How a conflict between Russia and Ukraine could affect world markets

FILE PHOTO: Traders at the New York Stock Exchange, U.S., November 29, 2021. REUTERS/Brendan McDermid/File Photo

LONDON, Jan 21 (Reuters) – A possible invasion of Ukraine by Russia is likely to be felt in various markets, from wheat and energy prices and the region’s dollar sovereign bonds to safe assets.

Below are four charts showing where a potential escalation of tension in global markets could be felt.


Inflation at multi-decade highs and looming interest rate hikes have caused a bad month for bond markets, but open conflict between Russia and Ukraine could turn the tide.

Two-year US Treasury yields have seen the biggest monthly jump since 2016 and 10-year rates appeared headed for the key 2% level. In Germany, 10-year yields rose above 0% for the first time since 2019.

A major event risk usually sends investors running back to bonds, which represent the safest assets on the planet, and this time may be no different, even if a Russian invasion of Ukraine risks further stoking bond prices. oil and thus inflation.

“Clearly, if the Ukraine story went wrong, there would be significant demand for Treasuries, and this notion that the 10-year hit 2% would be put on hold,” said Padhraic Garvey, regional head of research for the Americas of ING.

Other safe values ​​are gold, which is already at two-month highs, and the yen.


Any disruption to the flow of grain from the Black Sea region could have a huge impact on prices and add further fuel to food inflation, at a time when food affordability is a major concern around the world following the damage caused by the COVID-19 pandemic.

Four major exporters – Ukraine, Russia, Kazakhstan and Romania – ship grain from Black Sea ports, which could be disrupted by any military action or sanctions.

Ukraine is expected to be the world’s third largest exporter of maize in the 2021/22 season and the fourth of wheat, according to data from the International Grains Council. Russia is the world’s leading exporter of wheat.

“Geopolitical risks have increased in recent months in the Black Sea region, which could influence wheat prices going forward,” said Dominic Schnider, strategist at UBS.


Energy markets may be affected if tension turns into conflict. Europe relies on Russia for about 35% of its natural gas, most of it through pipelines that run through Belarus and Poland to Germany. Nord Stream 1 goes directly to Germany and others pass through Ukraine.

In 2020, gas volumes from Russia to Europe fell after lockdowns suppressed demand and did not fully recover last year when consumption soared, helping push prices to record highs.

As part of potential sanctions should Russia invade Ukraine, Germany has said it could halt the new Nord Stream 2 pipeline from Russia, which was expected to increase gas imports to the bloc, but also increases reliance on Moscow for get power.

SEB commodity analyst Bjarne Schieldrop said markets would likely see Russia’s natural gas exports to Western Europe, both via Ukraine and Belarus, cut significantly in the event of sanctions.

Oil markets could also be affected. JPMorgan said the tension poses a risk of a “major rebound” in oil prices, noting that a rise to $150 a barrel would reduce global GDP growth to just 0.9% annualized in the first half of the year, while that inflation would more than double to 7.2%.


Russian and Ukrainian assets will be at the forefront of market fallout if there is possible military action.

Dollar bonds from both countries have underperformed their peers in recent months as investors trimmed their exposure amid escalation between Washington and its allies and Moscow.

Ukraine’s fixed income markets are primarily the competition of emerging market investors, while Russia’s overall position in capital markets has shrunk in recent years due to sanctions and geopolitical tension, dampening in to some extent any threat of contagion through those channels.

However, the Russian ruble and the Ukrainian hryvnia have also suffered, making them the worst performing currencies among emerging markets so far this year.

Geopolitics on the Ukraine-Russia border presented “substantial uncertainties” for currency markets, said Chris Turner, global head of markets at ING.

“The events of late 2014 remind us of the liquidity gaps and hoarding of US dollars that led to a substantial fall in the ruble,” Turner said.

(Reporting by Karin Strohecker, Sujata Rao, Nigel Hunt and Susanna Twidale in London; Editing in Spanish by Javier López de Lérida)

Leave a Comment