Traders are preparing for the situation on markets to worsened amid a huge flow of news from Eastern Europe. The Russian army continues to advance on the capital city of Kyiv while the U.S. and its allies are going to strengthen economic sanctions against the Kremlin.
The West vs Russia
The U.S., the U.K., Canada and the EU have agreed to cut several Russian banks from SWIFT, an international payment system for banks. They’ve also agreed to stop any transactions with the Bank of Russia and froze its gold and currency reserves of $620 billion. Any assets which belong to the Russian elite also must be frozen, the EU said. The European Parliament is going to adopt a relevant resolution on March 1, according to Bloomberg.
As High Representative of the European Union Josep Borrel noted, it is impossible to completely cut Russia from SWIFT because its financial system is deeply connected with the financial systems of other countries. In turn, the Bank of Russia said that it has a range of tools that will allow the central bank to support financial stability in Russia. The regulator is going to provide Russian banks with liquidity when needed.
In this situation, the West is forced to find an answer to the question of how to minimize the collateral damage of the sanctions to the western economies. Even the U.K. which has never relied on Russian oil and gas will suffer from the economic sanctions, said Liz Trass, British foreign minister in an interview with Sky News. The situation is much worse in Germany where Russia counts for about 49% of natural gas the country has imported. Now Germany is going to find another supplier of gas.
Private companies have also decided to leave the Russian market. For example, one of the biggest global producers of semiconductors TSMC from Taiwan said it’s stopped supplying to Russia to meet export control requirements by the U.S. Intel and AMD have followed their Taiwanese partner and also stopped cooperation, the RBK news agency reported. British Petroleum has announced it will sell 19.75% of Rosneft shares it possesses as the British government demanded the company do so. Norway’s Oil Fund declared it had frozen its $2.7 billion investments into Russia.
At the same time, individual investors in Russia want Moscow Exchange to temporarily stop trading sessions until the end of the war in Ukraine. They’ve launched a petition on Change.org. In Western countries, traders are also trying to stay prepared for the worst-case scenario, according to Bloomberg. Zoltan Pozsar from Credit Suisse Group warns that cutting from SWIFT even a handful of Russian banks would cause giant overdue payments within the international banking system. As a result, it may force many countries to start pumping up their market with dollars as they did in 2008 when Lehman Brothers collapsed and in 2020 when the COVID-19 pandemic began.
Western media is trying to predict how long the military standoff in Ukraine may last. According to Newsweek, some diplomats and experts believe that Kyiv may fall in the coming days. If this happens, Russia may set up a sort of puppet authority in the capital city.
CNN believes that the Russian assault on Ukraine is similar to the Iraq attack on Kuwait in 1990. The result of that invasion was a range of international sanctions against Iraq, which was also obliged to compensate for all the damage of all victims of that conflict. If Vladimir Putin succeeds with his plans in Ukraine, he would not stop and may go further, said Daniel Treisman, professor of political science at the University of California.
However, Russia can still rely on China’s support. Thus, the Chinese embassy in Russia said that the U.S. is a real danger to the world as since 1945 this country has participated in military operations in more than 20 countries with a third of the global population.
War in Ukraine can affect chip production
Many businesses in Asia that are involved in chip production are running out of rare gases which is an element for electronics production. According to South China Morning Post, both Russia and Ukraine are big suppliers of rare gases. Because of export control limitations, shares of TSMC and Samsung Electronics, both big chip makers, have already slid by 6.78% and 3.24% respectively. Even though Semiconductor Industry Association insists that there are some other suppliers which can substitute supplies from Russia and Ukraine, investors still worry.
Oil prices may reach $130-140 by this summer
CNBC expects that oil prices may reach $140 per barrel in the third quarter because of problems in supply chains. JPMorgan Chase said that in the second quarter one barrel of oil may cost about $115 with a steady slide to $95 in the fourth quarter. The U.S. is weighing the possibility of lifting Iran sanctions. If it happens, the oil market would be more stable than it could be otherwise.