Ukraine crisis has financial markets spooked, but not yet despondent
The threat of a Russian invasion of Ukraine has left financial markets jittery but not yet panicky. Unsurprisingly, shares took a tumble on the world’s bourses and there was a brief rise in oil prices to just over $96 a barrel.
Investors were taking few chances and sought out traditional safe havens such as the US dollar, but there was little sense that world war three was about to break out. If anything, financial markets seem to be underestimating the risks.
War in eastern Europe would deliver a double blow: affecting consumer and business confidence, while at the same time giving an added twist to already strong inflationary pressures. The fear is that Putin would respond to western sanctions by deploying economic weapons of his own.
That looks a reasonable assumption. Russia provides the EU with 40% of its oil products and coal, and a fifth of its natural gas. It is the world’s biggest exporter of fertilisers and the palladium used by the auto industry in catalytic converters.
So, while it is the case that Russia is a big landmass with a tiny economy (its GDP is smaller than Italy’s, for example) it can have an impact disproportionate to its size. Indeed, the impact of the tension between Moscow and Kyiv is already being felt by motorists in the UK. Petrol prices are already at a record high and forecast to go higher.
Those who remain relatively relaxed say events in Ukraine will have a much smaller impact on markets than the fading of the Covid threat, supply-side bottlenecks and the interest rate decisions made by the Federal Reserve. Even if they are right, though, it is clear that supply-side problems and inflationary pressure would be worsened by military conflict in Ukraine.
In theory, an increase in the cost of
Read more on theguardian.com
