Risk sensitivity and the economic crisis… Russia's attack on Ukraine resonates all over the world with the shocking images of the most serious war in Europe since 1945. The Ukrainian crisis will inevitably dominate the markets with the new movements opened by Russia's operation. After a week of high risk sentiment surrounding the Russia-Ukraine crisis, it will allow Central banks to assess economic trends along with the geopolitical realities stemming from the Ukraine conflict. However, persistent supply constraints, both in terms of raw material supply problems and labor shortages, have not only curtailed manufacturing output but also led to upward price pressures exacerbated by rising energy prices.
Factors pushing policy makers… These recovery trends and rising prices therefore put more pressure on major central banks to normalize monetary policy and lower inflation expectations. However, inflation risks rose with the Ukraine crisis, while risks to the demand outlook and broader economic growth were weighed down by the conflict, meanwhile. As the war pushes commodity prices higher, especially energy (as well as possibly food in Europe), the supply disruption could worsen, especially if safety stock building rises again. While current indicators of economic activity were collected prior to Russia's invasion of Ukraine, it is clear that Omicron's impact outside the US and Europe, particularly in Asia, will be longer-lasting than its temporary effects in assessing any disruption in global supply. As Russia's military operation continues, it will be necessary to take into account the spillover effect on the economy.
Toughening sanctions… While Ukraine is fighting for survival, Western governments are tightening sanctions to punish Russia. They know that by doing so, they risk sabotaging a strong economic recovery just as Covid restrictions ease. Biden's announcement of sanctions against Russian banks and companies will make the tension more palpable in terms of economic realities and financial markets. The USA wants to cut off Russia from the global economy with the sanctions it will impose, and to force it away from the hard currency-based trade network in terms of external financial resources. Sensitivity towards not harming the energy markets continues. In this regard, active US military assistance is not an option at this stage. However, moves that will force the Russian economy and narrow its field of action will be in effect. The West will consider forcing Putin to step back and compromise. It is necessary to read the SWIFT step with these dimensions.
Conclusion? Inflation balances on energy are at a very sensitive point. For this reason, the United States is also considering selling oil from strategic reserves. In our analyzes on the subject, we have stated that if there is a constraint in Russian resources in terms of energy, Europe's bargaining power will be low against other energy providers in terms of need and unit costs will not increase only within the scope of Russian energy. This is also true for American oil companies.
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