Experts predicted how a full-scale Ukrainian-Russian war would turn out for the world economy.
A full-scale war between Ukraine and Russia for the world economy will have serious consequences. A hot conflict will affect the cost of grain and energy, sovereign bonds, safe-haven assets and stock markets. The price of oil will rise to $150, which will trigger inflation. The correspondent of.net tells what the experts predict.
Inflation and the future rise in interest rates made this month a bad month for bond markets, with US 10-year yields still hovering around 2% and German 10-year yields above zero for cent for the first time since 2019.
But a military conflict between Ukraine and Russia could change that, writes Reuters, citing experts interviewed.
During major events, investors prefer bonds, which are generally considered to be the safest assets, and this time it may be the same, even if a Russian invasion of Ukraine is likely to push the prices even higher. oil prices and therefore inflation, the article says.
In foreign exchange markets, the exchange rate of the euro – the Swiss franc is considered the biggest indicator of geopolitical risk in the euro zone, as the Swiss national currency has long been considered a safe haven by investors.
This week, the Swiss franc hit its highest level since May 2015, although that was partly due to a sell-off on Wall Street.
Gold, also considered a safe haven in times of conflict or economic instability, has seen its price soar over the past two months.
Cereals and wheat
Any interruption in the grain supply to the Black Sea region will have a strong impact on prices and will further fuel food inflation in times of shortages that have overtaken the world due to the economic damage caused by the coronavirus pandemic.
The four main exporters – Ukraine, Russia, Kazakhstan and Romania – ship grain from Black Sea ports, which can face interruptions following any military action or sanction, the agency notes. .
Data from the International Grains Council indicates that Ukraine will be the world’s third largest exporter of maize in 2021 and 2022, as well as the fourth largest exporter of wheat. The largest exporter of wheat. Russia remains
“In recent months, geopolitical risks have increased in the Black Sea region, which could affect future wheat prices”, — explains the strategist of UBS, the largest financial holding company in Switzerland, Dominique Schneider.
Natural gas and oil
Euro receives about 35% of its natural gas from Russia, mainly through pipelines that pass through Belarus and Poland to Germany, Nord Stream 2 goes directly to Germany, and others — via Ukraine.
Gas volumes from Russia to Europe fell in 2020 due to quarantine restrictions which crushed demand and did not fully recover last year. A sharp increase in consumption has led to record gasoline prices.
As part of possible sanctions in the event of a Russian invasion of Ukraine, Germany has said it may stop certification of the new Nord Stream 2 gas pipeline from Russia. The pipeline is expected to boost EU gas imports but increase its energy dependence on the Kremlin.
SEB commodities analyst Björn Schieldrop said markets expect a significant reduction in natural gas exports from Russia to Western Europe, as well as via Ukraine and via Belarus in the event. sanctions, and that gas prices will return to fourth quarter levels.
Oil markets could also be affected by restrictions or disruptions. Ukraine exports Russian oil to Slovakia, Hungary and the Czech Republic. According to S&P Global Platts, in 2021 Ukrainian transit of Russian oil to the EU amounted to 11.9 million metric tons, compared to 12.3 million metric tons in 2020.
One of the world’s largest banks, JPMorgan, predicts that the situation around Ukraine could lead to “a significant jump” in oil prices – up to $150 a barrel. This will lead to global GDP growth falling to 0.9% year-on-year in the first half of the year and inflation more than doubling to 7.2%.
Western listed companies may also feel the effects of war, although for energy companies any hit to revenue or profits may be offset to some degree by a possible spike in oil prices.
British oil and gas company BP has a 19.75% stake in Rosneft and also has a number of joint ventures with Russia’s biggest oil producer.
Anglo-Dutch oil and gas company Shell has a 27.5% stake in Russia’s first liquefied natural gas Sakhalin-2, which accounts for a third of all LNG exports in the country, and has several joint ventures with the oil company. Russian state Gazprom.
US energy company Exxon operates through a subsidiary of the Sakhalin-1 oil and gas project, in which India’s state-owned exploration company Oil and Natural Gas Corp. also owns a stake.
The Norwegian company Equinor is also active in Russia.
Austria’s Raiffeisen Bank International made 39% of its Russian subsidiary’s estimated net profit, Hungarian OTP and UniCredit – around 7% of its own, while Societe Generale received 6% of Rosbank’s net profit from retail operations. The Dutch financial company ING is also present in Russia.
All the assets mentioned will be exposed to tangible risks.
In terms of credit risk in Russia, French and Austrian banks are the largest among Western lenders – with $24.2 billion and $17.2 billion respectively. They are followed by US lenders with $16 billion, Japanese lenders with $9.6 billion and German banks with $8.8 billion.
Other sectors will also be negatively impacted. Metro AG’s 93 Russian stores in Germany account for just under 10% of sales and 17% of core profits, while Danish brewer Carlsberg owns Baltika, Russia’s largest brewer, with a market share of nearly 40%.
Currencies Ukraine and Russia
Ukrainian and Russian assets will be the most vulnerable to the negative consequences of possible military actions.
Dollar bonds from the two countries have become less popular in recent months as investors have reduced their positions amid growing tensions between Washington, its allies and Moscow.
Fixed income markets in Ukraine are largely run by investors from countries with emerging markets, while Russia’s overall share of capital markets has declined in recent years due to sanctions and geopolitical tensions , which will somewhat mitigate any threat of “contagion” through these channels.
The hryvnia and the ruble have already suffered in 2021, making them the worst performing emerging market currencies.
The situation at the Ukraine-Russia border is “uncertain” for currency markets, said Chris Turner, head of global markets at ING.
“Events at the end of 2014 remind us of the lack of liquidity and the accumulation of US dollars, which led to a significant decline in the ruble at that time”, — said Turner.