With the battle for Ukraine looking increasingly like being a long drawn out and bloody affair, it is worth reflecting on the likely consequences for the rest of the world. I have already mentioned the effect the rise in oil and gas prices will have, with higher transport costs adding to the price of a whole range of goods. Wheat has also moved higher as a consequence of likely disruption to supplies from Ukraine, known as the bread basket of Europe. But we are also seeing fertiliser costs on the up which will affect a whole raft of food products.
Fertiliser production depends on phosphates, of which Russia is a major supplier. Nickel is also an important commodity there and the price of this mineral more than doubled at one stage, demonstrating fears that supply could be disrupted here too. Used as an alloy in metals such as stainless steel, nickel is important in limiting corrosion and raising the ability to withstand high temperatures, so is used extensively in many crucial industries.
Until the start of the Russian invasion, markets had held up remarkably well, despite the lurking risk of conflict in Europe. Understandably, investors took fright at this escalation on the very borders of the European Union. Even more dramatic was the effect hostilities had on commodity prices. As if the rise in energy costs already in the pipeline was not enough, oil and gas prices took off, promising more pain for consumers in the weeks and months ahead.
As for shares, the biggest losers have been those Russian companies that have had to contend with the collapse in their currency, along with a wholesale dumping of their stock. Our domestic market has taken a hit, but nothing like as bad as it could have been, given the downgrading of economic forecasts currently taking place. Having moved within a whisker of 7500, our benchmark FTSE 100 Share Index plunged below 7000, but at this level bargain hunters emerged.
With so much uncertainty as a consequence of the invasion, it is hard to predict what the likely outcomes will be. Inflation, already at a multi-decade high, will undoubtedly receive another boost. Consumers will be forced to tighten their belts and economic growth slow as a result. The financial pain will never be as great as the human suffering presently being endured, so we must hope for an early end to this conflict.