Oil prices jumped nearly 5% and stock prices fell on Tuesday after Russian President Vladimir Putin recognized the independence of rebel-held parts of Ukraine, raising fears of a full-scale invasion.
Russia is a major energy producer, and tensions around Ukraine have led to wild swings in volatile energy prices, in addition to the inevitable risks of a wider conflict that would reduce economic activity in Europe and in the world.
Oil prices had already reached their highest level since 2014. By Tuesday morning, the advance in US benchmark crude oil had slowed slightly. It rose about $3, or 3.5%, to around $94 a barrel in electronic trading on the New York Mercantile Exchange. The price of Brent crude, the standard for international oils, gained around $4.50, or nearly 5%, to around $98 a barrel.
Markets in Europe, Asia and the Americas shook as Putin tried to secure, adding to fears of a full-scale invasion. These actions have undermined hopes of averting a conflict that could cause mass casualties, power shortages on the European continent and economic chaos around the world.
The United States and the European Union condemned Russia and prepared to retaliate with sanctions. On Tuesday, Germany suspended the approval process for the Nord Stream 2 gas pipeline that would bring Russian natural gas to Europe.
Western powers fear Russia is using skirmishes in Ukraine’s eastern regions as a pretext for an attack on the former Soviet state, which has defied Moscow’s attempts to bring it back into its orbit.
Putin claimed on Monday that Ukraine’s modern borders were put in place by the USSR and said Russian troops in Luhansk and Donetsk were needed to protect the rights of Russian speakers in the region. Putin received no support for his actions from members of the UN Security Council during an emergency meeting on Monday evening.
Stock markets are shaking
U.S. stock markets, which were closed Monday for Presidents’ Day, capped a week of volatile trading with a, in which the Dow Jones and S&P 500 both slipped 0.7%. The tech-heavy Nasdaq composite took the brunt of the selloff last Friday, slipping 1.2%.
On Tuesday, stocks fell further on escalating international tensions, with the Dow Jones losing nearly 700 points, or about 2%, to 33,385 as of 2 p.m. ET, the S&P 500 down 1.8% and the Nasdaq down 2%.
Tuesday’s biggest losses were recorded in Russia, where the MOEX index fell 5% after losing nearly 11% on Monday. The ruble was 2.5% lower.
“The current situation is tightening financial conditions for Russian companies, destabilizing markets and reducing business predictability,” FxPro’s Elena Nazarova said in a commentary.
But Britain’s FTSE 100 rose around 0.35%, while Germany’s DAX rose slightly and the CAC 40 in Paris was flat.
In Asia, Tokyo’s Nikkei 225 fell 1.7%, while Hong Kong’s Hang Seng regained lost ground to close 2.7% lower. South Korea’s Kospi lost 1.4% and the Shanghai Composite index fell 1%. The Australian S&P/ASX 200 lost 1%.
The turmoil in Ukraine has heightened uncertainty at a time when investors are already nervous about how the world’s central banks, particularly the US Federal Reserve, will act to counter soaring inflation as coronavirus outbreaks coronaviruses fueled by the highly contagious omicron variant are clouding the outlook for many countries.
“Indeed, a full-scale invasion of Ukraine by Russia will leave many central banks in the lurch,” Oanda’s Jeffrey Halley said in a report.
Soaring energy prices
Rising oil prices are complicating the already turbulent situation. Russia produces around 12% of the world’s crude oil, and any disruption would reverberate globally. Many Asian economies are dependent on oil and gas imports, and even if these do not come from Russia, the fallout will increase energy costs at a time when countries are still recovering from the pandemic.
“Essentially, while Russia may not be the primary source of direct energy imports for (emerging markets) Asia, its weight as a global producer/exporter means that energy shocks emanating from Russian supply disruptions will nonetheless be disproportionately large,” Mizuho Bank said. Vishnu Varathan said in a statement.
“So Ukraine’s risks are substantial one way or another,” he said.
with the average pump price at its highest level since 2014 and diesel prices above $5 a gallon in many parts of California.
Russia also exports coal to India and Vietnam and is South Korea’s fourth-largest oil supplier, Varathan said.
On other fronts, Treasury yields have fallen recently as investors shift money to the safety of US bonds. But the 10-year Treasury yield, which affects rates on mortgages and other consumer loans, rose to 1.94% on Tuesday from 1.92% on Friday evening. U.S. bond markets were also closed on Monday for the Presidents Day holiday.