A war of words between Russia and the Ukraine is now actual war and has significant ramifications on the rest of the world, including the U.S.
There are major implications for U.S. markets, Jim Wiesemeyer, Washington policy analyst for Farm Journal, told AgriTalk guest host Clinton Griffiths Thursday morning.
“As we speak, the Dow’s down 730 points,” Wiesemeyer says. “You saw crude, energy prices in Europe this morning went up a little over 40% in one day. Energy prices from an agriculture perspective across the board are up because of the significance of Russia and Ukraine in the corn and wheat export arena, and over 75% of sunflower oil trade is from that region. So, yes, we have major implications.”
Along with the Dow, the S&P 500 dropped 2.5% on Thursday morning, bringing it deeper into a market correction. The tech-heavy Nasdaq composite sank about 1.5%.
According to a Moneywatch report, oil prices jumped 7.5% on Thursday morning, topping more than $100 a barrel for the first time since 2014, on concerns that the crisis in Eastern Europe could disrupt Russian supplies of crude.
Russia accounts for about 12% of the world’s oil supply and provides about 40% of gas to the European Union. Most of that fuel is delivered through pipelines, including in Ukraine, according to Eurasia Group.
Wiesemeyer says the U.S. and its allies need to watch for whether Russian President Vladimir Putin shuts Ukraine’s ports.
“That looks like that’s what he wants to do, which will throttle Ukraine commercially but will boost agriculture markets,” he says.
Wiesemeyer says he is watching China closely to see its decision during an upcoming vote in the United Nations National Security Council. “If they vote in favor of Russia, that’s one thing. Most people expect that. But if China abstains from voting, that tells you that they’re a little more cautious on this development than most people think right now,” he says.
To counter Putin, Wiesemeyer says President Joe Biden and U.S. allies will have to go after the financial system in Russia, called SWIFT, as they develop more sanctions against Moscow for its action in Ukraine.
SWIFT is a Belgium-based messaging network widely used by banks to send and receive money transfer orders or information. The organization is overseen by central banks in the United States, Japan and Europe.
“Germany is not in favor of (going after SWIFT) at this particular time, so NATO is not in agreement,” Wiesemeyer says. “Plus, you have to go after Putin’s own money around the world along with his key oligarch officials.”
A Reuters article says data from the Bank of International Settlements (BIS) shows that European lenders hold the lion’s share of the nearly $30 billion in foreign banks’ exposure to Russia.
Wiesemeyer says to keep an eye on the price of international crude oil, sometimes referred to as Brent Crude, because that has implications globally.
“If it goes close to $120 a ton, history shows that will lead into a world recession,” he says. “We don’t need that… it will increase inflation even higher.”
Wiesemeyer adds that while the U.S. government says the country has inflation of 7.5%, that’s “laughable.”
“In agriculture, it’s in the double-digit arena already,” he says.
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