Whether you’re actively tracking the news or currently taking a break from it, there’s no denying that it’s been almost impossible to avoid witnessing the heart-breaking situation happening in Ukraine currently and our thoughts are with all those affected.
We have put together a short round-up of what the wider effects of the war may be.
Energy
The EU currently gets around 40% of its gas and 30% of its oil supplies from Russia[1]. The UK is less reliant on Russia for its energy needs, importing 13% of its total fuel (oil, gas, liquified natural gas and electricity) from Russia in 2019[2].
However, should Russian energy supplies be disrupted the UK would experience rising wholesale energy prices as demand in Europe increases. The US has called for a ban on the use of Russian oil, to which Russia has counter-threatened to cut off gas supplies to the West[1]. Despite this pressure from the US, European leaders have said for now that they are unlikely to cut ties with Russian energy as security of supply could not be guaranteed elsewhere at present[1].
Energy markets continue to be volatile across Europe, with wholesale crude oil prices hitting a 14-year high on Monday 7 March and average UK petrol prices reaching a new record high of 155p per litre[1].
Food prices
Ukraine and Russia combined export around a quarter of the world’s wheat and half its sunflower products, and the head of the World Food Programme has warned the conflict could send food prices soaring globally[3]. The world’s poorest nations will likely be hit the hardest. But, the effects may be felt across the world as products like bread and meat rise in price everywhere due to increasing demand from Asia, Africa and the Middle East; the most common export markets of Ukrainian and Russian grain supply[2].
Further to this, fertiliser supplies have also been affected. Yara International, one of the world’s biggest fertiliser companies, has warned of the impact the war will have on the global supply and cost of food. The company operates in more than 60 countries and sources a large amount of raw materials for its fertiliser from Russia[4]. Half of the world’s food supply is dependent on fertilisers and the worry is that disruption to the supply chain could have a knock on effect in price and supply of food across the globe[4].
Markets and the cost of living
Taking all this into account it’s perhaps no surprise that the squeeze on UK households is unlikely to ease anytime soon. Commodity markets are currently volatile due to the fear around sanctions and supply chain disruption, further increasing inflation[5].
New data has revealed that the war in Ukraine could push inflation up to over 8% for 2022-23[6]. The report released by the Resolution Foundation revealed that this year, in real terms, non-pension households could be worse off by £1,000 compared to the previous financial year.
Many people will already experience an increase in their monthly budgets this Spring with the rise of the energy price cap and national insurance contributions.
How to find out more
The situation in Ukraine is changing almost daily and predicting the ripple effects of this is not easy. Here at Brunsdon Financial, our Advisers are regularly in touch with our Investment Manager, Brooks Macdonald Asset Management Limited.
and are keeping up-to-date on the latest developments and what these may mean for our clients. Watch our latest Market Update video below with our Chairman, Brian Morman, where he discusses the ongoing crisis.
