The continuous hostilities between Russia and Ukraine have had an impact on global diplomacy, economy, politics, and almost every other aspect of life. The Russia-Ukraine saga took another turn on Monday (February 21) when Russian President Vladimir Putin recognized Donetsk and Luhansk as separate areas of eastern Ukraine. Putin then ordered the deployment of troops in these breakaway areas.
The Donbass area consists of two breakaway territories, Donetsk and Luhansk, which declared themselves independent “people’s republics” in 2014 after breaking away from Ukrainian government control. These areas were unrecognized until Putin remarked on the subject on Monday. Russia has also signed two identical friendship treaties, giving it the right to build bases in separatist territories, and they can do the same in Russia, on paper.
Will, there be more Cyberattacks on Ukraine?
Authorities in Ukraine say they’ve seen internet indications that hackers are planning big cyberattacks against government organizations, banks, and the defense sector. On a hacking forum, the Ukrainian government-run cybersecurity service CERT-UA discovered warnings about prospective cyberattacks.
“The lease of servers to prepare further attacks on the websites of the public sector, the banking sector, and the defense sector,” stated one message. These apprehensions are well-founded, as Russia is suspected of being behind an attack that hit the defense ministry portal and interrupted banking and terminal services at large state-owned portals.
Impact on the Economy and Market
Since the Russia-Ukraine situation deteriorated and the Biden administration put sanctions on Ukraine’s newly recognized breakaway regions, markets have been on pins and needles, both locally and globally. Although the trend in Indian markets is optimistic, Tradingo Founder Parth Niyati believes that due to the crisis, there will be a lot of volatility in the coming month. Investors are looking for safe havens in overseas markets, while global stocks have fallen and oil prices have risen as a result of the Ukraine crisis.
Indian Markets: According to Parth Niyati of Tradingo, the general trend is optimistic, but there may be considerable volatility over the next month, so short-term traders should be cautious, while long-term investors should take advantage of this correction. “We are very bullish on capital goods, infrastructure, real estate, banking, consumer goods, and auto ancillaries space therefore we advise investors to look for buying opportunities in these areas,” he added.
Global Markets: “We are much closer to military intervention,” says Carlos Casanova, senior Asia economist at UBP. “which of course is going to drive a lot of the risk off sentiment in the markets.”
He went on to say that the global markets’ short-term volatility was caused by both geopolitical issues and the US Federal Reserve’s “relentless” policy. He also predicted that this would result in greater oil prices, equity sell-offs, and investors flocking to safe-haven assets like the Japanese yen. According to a recent note from Goldman Sachs, if a war between Russia and Ukraine breaks out, risk premia might rise even more across all sectors. It went on to say that its estimates of how much the world markets will fall are based on the rouble’s depreciation.
In a note, analysts Dominic Wilson, Ian Tomb, and Kamakshya Trivedi said, “On that basis, the rouble is still more than 10 percent away from its maximum underevaluation level of the past two decades.”
Will the Oil Prices Increase?
An increase in hostilities near the Russia-Ukraine border, according to Moody’s, is expected to push oil prices much higher than they are already. The research group also believes that the current surge in oil prices would be short-lived “because of economies’ limited ability to absorb higher oil costs and continue growing.”
According to the research group, persistently high oil prices can hinder economic growth and accelerate the shift to other energy sources, causing oil prices to finally fall back into the reinvestment range. It further states, “Geopolitical developments that aggravate supply uncertainty boost oil prices. At around $90/bbl, the oil price already reflects lingering uncertainty about the outcome of US-Iran negotiations, rising risks in the Middle East, and tensions on the Ukraine-Russia border.”
Impact on Investors and Markets
In response to increased crude prices, investor sentiment has taken a hit in recent days. Between January and February, foreign portfolio investors turned net sellers, withdrawing a net of Rs 51,703 crore from Indian shares, causing equity markets to fall and become more volatile.
From $73.8 per barrel on January 12 to $74.84 on Tuesday, the rupee has lost nearly 1.4 percent against the dollar.
Markets are expected to remain turbulent in the short term due to geopolitical concerns, according to fund managers.