Russian Stock Market Collapses 50%, Ruble In Free Fall: 5 Things To Know About Economic Consequences Of Ukraine War

Russian Stock Market Collapses 50%, Ruble In Free Fall: 5 Things To Know About Economic Consequences Of Ukraine War

Russian stock market

A food delivery man leaves a currency exchange office that shows exchange rates of U.S. Dollar and Euro to Russian rubles in Moscow, Feb. 24, 2022. (AP Photo/Alexander Zemlianichenko Jr)

The Russian stock market collapsed by more than 50 percent and the ruble went into freefall on Thursday, Feb. 24 after the Moscow Exchange resumed trading following a two-hour suspension. Russian President Vladimir Putin stopped trading to announce “a special military operation” against Ukraine.

Russian forces started the attack before dawn from three sides, targeting airports and military infrastructure across Ukraine. Reports of explosions and gunfire began immediately in cities across the country. The assault spread quickly across central and eastern Ukraine. Ukrainian officials said more than 40 soldiers and as many as 10 civilians had been killed, and the deputy interior minister reported “fierce fighting” at an airbase near the Ukrainian capital, CNN reported.

Putin announced that the operation was aimed at demilitarizing Ukraine. He blamed the U.S. for crossing “red lines” and said Ukraine would be responsible for any bloodshed. 

President Joe Biden described it as “an unprovoked and unjustified attack” and a “premeditated war.”

Here are five things to know about the economic consequences of the war in Ukraine.

1. Investors seek traditional safe havens as Russian stocks, ruble crash

The Russia Trading System (RTS) index crashed as much as 50.05 percent. A free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange, the RTS is calculated in US dollars. The Moscow Exchange Broad Market (MOEX) Index, which includes the top 100 shares calculated in Russian rubles and US dollars, fell 44.59 percent. The exchange’s volatility index surged as much as 35.10 percent. Often referred to as a fear gauge, volatility, or how fast prices change, is seen as a way to gauge market sentiment, especially the degree of fear among market participants.

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Global stocks and U.S. bond yields also sank. Stock market futures were down, with S&P 500 e-minis down 2.3 percent and Nasdaq futures 2.8 percent lower.

The dollar, gold and oil prices went higher as Ukraine said that Moscow had launched a full-scale invasion. Spot gold was up more than 1.7 percent to reach its highest level since early January 2021 as investors sought shelter in safe-haven assets. The U.S. dollar was up more than half a percent while the ruble sank by 9 percent to hit a record low against the dollar.

“Russia got a preview of sanctions with the stock marketing falling 50% in a day, the ruble declining by 8%, and the real threat of a global economic blockade,” tweeted entrepreneur Michael Beaton. “Hold out. Fight for your country. Russia won’t be able to hold this country. Russia is nervous.”

2. Russian banks and oil companies among the hardest hit

Russian banks and oil companies were among those hit hardest in volatile trading, with shares in Sberbank, Russia’s largest lender, losing 43 percent of their value. The share price of the Russian energy company Rosneft fell 43 percent and Gazprom, the giant gas company behind the Nord Stream 2 pipeline, was down 35 percent.

On Monday, following Russian aggression against Ukraine, Germany suspended approval certification of the Nord Stream 2, a 764-mile natural gas pipeline that was supposed to carry gas under the Baltic Sea from Russia to Germany.

3. Economic sanctions

Western countries have imposed the first round of sanctions on Russian sovereign debt, six Russian banks, and some wealthy Russians linked to Putin’s inner circle including Defense Minister Sergei Shoigu. A senior U.S. administration official described these as “only the sharp edge of the pain we can inflict,” Wall Street Journal reported.

The U.S. and its allies have promised more economic sanctions. Options include new targeting of Russian banks, energy restrictions and export controls. European Commission President Ursula von der Leyen said Thursday that the European Union plans “massive and targeted” sanctions on Russia’s financial sector, freezing Russian assets and banning technology exports to the country.

