Written by Kunal Sawhney, CEO, Kalkine Media
The latest geopolitical tension between Russia and Ukraine has put the whole world on a high alert. Even the nations which are not related to them directly are bracing to face the heat with Russia escalating its stance. If Russia goes on to invade its neighbour Ukraine, there will be a long-lasting impact, and tremors will be felt all across with many business segments bearing consequences, including food, oil & gas, money markets, stock markets as well as safe-havens.
Where does the UK stand in all these?
The United Kingdom has been a long-term ally of Ukraine, seeing it as a vital and strategic partner on the border of Europe. It is one of the leading NATO nations that had granted the Russian neighbour ‘Enhanced Opportunity Partner’ status. Hence, the Ukraine crisis is very close to the UK and given the distinctive features of the crisis, it becomes particularly intriguing.
Russian President Vladimir Putin has been provoking the Western alliance through his plans to destabilise Ukraine. He not only is working on his self-proclaimed conception of two countries being inseparable but is also seeking to limit the NATO alliance. Fearing a war, Western Nations have already started ordering Diplomats and their families to leave the nation.
How can the crisis impact the financial market?
It’s a proven fact that geopolitical tensions create uncertainty, which is bound to weigh on the financial market and the overall economy. While the governments remain on a wait and watch, putting major commitments on hold, businesses delay their investment decisions till the tension lasts.
Russia may not hold the ace, but the card that it can play lies in the fact that it is a major oil and natural gas producer, which mostly get exported to Europe. Oil has already been on a surge while the European nation, including the UK has been struggling with high gas prices. If the US and Europe go for sanctions on Russia, it could use its oil and gas position as a weapon, leading to a deepening energy crisis in the region.
As far as stock markets are concerned, they have already been rattled with the fear of a military conflict. There has been a growing flight witnessed from risky assets to safe havens. Loss of investor confidence is being witnessed across the globe, with fear that the conflict in Europe could derail the economic recovery after the pandemic. The bullish tone of the markets after the successful vaccination drive has suddenly turned cautious with increased risk aversion among investors.
UK businesses and the likely impact of the crisis
Till now, the situation is modest and may not culminate into a big war but the idiosyncratic challenge the markets are going through definitely calls the businesses to be more alert.
UK and Ukraine recorded trade of goods and services of £1.6 billion in the four quarters to the end of Q2 2021 that included export plus imports. Ukraine, accounting for around 0.1% of total trade of the UK, remained the 63 rd largest trading partner. The most striking part was that the UK’s exports of goods to Ukraine has been witnessing a surge, and there was an almost 35% increase for the 12 months period to November 2021 when compared to the same period last year. In case of a war, the top exported goods like medicine, cars, specialised machinery can get impacted, while top imports like Iron, cereals, vegetable oil could add up to inflationary pressure persisting in the nation.
There are some other concerns as well, the UK’s National Cyber Security Centre (NCSC) has warned organisations to bolster their cyber security defence as Ukraine a few years back has been the epicentre of the suspected cyber-attack from Russia that crossed boundaries and had impacted many organisations in the UK as well.
The potential invasion of Ukraine would hit the markets across the globe, including Russia, at the same time, any action from NATO may see some retaliatory measures from Russia, which would have its own consequences, so all eyes will be on President Vladimir Putin to de-escalate tensions, that would help the nations to concentrate on economic recovery after the pandemic.
