Kiev under siege and stock markets collapse this Monday: the war transcends the economic plane

With information from AFP

The main world stock markets fell again this Monday, after the new sanctions imposed on Russia for its attack on Ukraine, amid fears that energy prices will skyrocket and reinforce current inflation.

In the first hours for Europe, the places were in the red: Frankfurt lost 2.39%, Paris 3.05%, Milan 2.59%, Madrid 1.40% and London 1.54%. The European reference index Eurostoxx 50 fell 3.18%.

Asian stocks were more resilient: Tokyo rose 0.19%, Shanghai 0.32%, and Hong Kong lost 0.24%. Commodities soared again, starting with oil, whose barrel of WTI, the main US reference, rose more than 4% to around 95 dollars.

The Russian offensive against Ukraine, which is resisting attacks, continued on Monday, the day after President Vladimir Putin’s nuclear threat, to which European countries responded by promising to supply weapons to Kiev. Moscow’s willingness to find an “agreement” with Kiev did not seem sufficient for the moment to reassure the markets.

EU: economically drowning Russia

Western countries have adopted tough financial sanctions against Moscow, especially the decision to exclude numerous Russian banking establishments from the Swift platform, crucial for global finance. This measure “does not block them, but makes them chaotic and unreliable,” explains Ipek Ozkardeskaya, an analyst at Swissquote bank, referring to Russian banks.

The European Central Bank found on Monday that the European subsidiary of Russian bank Sberbank is in “bankruptcy or probable bankruptcy” due to “significant” deposit withdrawals due to the conflict in Ukraine and sanctions.

The central bank’s access to capital markets was also limited, after the European Commission said it will propose to “freeze” its assets. As a result, the ruble plunged more than 20% on Monday.

This means that “no G7 bank will be able to buy Russian rubles,” says Michael Hewson, an analyst at CMC Markets, who fears “a huge inflationary effect in Russia.”

Russia raises interest rate

The Russian central bank announced that it will raise its reference interest rate by 10.5 percentage points, taking it to 20%, to face severe economic sanctions. These financial penalties against Russia could have consequences for inflation outside the country as well.

The conflict is “likely to cause a significant increase in energy prices, which would entail immediate inflationary effects and a significant brake on world growth”, considers Silvia Dall’Angelo, an economist at Federated Hermes.