Here in the United States, we have been watching the war unfold in real time between an aggressor, Russia, and Ukraine, which is fighting to defend its sovereignty. The humanitarian crisis has been gut-wrenching, and we can only hope that the stalemate ends soon, agreements are reached, and peace is restored.
In the meantime, the impact of the conflict on global economic sectors cannot be understated. Keep reading to find out how we anticipate this war in Eastern European will impact global markets.
Let’s start with oil. You can’t talk to coworkers, or scroll through your Twitter feed, without hearing of record-high prices at the pump. While the U.S. has not relied much on Russian oil, Europe and Asia are dependent on both oil and natural gas from Ukraine and Russia. As the supply is pinched and prices go up, the cost to import goods into the U.S. goes up too, contributing to inflation. OPEC has no vested interest in increasing supply, as they benefit from the inflated rates, while American oil producers have been plagued by labor shortages. Bottom line: expect this short-term surge in prices to go on a little longer.
Another sector that trickles down into many critical industries is the business of semiconductors. The world’s largest suppliers of the rare inert metals and gases used for semiconductors are located in… you guessed it: Ukraine and Russia. Not only do we expect the semiconductor industry itself to suffer, but the shortage will also cause a noticeable negative effect on the supply of automobiles, personal computers and cell phones, and many more.
Perhaps we can get by for a little while without a new car or the latest iPhone, but another sector impacted by the conflict is one we absolutely cannot live without food. Near the shores of the Black Sea is the “world’s breadbasket,” which produces an exceptional amount of wheat and barley. With citizens fleeing Ukraine in droves, these fields may go without harvesting or tending for several seasons, and the U.S. is not equipped to export enough to fill the void. Russia is also a major exporter of fertilizer products, and the lack thereof will further impact the global food supply chain.
What about money itself, you ask? While the American dollar was falling before the war began, the newfound uncertainty has spurred a rush into the dollar’s safe haven, causing it to appreciate quickly. This has actually slowed the progress of the value of gold, though the price of gold continues to surge as a perceived hedge against inflation.
Other physical metals, like nickel, copper, and iron, have seen an unprecedented demand amid supply chain disruptions caused by the pandemic. This is further exacerbated by the Russia-Ukraine conflicts, as those two nations lead the global production of these metals. Declining inventory paired with a fear of scarcity is creating a perfect storm of prices that are spiraling upward.
Finally, the tech sector is undoubtedly feeling a strain in both manpower and operational capability. Tech giants and Fortune 500 companies rely on IT services and talented professionals based in Ukraine. Many U.S. companies are also concerned about the fate of research and development operations in both countries, which now face uncertain futures.
In short, Russia and Ukraine hold vast reserves of natural resources, the restriction of which will have repercussions throughout Planet Earth’s many nations. Amidst the strife, though, it seems that the American economy is humming along just fine. In spite of the runaway costs of energy, inflation, and labor shortages, America continues to display her resilience.
We pray for peace and that the conflict is resolved swiftly. In the event that it is prolonged, however, watch out for further supply chain disruptions that may reign in the growth of our economy in any of the sectors outlined above.
