The View | Ukraine crisis could spell a drawn-out war that will hit financial speculators hard
- With no swift resolution to the Ukraine war in sight and a risk of the conflict spreading, markets must wake up to the reality of massive energy and food supply shocks
- The likelihood that financial bubbles will burst, triggering a global recession, is growing by the day
Markets continue to underestimate the effects of the Ukraine war, and will be shocked again in the coming weeks. The odds of financial collapse and a global recession are rising rapidly.
These expectations have either been proven wrong or soon will be. The war may last for years with far-reaching impacts, even if it is contained between Russia and Ukraine. More worrying is that it could spread to other parties, unleashing a version of World War III.
The EU’s response has been much stronger than expected – it has unveiled a plan to cut Russian gas imports by two-thirds within a year – because its people have shown more willingness to bear hardship at home. But it has so far stopped short of an energy import ban. This position may become untenable as public pressure mounts. Oil and gas prices could then surge past historical highs.
The resulting rise in inflation would force the US Federal Reserve and European Central Bank to increase interest rates. The sharp drop in trade for oil importers like India and the EU will push their economies into recession. Such a supersized energy shock has not been priced into the market at all.