ukraine was building up. After the start of the conflict, major global indices across the US, Europe, and Asia have seen a sharp sell-off. The stock prices of some companies that the conflict will directly impact have seen a correction of more than 20% and have entered a bear market.

2) Impact on energy prices

Russia is a major exporter of crude oil and natural gas. Many countries in Europe depend largely on Russia for natural gas, which is used for powering homes, businesses, vehicles, etc. Since the start of the conflict, commodity trading has become very volatile, and crude oil and natural gas prices have shot up on fears of supply disruptions.

The economic sanctions imposed by the US and Europe on Russia will make it difficult for Russia to export crude oil and natural gas. Inflation is already running high in many countries. The recent spike in energy prices will make a further dent in customers' wallets.

Spike in crude oil and natural gas prices

The above chart shows how the price of wheat has hit a 13-year peak, and the Food and Agriculture Organisation (FAO) food price index has hit the highest mark in a decade. This price spike, along with the restrictions on the supply of foodgrains, will result in food inflation in many countries. As Russia and Ukraine are leading exporters of these foodgrains, the importing countries cannot replace them overnight.

As COVID-related travel restrictions ease up, the demand for crude oil has increased globally, leaving very little spare capacity. With this conflict, Russia's crude oil supply is under question. So, crude oil and natural gas prices are expected to remain elevated till as long as the conflict remains.

Also Read: Crude Oil, Gold, Or Copper: Which Are The Best Commodities To Trade In India?

3) Impact on food prices

Russia and Ukraine are major producers of foodgrain such as wheat, oilseeds, maize, etc. In fact, Russia is the world’s largest exporter of wheat. As per a Reuters report, Russia’s and Ukraine’s exports account for 29% of wheat, 19% of corn, and 80% of sunflower oil. Since the start of the conflict, both countries have either halted or limited the export of these commodities. It has led to a spike in the prices of these and many other foods.

FAO Food price index hits a high

The above chart shows how the price of wheat has hit a 13-year peak, and the Food and Agriculture Organisation (FAO) food price index has hit the highest mark in a decade. This price spike, along with the restrictions on the supply of foodgrains, will result in food inflation in many countries. As Russia and Ukraine are leading exporters of these foodgrains, the importing countries cannot replace them overnight.

4) Impact on industrial commodities

Along with crude oil, natural gas, and foodgrain, Russia is also a big producer and exporter of industrial commodities such as aluminium, nickel, zinc, etc. Since the start of the Russia-Ukraine conflict, the prices of many industrial commodities have shot up due to fears of supply disruptions and shortages.

Spike in commodity prices

The above chart shows how the prices of commodities like coal, aluminium, nickel, palladium, etc., have shot up in the last one month since the conflict began.

5) Impact on purchasing power

Inflation is already running high in many countries. The Russia-Ukraine conflict has led to a rise in the price of foodgrains, industrial commodities, and energy, which will further increase inflation in many countries. It will lead to central banks withdrawing liquidity and increasing interest rates. Such a scenario will put pressure on corporate profitability and increase the EMIs of individuals. The high borrowing costs can lead to individual and corporate defaults. It can reduce the demand for goods and services and slow down economic activity.

Also Read: FD Returns Vs Inflation: Here's How You Can Keep Your Purchasing Power Intact

6) Supply chain issues and global trade disruptions

Since the start of the conflict, many countries have closed airspace and sea routes with Russia and vice versa. Due to this, companies importing raw material and exporting finished goods are either taking longer routes (which involves higher costs) or temporarily halting operations. All this is leading to supply chain issues, thereby disrupting global trade.

Last words

Everybody is hoping and praying that the Russia-Ukraine conflict ends at the earliest. The conflict has led to a rout in global stock markets. The prices of foodgrains, industrial commodities, and energy have gone through the roof. Amidst all this, innocent Ukrainian civilians are losing their homes, livelihood, and even lives. The rest of us across the globe are affected too, and seeing a higher cost of living. So, it is in everybody's interest that the conflict ends at the earliest and things return to normal once again.

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