Global markets were thrown into turmoil on Thursday as the outbreak of war on European soil sent prices of commodities from oil and gas to wheat surging, while stock market plunged.
The ramifications of a potentially prolonged conflict involving Europe’s primary supplier of gas sent a chill through markets, affecting prices across a broad spectrum of asset classes and investments.
Brent crude hit $105 a barrel for the first time since August 2014, following a rise of more than 8% on international energy markets. The increase signalled a further rise on garage forecourts to record-breaking retail price for unleaded petrol of more than 155p a litre.
Russia is the world’s second-largest oil producer and sells most of its crude to European refineries. It is also the largest supplier of natural gas to Europe, providing about two-fifths of its supply.
Oil prices have surged more than $20 a barrel since the start of 2022 as the Ukraine crisis went unresolved, with fears that the US and Europe would impose sanctions on Russia’s energy sector, disrupting supplies, should the situation escalate.
The price of British gas for next-day delivery jumped 53% to 326p per therm as the invasion stoked fears of a disruption to global energy supplies. Dutch futures, a closely watched measure for European prices, were up 57% on contracts for delivery in March.
Analysts at Investec think the renewed surge in gas price could force the energy regulator Ofgem to increase the household bills price cap to £3,000 in October. The 54% increase to nearly £2,000 announced earlier this month has already caused significant political fallout and sparked warnings of families having to choose between food and heating.
Typically seen as a safe haven in times of crisis, gold moved through $1,950 (£1,460) per ounce at one point before settling back, reaching levels not far away from its 2020 all-time high of $2,067.
Russia and Ukraine are also large producers of important industrial metals such as palladium, nickel and aluminium, which analysts said could be in short supply over the coming months unless the war ends quickly. Russia produces 6% of the world’s aluminium and 7% of its mined nickel. Aluminium rose more than 5% to hit a record high of $3,466 a tonne in London. Nickel hit its highest level since May 2011 at $25,240 at one stage. Palladium, used in catalytic converters for cars, was trading more than 5% higher on Thursday afternoon, after touching $2,695.57 an ounce in the morning, up 7% to the highest level since August.
Between them, Russia and Ukraine export a quarter of the world’s wheat, with Ukraine in particular known as the “breadbasket of Europe”. Short-term European wheat prices neared record highs on Thursday afternoon. Ukraine is also a major exporter of corn and barley, as well as a key source of cooking oils.
There was a broad sell-off of shares across Europe, and banks with big operations in Russia were especially hard hit, such as Austria’s Raiffeisenbank, Italy’s Unicredit and France’s Société Générale, following moves by governments across the continent and in the UK to impose sanctions on Russian banks and wealthy Russian individuals.
The FTSE 100 index in London tumbled 291 points, or 3.8%, to 7,207, while the Dax in Frankfurt lost nearly 4%, the Cac in Paris dropped 3.8% and the Italian borsa in Milan closed 4.1% lower. On Wall Street, the Nasdaq pared earlier losses and was flat in the afternoon while the S&P 500 was down 0.9% and the Dow Jones slid 2%.
Russian stocks plummeted as much as 50% when trading resumed on the Moscow stock exchange on Thursday morning following a temporary suspension. The dollar-denominated RTS index tanked 49.93% in early trading, and later traded 39% lower. The rouble-denominated Moex index fell 45% to 1,690.13, and was later down 33%.
Thirty-one Russian companies are traded on the London Stock Exchange. State-owned banks Sberbank and VTB, along with state-backed oil and gas producers Gazprom and Rosneft have secondary listings in the UK while their primary listings remain in Moscow.
A freeze on Russian bank assets in the UK nnounced by Boris Johnson sent shares in Sberbank plunging 74% while VTB held its value following a 30% drop since January. Gazprom, the mainly state-owned Russian energy company that trades some of its shares in London, was down 30%. Rosneft, the oil major which is 20%-owned by BP, dropped 50% and Lukoil fell 43%. The Anglo-Russian miner Polymetal was the top faller on the FTSE 100, down 38%, with the Russian mining group Evraz in second place, down 30%.
A prolonged war could pile pressure on economies including the UK, with the cost-of-living crisis a particular concern.
Inflation is already at a 30-year high of 5.5% but with oil, gas and food ingredients all rising on the back of the Ukraine conflict, economic analysts are warning it could go still higher, while growth could be affected too.
Tatiana Orlova, an economist at Oxford Economics, said: “We will incorporate higher European gas, oil and food prices over the medium term in our baseline, as well as more financial market disruption and tougher EU and US sanctions on Russia. The impact of these changes on our forecast for the global economy is significant, cutting 0.2 percentage points from GDP growth in 2022 and 0.1ppts in 2023.”