Impact of US sanctions on the global market

Changes in product prices and disruptions to supply chains are the two main ways in which the current crisis is expected to affect the global economy. Global oil and gas prices have surged in the week since the conflict began, especially in Europe. Nickel, neon, palladium, corn and wheat were the main food and mineral products with rising prices. In a way, these surges represent fear and danger rather than real criticism or deal breakers. Investors may be concerned that new events could disrupt commodity trading, such as: B. Russian oil or gas purchases in Europe have declined, or Russia has restricted or reduced shipments of key commodities. Here are some of the effects of U.S. sanctions on global markets:

Global commodity prices rise

If global commodity prices continue to rise, many countries, especially Europe, could experience faster and persistently high inflation. Rising raw material costs will dampen economic growth. Even before the invasion, several of the world's most powerful financial institutions had tightened monetary policy in response to a sharp rise in inflation in many countries. While conflict can fuel inflation, it also has the potential to stifle growth. As a result, many investors expect the Fed to tighten monetary policy further.

Investors believe that the conflict will have a negative impact on western economic development and reduce inflationary pressures. Otherwise, higher energy prices and greater supply chain disruptions will lead to higher inflation. As a result, central banks will struggle to balance.

Meanwhile, bond yields in the U.S., U.K., Japan, Germany and others fell sharply following punitive sanctions for safe havens. However, inflation expectations for bond yields have risen, as indicated by rising breakeven rates. This suggests that the market is concerned that recent and upcoming events could lead to an acceleration in inflation. This knowledge will certainly influence the central bank's decision-making.

Supply chain issues

Another major threat to the global economy is the impact of the crisis on vital raw material supply networks. To date, there have been several incidents that have increased the risk of supply chain disruption. Major shippers, including the world's two largest companies, have halted all orders to and from Russia, with the exception of shipments of medicines and food, fearing they could violate Western government sanctions. This follows the UK's decision to ban all Russian ships from British ports. Russian and European planes are now banned from flying over each other's airspace. As a result, flights connecting Asia and Europe must take longer and more expensive routes. This not only brings inconvenience to passengers, but also increases costs and affects the efficiency of transportation of high-value goods. In addition, Russian cargo planes will be grounded, reducing global capacity. About 14 percent of seafarers on cargo ships are Ukrainian or Russian, which could pose a labor law challenge to the maritime sector if those personnel need to be replaced.

The cost of transporting tankers has risen amid fears that pipelines in Russia and Ukraine could be blocked, spurring demand for oil from West Africa and the Middle East. The cost of shipping insurance has increased dramatically. In addition, prices of metals such as aluminum and food have risen due to concerns about disruptions or shortages.

Checking the price of a traded item is one way to quantify the prospect of disruption or disruption. Prices of oil, natural gas, wheat, coal, corn, aluminum, steel and palladium have increased, just to name a few. The Russian-Ukrainian supply network is disrupted, or threatened with such disruption, when the global supply system is stressed by year-on-year growth in demand for commodities and pandemic-related shipping and production restrictions.

（Writer：Charles Ouko）