Economic Effect of the Ukraine Crisis

It’s no secret that world events have an impact on the stock market and the broader economy, both in the U.S. and globally. The ongoing crisis in Ukraine is no different. So how are global markets responding and can we see the economic effect already? Here’s what we know. 

What’s Happening in Ukraine

A few weeks ago, Russian forces invaded Ukraine with the intent to take control over the capital city, Kyiv. However, they have been met with courageous resistance from Ukrainian forces and civilians. The resolve of the Ukrainian people to protect their city and country has been incredible. Meanwhile, the U.S. and European nations have condemned the Russian invasion and exhibited their support for Ukraine. 

The events are still unfolding, the crisis is far from over, and the full impact is yet to be felt. Amid this war, it’s important to remember the economic effect is just one piece of the puzzle. There are thousands of lives at stake as battle rages on the ground in Ukraine. 

The Impact on Global Markets

The global economy is incredibly interconnected, which is why the Russia-Ukraine crisis is affecting markets everywhere. Here are some of the effects we are seeing play out so far.

Volatility

Market volatility is a natural result of uncertainty. It's safe to say the citizens of the world are uncertain about what the war in Ukraine means and where it will lead. This has led to prices falling, then rising, then falling again. 

Part of the volatility is due to investors ditching riskier assets such as stocks in favor of government-backed securities and commodities, such as gold. Many bullish cryptocurrency investors expected Bitcoin to serve as a “digital gold” in times of uncertainty, however, unlike the price of gold, which has risen over the past three months, the price of Bitcoin is down 30%. Investors are also seeking out less volatile stocks and cash. 

While stock market volatility is apparent, it is typical during times of geopolitical conflict, and it is the least of the effects of the crisis on the economy. 

Economic Sanctions on Russia

For Russia, the economic impact is potentially the most severe. Nations around the world, including the U.S., have imposed harsh sanctions on Russia. These include banning Russian lenders from SWIFT, a service that facilitates cross-border transactions, freezing Russia’s foreign reserves, and targeting the assets of the wealthiest Russians. 

Since the invasion, Russian stocks have plummeted to half their value, and the ruble (Russia’s currency) has plummeted as well. As the ruble loses value, Russians will face astounding inflation, something the Russian central bank has already attempted to prevent by raising interest rates to 20%. 

However, Russia is the world’s largest exporter of wheat and one of the largest exporters to Europe of natural gas. The harsh sanctions imposed on the nation may lead them to retaliate and impose sanctions on these resources in return. 

Supply Chain Issues

We haven’t yet seen the end to the supply chain disruption caused by the pandemic, and the Russian invasion has pushed the issue further into disarray. 

Apparent already, supply chain issues have led to a dramatic rise in prices across the globe, something that is now likely to continue. But it isn’t only an issue for the consumer. Companies are dealing with the challenges of supply shortages, prolonged delivery timelines, and soaring energy prices that make moving goods across the world more difficult, especially for those multinational companies with close ties to Russia.  

The Impact

The war in Ukraine will have many more implications than these, the effects of which we can’t yet know. In times of uncertainty, the stock market is often volatile, but over time, it tends to recover from even the worst geopolitical conflicts. 
For investors, now is the time to diversify to hedge risk. This may mean partaking in Regulation D investments, made possible via the JOBS Act. Over the long term, the global economy will recover, but it may continue to tumble until then, and preparedness can help prevent catastrophic losses.