With Russia’s recent invasion of Ukraine, the world can likely expect chaotic markets and a strained global economy. Compounding the human tragedy and geopolitical upheaval that will almost certainly arise, financial implications will reverberate in a multitude of ways.
Because Russia is a top producer of natural gas, oil, nickel, copper, wheat, and other commodities, global exports will be disrupted. The sanctions placed on Russia by the U.S. and its allies will curtail exports, driving up prices for these goods and exacerbating the problems of an already strained supply chain.
Analysts say oil could reach $120 per barrel, which will no doubt increase inflation. As the largest natural gas and oil supplier to the European Union, Russia could wreak havoc on the continent. Germany would be hit especially hard, as it gets 20% of its gas from Russia.
Responding to the threat, record-high American exports of liquid natural gas to Europe have been reported in recent weeks to offset the potential cut-off, according to data from Refinitiv, a financial data company. Also, according to the Energy Information Agency, U.S. oil and gas corporations have ramped up production and plan to continue the increased output, notably in West Texas’ Permian Basin. The rise in shale oil production was due to consistently higher oil prices and tighter global supply, which made producing more a less risky option, according to the report. A specific link to the Russian situation was not clearly made.
The auto market could also feel the effects of the invasion because Russia is a chief producer of palladium, which is used in catalytic converters. Wheat, which both Ukraine and Russia produce in huge quantities, could see its prices climb, too.
For investors who were already contending with higher interest rates, news of the potential for an invasion has already had an impact. Benchmark indexes in the U.S. and Europe have experienced multiple declines in recent weeks. Now that the invasion has begun, only time will tell how the markets and the global economy will be affected.