On 24th February, it will be one year since Russia and Ukraine conflict began. In the past few days, there have been various reports that Russia is preparing for the next round of escalation which will start in late February. The reports also mention that as per the Ukraine government 500,000 troops that Russia is preparing to add in this round. They also said that there be more difficulties and casualties in this period as both sides got time to build up weaponry and troops.
If such a level of escalation happens then the real or financial world is not prepared to absorb the impacts of these times. This is because compared to last year difficulties in the world have increased by many folds in the last year.
Compared to last time the global interest rates are at a decade high against a year ago when the rate hike cycle did not even start for many countries. The food supply chain has been hampered since last year, and escalation would also impact the new crop supply.
Along with these issues, the most important is inflation. As escalation takes place the price of crude oil and related products will rise exponentially. But the problem gets further complicated by the price caps applied to Russian supply. This would make the supply of these products difficult as most insurers and traders will avoid it further. It would lead to further upside risk to inflation, questioning the trajectory of interest rates.
Thus, an escalation this time would lead to further problems and may make volatility along with uncertainty rise to extreme levels in the real and financial world.