Oil prices near $100 a barrel and stocks sink as Ukraine crisis deepens
Oil prices surged nearly 5% and stock prices dropped Tuesday after Russian President Vladimir Putin recognized the independence of rebel-held regions of Ukraine, raising fears that a full-scale invasion was near.
Russia is a major energy producer and the tensions over Ukraine have brought wide swings in volatile energy prices — on top of the inevitable risks of a broader conflict which would pull down economic activity across Europe and globally.
Oil prices had already risen to their highest level since 2014. By early Tuesday, the advance of U.S. benchmark crude oil had abated slightly. It was up about $3, or 3.5%, to about $94 per barrel in electronic trading on the New York Mercantile Exchange. The price of Brent crude, the standard for international oils, gained about $4.50, or nearly 5%, to hit about $98 per barrel.
Markets in Europe, Asia and the Americas shuddered as Putin moved to secure Russia's hold on Ukraine's rebel regions, adding to fears of a full-scale invasion. Those actions have undermined hopes for averting a conflict that could cause massive casualties, energy shortages on the European continent and economic chaos around the globe.
The U.S. and European Union condemned Russia and prepared to hit back with sanctions. On Tuesday, Germany suspended the approval process for the Nord Stream 2 pipeline that would bring Russian natural gas to Europe.
Western powers have feared Russia might use skirmishes in Ukraine's eastern regions as a pretext for an attack on the former Soviet state, which has defied Moscow's attempts to pull it back into its orbit.
Putin on Monday claimed that Ukraine's modern borders were put into being by the USSR and said that Russian troops in Luhansk and Donetsk were necessary to protect the rights of Russian-speaking people in the region. Putin received no support for his actions from members of the U.N. Security Council at an emergency meeting Monday night.
Stock markets jittery
U.S. stock markets, which were closed Monday for Presidents' Day, had capped a week of volatile trading with a broad sell-off on Friday, in which the Dow and the S&P 500 both slipped 0.7%. The tech-heavy Nasdaq composite bore the brunt of the selling last Friday, skidding 1.2%.
Come Tuesday, stocks fell even further on the escalating international tensions, with the Dow off nearly 700 points, or about 2%, to 33,385 at 2 p.m. ET, the S&P 500 down 1.8% and the Nasdaq down 2%.
Tuesday's biggest losses have been in Russia, where the MOEX index was down 5% after losing nearly 11% on Monday. The ruble was 2.5% lower.
"The current situation is tightening financial conditions for Russian companies, destabilizing markets and reducing business predictability," Elena Nazarova of FxPro said in a commentary.
But Britain's FTSE 100 was up about 0.35%, while Germany's DAX rose slightly and the CAC 40 in Paris was flat.
In Asia, Tokyo's Nikkei 225 index dropped 1.7%, while the Hang Seng in Hong Kong regained some lost ground to close 2.7% lower. South Korea's Kospi lost 1.4% and the Shanghai Composite index fell 1%. Australia's S&P/ASX 200 lost 1%.
The turmoil in Ukraine has upped uncertainty at a time when investors already are nervous over how the world's central banks, especially the U.S. Federal Reserve, will act to counter surging inflation while coronavirus outbreaks fueled by the highly contagious omicron variant cloud the outlook for many countries.
"Indeed, a full-scale invasion of Ukraine by Russia will leave many central banks with itchy hiking trigger fingers in a quandary," Jeffrey Halley of Oanda said in a report.
Energy prices surge
Higher oil prices complicate the already-jittery situation. Russia produces about 12% of the world's crude oil, and any disruption would reverberate globally. Many Asian economies depend on oil and gas imports, and even if those don't come from Russia, the spillover effects on will raise energy costs at a time when countries are still barely recovering from the pandemic.
"Crucially, while Russia may not be the most prominent source of direct energy imports for (emerging markets in) Asia, its sheer heft as a global producer/exporter means energy shocks emanating from Russian supply disruptions will nevertheless be disproportionally large," Mizuho Bank's Vishnu Varathan said in a report.
"So Ukraine risks are consequential one way or another," he said.
Gas prices in the U.S. have already moved higher, with the average price at the pump at its highest level since 2014 and diesel prices above $5 a gallon in many parts of California.
Russia also exports coal to India and Vietnam and is the fourth largest supplier of oil to South Korea, Varathan said.
On other fronts, Treasury yields have been falling recently as investors shift money into the safety of U.S. bonds. But the yield on the 10-year Treasury, which affects rates on mortgages and other consumer loans, rose to 1.94% Tuesday from 1.92% late Friday. U.S. bond markets also were closed Monday for the Presidents Day holiday.