“No Russian financial institution is safe if this invasion proceeds,” a senior Biden administration official said.


4. Cutting Russia off from Swift global banking system could be the ‘nuclear option’

One measure that appears to freak out the Kremlin could be cutting Russia off from the global banking system and foreign currency. U.S. lawmakers suggested in recent weeks that Russia could be removed from Swift, the Brussels-based Society for Worldwide Interbank Financial Telecommunication — a high-security network that connects thousands of financial institutions worldwide. Senior Russian lawmakers responded by threatening to cut off shipments of oil, gas and metals to Europe if that happened.

Kicking Russia out of Swift the way Iran was kicked off is a scary prospect for many Russians and the Kremlin, and it could backfire, wrote Bloomberg Opinion Columnist Leonid Bershidsky.

It could send a shock to the global banking system and set off a chain reaction. “Russia’s expulsion would represent a huge loss to too many trading partners,” Bershidsky wrote, adding that it “is not seriously on the table. While kicking it off would indeed cause severe pain to Russians and the Russian economy in the short term, it also could be too much of a shock to a Western-led payment system that, for all of Swift’s innovative drive, is no longer best suited to the modern world’s technological capabilities and needs.”

Politico editor Kate Davidson tweeted U.S. Treasury data on new financial sanctions: “On a daily basis, Russian financial institutions conduct about $46 billion worth of foreign exchange transactions globally, 80 percent of which are in U.S. dollars. The vast majority of those transactions will now be disrupted.”

5. This is a war Russia cannot win

President Biden has ordered U.S. troops, attack aircraft and fighter jets into Eastern Europe in alliance with the North Atlantic Treaty Organization (NATO). The U.S. now has more than 90,000 troops in Europe, most, outside Eastern Europe.

“I have authorized additional movements of U.S. forces and equipment already stationed in Europe to strengthen our Baltic allies, Estonia, Latvia and Lithuania,” Biden said on Tuesday, Feb. 22 from the White House. “These are totally defensive moves on our part. We have no intention of fighting Russia. We want to send an unmistakable message that the United States together with our allies will defend every inch of NATO territory and abide by the commitments we made to NATO.”

This is just the beginning of a military campaign that could become the largest conflict on the European continent since World War II, U.S. and European leaders said. The U.S. and Russia command the world’s two largest nuclear arsenals.

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Poland could have tens of thousands of Ukrainians crossing over its borders, U.S. Defense Secretary Lloyd J. Austin said Friday, Feb. 18 in Warsaw.

Putin is starting a war that Russia cannot win, the Russian people don’t want it and they will pay for it, wrote Bloomberg opinion columnist Clara Ferreira Marques. “It is also a point of no return for Russia’s leader, and one with lasting consequences for the world,” she wrote. She accused Putin of “Hubris, paranoia, military adventurism — a heady combination, and one that has been fatal for dictators and their regimes.”

Marques predicted that increased repression for Russians at home is the most likely consequence of Putin’s show of force abroad.

“Yes, Moscow has built up central bank reserves and a war chest, but this is a country whose economy is stagnating, and one that’s already struggling to deal with a health crisis as Covid-19 races through an under-vaccinated population,” she wrote. “The West must now dramatically ramp up sanctions, reaching far beyond individuals into Russia’s state banks and more — even if few options now come without a cost for Europe and the rest of the world. Vladimir Putin has already begun the war no one but Kremlin hawks wanted. Now only the toughest measures can hold him back.”

Photo: A food delivery man leaves an exchange office with screen showing the currency exchange rates of U.S. Dollar and Euro to Russian Rubles in Moscow, Russia, Thursday, Feb. 24, 2022. The Russian ruble nosedived at the news of the Russian attack on Ukraine, although it has recovered some of the losses thanks to a massive intervention by the country’s Central Bank. (AP Photo/Alexander Zemlianichenko Jr)