On a Knife-Edge: Russia’s Ukraine Invasion Might Topple the World Economy

“The tensions risked a material spike in oil prices; a rise to $150 a barrel would reduce global GDP growth to just 0.9 percent annualized in the first half of the year, while more than doubling inflation to 7.2 percent.”

In his latest fiery speech, the president of Russia, Vladimir Putin, lashed out at NATO saying it cannot be allowed to use Ukraine as bait to irritate Russia. He said the “Russian peacekeeping forces” will be sent to East Ukraine as the incumbent government is committing crimes against a diversity of civilians in this part of the country.

“If Ukraine was to join NATO, it would serve as a direct threat to the security of Russia,” said Vladimir Putin.

Apparently, there are Russia-backed rebels active in East Ukraine who recently have shelled civilian colonies mercilessly. From a third-party standpoint, it seems Mr. Putin has already started invading the country on the pretext of helping civilians in East Ukraine. Reacting to the matter, the Australian government termed the move “nonsense”, adding that “peacekeeping forces” are “actual forces.” Therefore, it’s safe to mention that things might go out of hand from this point onwards.  

This is the political side of the story so far, in a nutshell. There are always many sides to a story that directly impact a common man one way or the other, such as the financial side. That said, if war breaks out on a full scale, the world will plunge deep into a financial crisis. Here’s what JPMorgan said:

“The tensions risked a material spike in oil prices; a rise to $150 a barrel would reduce global GDP growth to just 0.9 percent annualized in the first half of the year, while more than doubling inflation to 7.2 percent.”

As of now, NATO and Russia are trying to handle the situation diplomatically, but to no avail. As a result, the markets worldwide are observing the shockwaves. Trades that are going to be hit, in particular, if a full-blown war breaks out include grains and wheat, natural gas and oil, the safest assets: bonds, etc. The smooth movement of grain out of the Black Sea region depends on how diplomatically sound the politicians are. Certainly, in an event of war, the trade along this region will be negatively impacted. Ukraine, Russia, Kazakhstan, and Romania are the four major exporters of grain that ship from the Black Sea ports. Russia is the largest exporter of wheat in the world.

Similarly, disruptions along the Black Sea region could affect the natural gas and oil trade. As Russia is responsible for 35 percent of Europe’s natural gas supply, an event of war is likely to interrupt the smooth supply of oil and oil products. Importantly, Nord Stream 1 which goes directly to Germany and many other countries through Ukraine can be negatively impacted in an event of war. Here’s what S&P Global Platts said in a note:

“Oil markets could also be affected through curbs or disruption. Ukraine moves Russian oil to Slovakia, Hungary, and the Czech Republic. Ukraine's transit of Russian crude for export to the bloc was 11.9 million metric tonnes in 2021, down from 12.3 million metric tonnes in 2020.”

Reacting to Mr. Putin’s move, Germany has made it clear that it could halt the new Nord Stream 2 gas pipeline from Russia; even though the west depends on Moscow-produced natural gas and oil.

Furthermore, global companies that are operating in these countries can go out of business as situations like war bring no good to anyone or anything.

Not to forget, the world of business somehow managed to bounce back from the Covid-19 shock as markets worldwide had plummeted. Shockingly, the year 2022 is not going to be any different if the war breaks out. From loss of life to poverty, the world will never be the same again.

The quotes used in this piece were extracted from Business Today.