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How will the economy be impacted by Russia Ukraine conflict?

Team Veye | 21 Feb 2022

How will the economy be impacted by Russia Ukraine conflict?

Financial markets were well on their way to recovery even after facing the onslaught of Omicron variant. With inflation concerns and Fed’s proposed plan of action already factored in, opening of the travel and tourism sector had started giving a boost to the global economy.

The markets recently turned volatile in view of the growing uncertainty about the outcome of Russia Ukraine crisis. Russia had, since March 2021, started to mobilise its military personnel and equipment near its border with Ukraine. This was the highest force mobilization since the country's annexation of Crimea in 2014. Obviously, it generated concerns over a potential invasion.

On 19 February 2022, Russia's strategic nuclear forces reportedly held exercises overseen by President Vladimir Putin which further alarmed the West. Additionally, Foreign ministers from the G7 group of rich nations said they had seen no evidence Russia is reducing its military activity in the area and remained "gravely concerned" about the situation.

History is witness that whenever there is a geopolitical conflict, energy prices spike resulting in rising oil prices and therefore inflation. It would have to be seen as how would an invasion of Ukraine by Russia impact energy markets if the United States and NATO were to retaliate with sanctions. The conflict has resulted in pushing oil prices to levels unseen in past few years because an invasion of Ukraine could also derail Russian energy supply.

Gold, seen as a safe resort in times of conflict, is hovering near its recent peaks.

Although it is hoped that no invasion takes place and efforts to de-escalate succeed, any further aggravation can potentially hurt investment portfolios and perhaps even slow down the economic recovery.

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