REUTERS assessed the impact of a possible conflict between Ukraine and Russia on global markets

Reuters experts said that a possible conflict between Ukraine and Russia will affect certain markets, in particular energy and wheat, as well as the yield on sovereign dollar bonds and safe assets.

1. storage assets

The public debt market has long suffered from rising inflation to multi-year highs and expectations of higher interest rates, but a likely conflict may change the situation.

The monthly yield on 2-year US securities grew the fastest since 2016, while 10-year bonds approached 2%. The yield on 2-year government bonds in Germany has reached a positive level for the first time since 2019.

With strong risks, investors return to bonds, which are considered the safest assets. So they will do now, even if oil prices, followed by inflation, rise even more. Other assets, including gold and the yen, have already updated their 2-month high.

2. grain

Any changes in grain supplies from the Black Sea region will affect prices and accelerate inflation. Ukraine, Romania, Russia and Kazakhstan export grain from the Black Sea ports, and military actions or sanctions will stop shipments.

According to IGC estimates, Ukraine will become the third largest global exporter of corn and the fourth largest wheat in 2021/22 mg, while Russia is the leader in wheat exports.

Increased risks may increase wheat prices in the near future.

3. oil and natural gas

Europe receives almost 35% of its natural gas from Russia. Gas pipelines go through Belarus and Poland to Germany, Nord Stream-1 directly to Germany, the rest through Ukraine, so gas markets will suffer from the conflict.

In 2020, due to lockdowns, demand for Russian gas in the EU fell, and supplies partially recovered after an increase in consumption, which led to a record increase in prices.

In the event of a Russian invasion of Ukraine, Germany will consider stopping the Nord Stream 2 project, which, against the background of other sanctions, will reduce gas imports to the EU and increase its dependence on Moscow. It will also lead to another jump in prices.

Next, oil prices may rise to до 150/barrel, which will slow global GDP growth to 0.9% and double inflation to 7.2%.

4. dollar bonds and currencies

Most of all, the conflict will affect the government securities of Ukraine and Russia, which in recent months have experienced significantly worse dynamics than in other countries due to falling demand from investors, as well as the currencies of both countries.

Investors in emerging markets are interested in Ukrainian bonds, while demand for Russian bonds has fallen in recent years due to sanctions and political tensions.

Therefore, a possible conflict creates strong uncertainty for foreign exchange markets, and can lead to a sharp collapse of the exchange rate and a shortage of liquidity.