Crisis in Ukraine hits global economy: stock markets fall as energy prices rise

The current crisis in Ukraine, in addition to threatening gas supplies to Europe and regional security, is wreaking havoc on the global economy. It is the European continent that is the main casualty of the tensions between the United States and Russia. European stock markets, while still recovering from the coronavirus pandemic, have started the week with significant falls after Washington's alarming warnings of an "imminent invasion" of Ukraine by Russia.

Spain's Ibex 35 started Monday with a 2.7% plunge, while the national risk premium soared to 100 points, something that had not happened since June 2020. The situation is similar in the rest of the European stock markets. The FTSE 100, the benchmark index on the London stock exchange, ended Monday down 1.7%, while the Paris and Frankfurt markets closed the day down 2%. 

This stock market decline was reflected on the other side of the Atlantic, albeit with less intensity. Wall Street experienced a day marked by a fall in its main financial indices, such as the Dow Jones, which fell by 0.41%, and the Nasdaq, where the main technology companies are listed, which fell by 0.23%.

The effects on the US stock market have spread to Asian markets. Japan's benchmark Nikkei 225 index lost 0.2%, South Korea's Kospi 0.3% and Hong Kong's Hang Seng 0.5%. Elsewhere, Australia's S&P/ASX 200 sank 0.5%.

Adding to this stock market outlook are high energy prices, an issue that Europe has had to contend with in recent months. With fears of war in Ukraine, the price of gas has risen by 14%, reaching 88 dollars per MWh. Should war break out, as the US has been warning since the end of last year, Europe fears that Russia will suspend gas supplies to the continent. It is worth noting that the giant Gazprom is the main supplier of this hydrocarbon to most European countries.

For this reason, Washington and Brussels have begun to look for alternatives to Russia's precious gas. Qatar has emerged as a valid option, although several experts claim that the Gulf country does not have sufficient reserves to supply Europe. Japan, meanwhile, has announced that it will supply liquefied natural gas to the continent should Russia cease to do so. Tokyo, like Washington, also has rivalries with Moscow. In this case, it is the Kuril Islands that are the focus of the dispute between the two countries. 

The price of oil, following the path of gas, has also risen due to the strong tensions in Eastern Europe. Brent crude, the continent's benchmark crude oil, has reached 96 dollars a barrel, the highest price since 2014. The current situation in Ukraine, considered the breadbasket of Europe, has also pushed up the price of wheat, which exceeds 800 dollars per tonne for March, according to diarioabierto.es.

Even so, Ukraine remains the main victim of this situation, both economically and socially. Inflation reached 10 % last month, while the national currency, the grivna, has depreciated considerably against the euro and the dollar (1 grivna is equivalent to 0.031 euro). According to the UN, at least 2.9 million Ukrainians will need humanitarian assistance this year. Currently, according to UNHCR, 854,000 people are internally displaced by the conflict.

For this reason, the EU proposed a 1.2 billion emergency aid plan to Kiev at the end of January. This fund, as EU Commission president Ursula von der Leyen said, "will support the country's modernisation efforts".

All the dire US warnings about Ukraine are adding to the country's instability, as well as worsening the economic situation. For this reason, President Volodimir Zelensky has appealed to the population for calm after Washington's statements.

The situation could calm down after the Russian Defence Ministry's announcement. Ministry spokesman Igor Konashenkov said that "detachments from the southern and western military districts that have completed their missions are preparing to return to their bases on trains and troop transfer vehicles on Tuesday".

This will be a great relief for the world economy, as well as stimulating a significant de-escalation of tension in the region. For the moment, some European stock markets have already experienced a slight improvement after Moscow's announcement.