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A potential invasion of Ukraine by neighbouring Russia would be felt across a number of markets, from wheat and energy prices and the region’s sovereign dollar bonds to safe-haven assets and stock markets.
Below are five charts showing where a potential escalation of tensions could be felt across global markets:
Safe havens
A major risk event usually sees investors rushing back to bonds, generally seen as the safest assets, and this time may not be different, even if a Russian invasion of Ukraine risks further fanning oil prices -- and therefore inflation.
Inflation at multi-decade highs and impending interest rate rises have made for a tetchy start to the year for bond markets, with US 10-year rates still hovering close to the key 2 per cent level and German 10-year yields above 0 per cent for the first time since 2019.
But an outright Russia-Ukraine conflict could change that.
In forex markets, the euro/Swiss franc exchange rate is seen as the biggest indicator of geopolitical risk in the euro zone as the Swiss currency has long been viewed by investors a safe haven. It hit its strongest levels since May 2015 in late January.
Gold, also seen as a shelter in times of conflict or economic strife, is clinging to 13 month peaks.
Grains and wheat
Any interruption to the flow of grain out of the Black Sea region is likely to have a major impact on prices and further fuel food inflation at a time when affordability is a major concern across the globe following the economic damage caused by the Covid-19 pandemic.
Four major exporters - Ukraine, Russia, Kazakhstan and Romania - ship grain from ports in the Black Sea which could face disruptions from any military action or sanctions.
Ukraine is projected to be the world’s third largest exporter of corn in the 2021/22 season and fourth largest exporter of wheat, according to International Grains Council data. Russia is the world’s top wheat exporter.
Natural gas & oil
Energy markets are likely to be hit if tensions turn into conflict. Europe relies on Russia for around 35 per cent of its natural gas, mostly coming through pipelines which cross Belarus and Poland to Germany, Nord Stream 1 which goes directly to Germany, and others through Ukraine.
In 2020 volumes of gas from Russia to Europe fell after lockdowns suppressed demand and did not recover fully last year when consumption surged, helping to send prices to record highs.
