The clouds darken. It makes little sense to speculate, though here in Washington where I am writing from, the working assumption is that there will indeed be war in Ukraine. If so, what next?
I argued last week that while Russia is a relatively small economy, less than 2 per cent of global GDP, and Ukraine much smaller still, any conflict will have a disproportionate impact on energy and food prices. Russia is a massive exporter of oil and gas, while Ukraine is a big exporter of grains. Any sanctions that the west imposes will add to disruption, even if they were not very effective. The net result will be an inevitable hit to the world economy coming at a time when it attempts to recover from the effects of the pandemic.
These broad realities have not changed over the past week, but the perception of the financial markets has shifted. Investors have become much more fearful, and have started to try to work out the safest place for their funds. Gold is the classic safe haven, and at $1,900 an ounce is at its highest for a year, and obviously oil and gas prices have remained strong.