How might the global stock market be affected if Russia invades Ukraine?
The markets took a hit on Monday after the White House warned that an invasion could be imminent and experts say that the price of crude oil may continue to rise.
On Tuesday Russia announced that it will remove some of its troops from the border with Ukraine, claiming that “combat training exercises, including drills, have been conducted as planned.”
This should help to ease tensions in the region but it is not yet clear how much of the 100,000-strong force gathered at the Ukrainian border will be withdrawn. Ukraine's Foreign Minister Dymytro Kuleba remained sceptical about the extent of the retreat but was thankful that "we have managed together with our partners to deter Russia from any further escalation".
However the threat of invasion undoubtedly remains and there is concern about what effect an extended period of uncertainty could have on financial markets, particularly at a time when the global economy is recovering from covid-19.
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Stock hit hard in recent days after White House statement
On Sunday President Joe Biden’s national security advisor Jake Sullivan warned that a Russian invasion into Ukraine could come “any day now,” heightening fears of military action in Eastern Europe. A number of nations have advised citizens to leave Ukraine immediately and the US embassy in Kyiv has been closed.
This resulted in a considerable drop in the pan-European Stoxx 600 index on Monday morning, with Germany’s DAX also falling 3.4% across the day.
In response to these falls, Goldman Sachs chief global equity strategist Peter Oppenheimer compared the trends to those observed in 2014 when Russia annexed Crimea in 2014: “If we look at some of the recent episodes — if we look at the annexation of Crimea, for example — we think it pushed the risk premium up by about 20 basis points, which had roughly a 5% impact on the equity market, and this would probably be bigger.”
Russia is a powerful nation with vast natural resources and the US, along with its allies, has threatened President Putin with stringent economic sanctions if it launches an offensive in Ukraine. Placing a strangle-hold on Russian economic activity could have serious consequences for global markets.
Oil prices rise as conflict continues
Russia has enormous natural reserves of crude oil and the threat of disruption to the global supply has seen oil prices soar in recent days. Current prices for crude are approaching $100 per barrel, their highest in seven years, and could potentially go higher.
The price of Russian oil has major repercussions for energy prices in the West and there is concern that a prolonged stand-off could exacerbate the price increases that have already hit consumers.
In a report published on Monday Naeem Aslam, chief market analyst with AvaTrade, wrote: "The conflict between Russia and Ukraine is likely to push crude oil prices above $100 a barrel sooner than earlier projected."
He continued: "The potential jump in oil prices depends on what sort of sanctions the United States of America and its allies are likely to impose on Russia if it actually invades its neighbor."
More so than with other markets, the price of vital finite resources such as crude oil can be greatly impacted by geo-political pressures. The demand for oil will remain high because there is a real-world need for the product, meaning that there is little to stop a prolonged price rise if a solution cannot be found on the Ukrainian border.
Fiona Cincotta, senior financial markets analyst at City Index, made clear: "Given that Russia is a major oil and grain supplier and is a key producer of palladium, used in catalytic converters, fears of price rises are very real.”