As a result, on February 24, 2022, there was a Russian invasion of Ukrainian territory, followed by instability in Donbas and bloody fighting along the Russian-Ukrainian border. According to international organizations and economic data, the war has had a major impact on the world economy. Russia and Ukraine are close trading partners of India. Both the Indian and world economies have suffered greatly as a result of the conflict between the two countries. War-related geopolitical concerns have had an additional impact on India. In addition to the humanitarian catastrophe, the battle caused severe market volatility throughout the world, causing commodities, currencies, stocks, and capital flows to fluctuate sharply.
Introduction
The world markets responded immediately to Russia’s invasion of Ukraine on February 24, 2022.
Due to ongoing COVID-19 outbreaks and waning policy assistance, the recovery from the recession caused by the pandemic is slowing down (World Bank, 2022). Many nations are seeing an increase in inflation, and in an effort to control it, major economies are raising interest rates. Price pressures will increase and growth in poor nations will be slowed by disruptions in global trade and investment, particularly if governments apply trade barriers to protect their economy.
The world markets responded immediately to Russia’s invasion of Ukraine on February 24, 2022. For the first time since 2014, oil prices soared above $100 per barrel, European gas prices jumped, wheat futures reached all-time highs, and the ruble fell under severe sanctions. Global stock markets went through a period of increased uncertainty, as seen by the sharp fluctuations in indices such as the S&P 500, FTSE, Nifty, and DAX.
Literature Review
Global markets have frequently been changed by geopolitical crises:
Gulf conflict (1990–91): After the conflict, U.S. stocks rebounded swiftly, despite an almost 100% spike in oil prices.
Iraq War (2003): Stock market volatility was caused by initial uncertainty, but as markets adjusted, the long-term consequences were less pronounced.
2014 saw the annexation of Crimea: sanctions against Russia, a weakening ruble, and a precipitous drop in oil prices damaged Russian stocks but had little effect on the rest of the world.
The 2022 Russia-Ukraine war had wider repercussions than these incidents because:
It affected food and energy supply at the same time.
Financial systems were also subject to sanctions, and Russia was kicked out of SWIFT.
Price shocks were exacerbated by the post-pandemic inflation that coincided with it.
Therefore, the Russia-Ukraine conflict brought about fundamental changes in global trade, defense spending, and supply networks, whereas earlier wars generated short-term volatility.
Sector-Wise Breakdown
Impact on Energy Sector
Energy prices on the international market have increased further as a result of the severe economic sanctions placed on Russia. Since energy drives up the cost of production, storage, and transportation in the supply chains for goods and services, more inflation is ultimately likely to happen.
Russia contributed – 10% of world oil and 40% of Europe’s natural gas before the war.
European gas prices increased by more than 200% after the invasion, while Brent crude soared beyond $120 per barrel.
Impact on Agriculture Sector
Almost one-fifth of the world’s corn and other coarse grain exports come from Russia and Ukraine. Russia and Ukraine are responsible for about 80% of sunflower oil exports. Wheat and other grain prices would rise as a result of sanctions and interrupted supplies, escalating the already significant inflationary pressures in the world economy. Some may also have negative political repercussions. Food inflation has spread around the world, particularly in developing nations like Africa and India.
Impact on the World Banking System
Due to international financial sanctions that primarily targeted Russian institutions, Russia’s invasion of Ukraine had little impact on the global banking sector. The international banking system was not significantly impacted by the restrictions, which included excluding certain Russian institutions from using SWIFT. Only international banks with sizable operations in Russia were impacted. Following the imposition of financial sanctions by various Western nations on Russian banks, the Russian Central Bank, and Russian affluent persons, numerous foreign institutions reported losses. The banks that were most impacted were Société Générale in France, Unicredit in Italy, and Raiffeisenbank in Austria. When they stopped doing business in Russia, numerous other international banks reported suffering enormous losses. For tiny foreign banks, the consequent losses were substantial, whereas for large foreign banks, they were negligible. Additionally, banks with substantial operations in Russia reported a huge loss on their investment earnings from their shut-down Russian company.
Growing inflation and living expenses worldwide
The invasion caused monthly inflation rates to rise in numerous nations (see figure 3). The expense of living went up due to the increase in inflation. For example, the UK’s inflation rate increased to 5.5%, which suggests that consumers were spending more on fewer items. Oil, gas, food, and food ingredients all saw price increases as a result of the invasion. Because of the sharp rise in the price of cars, lighting, and mortgage deductibles, living expenses went up. It had repercussions for developing nations that depend on importing energy from Europe. Even if income levels remained constant, developing nations paid more for energy imports, which resulted in higher local gasoline pump costs, higher food prices, and an overall increase in merchandise imports. Both industrialized and developing nations experienced a substantial increase in worldwide inflation and a spike in the cost of living as a result.
Conclusion
The war between Russia and Ukraine has amply illustrated how a regional conflict may alter financial systems globally and cause market instability. The invasion set off a series of events that included record-high food inflation, sanctions that affected the world’s banking and payment systems, and a 2022 spike in the prices of commodities including wheat, gas, and oil. While emerging markets like India saw currency depreciation, stock market fluctuations, and inflationary pressures, industries like energy, agriculture, defense, and technology experienced the most severe shocks.
The war also demonstrated how resilient safe-haven assets are. Diversification and risk management are crucial financial tactics during a war crisis, as demonstrated once again by the spike in gold prices, the strengthening of the US currency, and the change in investor focus toward defensive industries.