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war, what is it good for?

war, what is it good for?

stocks from certain sectors are having a positive reaction to the tensions brewing in Ukraine
February 3, 2022
5 min read
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war, what is it good for?

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there are few constants that can be traced across the entirety of human history. as unfortunate as it may be, war is among those few, and there has never been a shortage of people profiting from that ugly business. the present day economy is much too complex to attribute the rise or fall of anything directly to a single factor. however, the tensions currently brewing between Russia and Ukraine, with the involvement of the US, are having palpable effects on global markets. while most of them are negative contributing to the recent downturn, certain sectors are actually trending upwards. crude oil prices, for example, jumped ~17% in January, the highest for the month in 30 years.

what is causing these sectors to rise?

energy in focus

as suggested by the stat above, the energy sector is expected to face the biggest impact if tensions escalate. the primary factor is the fact that Russia is the world’s third largest oil producer, accounting for about 12% of the global supply. this is pretty much on par with Saudi Arabia. with Russian production already on a steady decline and major gas pipelines running close to the region of conflict, Europe is on edge regarding a potential supply squeeze and explosion in prices. 

additionally, Russia is part of the OPEC+ organisation and has a significant voice in its decisions to increase or decrease the output of crude oil. while OPEC has gradually been increasing its output since August last year, it still lags the rise in demand over that period. that demand is only expected to grow further as the world gets back running on its feet post the pandemic, and higher demand with low supply naturally leads to a rise in prices. adding to the worries is a potential escalation of conflict in the Gulf region.

spoils of war

conflict in Ukraine is also expected to see certain commodities become pricier. any escalation would affect the output of its major exports, which happen to be corn, wheat, and mainly sunflower edible oil. the last of them would have a particularly severe impact on India which is a major importer of edible oils and is already being faced with record prices. alongside the price hikes in crude oil, edible oils were a major factor in India’s import bills shooting up 63%  year-on-year to a record Rs 1.17 lakh crore during oil year 2020-21 (November-October).

the last but by no means the least sector that’s seeing a speculative rise is defence, as one might expect with a war looming. this is particularly seen in the US, the world’s largest military spender and exporter, and here are some stocks that might be worth your attention.

one can only hope that the current buildup of military along the Russian-Ukraine border turns out to be simply posturing and not much beyond. however, if it doesn’t, it’s good to be aware of its impact on the global market dynamics.