Russia launched the long-anticipated invasion of Ukraine on Thursday morning, sending financial markets into turmoil, raising fears of gas shortages and global trade disruptions.
Russia’s invasion of Ukraine resulted in a surge of energy costs, plummeting stock markets, and intensifying Western sanctions, Bloomberg reports.
The European Central Bank has already expressed concern that the inflation rate may be further impacted by weakened consumer confidence and threats to fragile eurozone economies.
Russian President Vladimir Putin declared the beginning of a “special military operation” aimed at “demilitarizing” Ukraine, despite international condemnation and the first tranche of sanctions, CNBC reports.
Upon news of the invasion, European gas prices soared, and Brent crude futures surpassed $100 a barrel for the first time since 2014, the same source specified.
“While Western governments probably will exempt energy transactions from sanctions, the blizzard of new restrictions will force many traders to be exceedingly cautious in handling Russian barrels,” Eurasia Groups analysts reported to international media.
“Gas transiting Ukraine will likely be disrupted, affecting supplies to several central and eastern European countries, and rising gas prices in Europe,” they added.
“This will not be good for energy prices, production, or trade,” Bloomberg quoted Joseph Francois, the World Trade Institute’s managing director.
“Certainly we will have and are already seeing, a spike in energy prices. This will have knock-on effects on production, especially in Europe, which will dent the recovery of trade from the Covid recession,” he further added.
The biggest categories of goods exported by Russia are petroleum, coal, and gas, ranking 16th worldwide. Ukraine ranks 48th in the world, with shipments of grain and iron ore leading the way, according to World Trade Organization data for 2020.
“Undermining the rule of law and increased risk always means increased uncertainty and costs for firms operating in trade,” Hanna Norberg, CEO of TradeEconomista, said to the same news outlet.
A conflict in Ukraine would create many challenges for global supply chains, Chris Rogers, an economist with Flexport, says in a report entitled “Commodities and Compliance – Ukraine Conflict Issues for Trade,” published on February 22.
According to the economist, risks go beyond higher energy costs to include disruptions of airspace in the region, higher rates for shipping insurance, and cyberattacks.
Shipping disruptions have already been reported in the immediate vicinity. According to the CEO of Lloyd’s List, Richard Meade, the conflict seems to be affecting vessel traffic into and out of the Sea of Azov, he says on his official Twitter page.
Russian naval forces appear to have closed shipping traffic in and out of the Sea of Asov. @LLIntelligence data showing no movement through the Kerch Strait with a heavy build up of vessels anchored in the southern anchorage. Full story via @LloydsList soon pic.twitter.com/ShBKwBU67c
— Richard Meade (@Lloydslisted) February 24, 2022
It remains to be seen whether Western trade sanctions have any impact, but they are likely to be less potent than a decade ago, Simon Evenett, a professor at the University of St. Gallena, said to Bloomberg.
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