The Russian-Ukrainian conflict​

By Jake Rickman​

What do you need to know this week?

Fears continue to mount over “the beginning of a Russian invasion of Ukraine”.

If you ask Russia, it says it has merely sent in a “peacekeeping” envoy into the region it recognised as independent the day before. But this has been dismissed as a “pretext for war”.

The MOEX index, which is the Russian market’s benchmark, had its worst performance since the Global Financial Crisis in 2009. The FTSE 100, S&P 500, and NASDAQ 100, which are other indices investors and market analysts look towards to gauge the overall health of the market, have also slumped across the board.

We can infer, as most analysts have, that the risk of a full-blown Russian-Ukrainian conflict has investors around the world scared.

Why is this important for your interviews?

There are certain large-scale events that do not seem to directly impact markets but which can nonetheless send them reeling. The acute stage of the COVID-19 pandemic was one. The threat of a conflict in Eastern Europe is shaping up to be another one.

This is a constructive chance to evaluate why certain geopolitical events like this can have such a dramatic impact on global markets.

While it is straightforward how direct conflict is bad for business, a more targeted analysis will examine how third-party nations will respond to the conflict: in less than 24 hours, the US, Canada, UK, and EU have passed a series of sanctions on Russia.

The effect of these sanctions can be two-fold: the intention is to exert intense economic pressure on the Russian economy, such as by making it illegal for Canadian citizens to purchase Russian sovereign debt or for anyone to use US Dollars to invest in the contested areas in eastern Ukraine. The ultimate purpose is to dissuade Russian leaders from acting further out of economic necessity.

The flip side of sanctions is that they can have undesired effects on the wider economy, particularly when the target of the sanctions (Russia) has something that market wants. In this case: oil and gas.

Russia is one of the biggest suppliers of natural gas and oil to the rest of Europe. Both the conflict itself and the resulting sanctions will impede the supply of these key resources to the rest of the world. That is why oil prices are surging beyond their already seven-year record highs. In a market already anxious about surging inflationary pressures, this is compounding concerns.

How is this topic relevant to law firms?

For firms like HFW and Clyde & Co which deal heavily in the commodities markets, sanctions can significantly disrupt their clients’ commercial strategies. For instance, if it becomes illegal to trade with some counter parties in a particular currency, clients need to determine if it makes sense commercial sense to try and deal in different currencies, or if the risk is too substantial.