Russia-Ukraine resolution prospects

Parameterising scenarios and the implications for global markets

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Executive summary │ Russia-Ukraine resolution prospects

Parameterising scenarios and the implications for global markets

Russia-Ukraine stylised scenarios

 

 

 

 

Implications of a potential peace deal on the macro and commodities complex

 

 

 

With the world’s attention laser focused on the promising US-Ukraine accord for a 30 day ceasefire proposal during deliberations in Saudi Arabia this week, we offer in this thought leadership report an examination of what a Russia-Ukraine peace deal may signal for global markets, with a focus on the implications for macro and the commodities complex as well as energy, utility and power companies.

We do not take a view on the course of the Russia-Ukraine war or if/how it may be resolved, but recognise market expectations surrounding a resolution is growing following the re-election of US President Trump.

Given the complex degree of uncertainties, we draw on scenario analysis on what may transpire:

  1. Destabilising ceasefire (base case, 60% probability). US-Russia talks yield an unstable ceasefire in Ukraine, albeit based on US-Europe collaboration, enabling a weak security guarantee for Ukraine.
  2. US wins, Russia wins, Ukraine undermined (25% probability). Ceasefire at expense of Europe/Ukraine.
  3. No deal, more escalation (15% probability). No ceasefire and the war continues.

Based on our scenario analysis, we offer an examination of what a peace deal may signal for global markets:

  1. Economic growth. Modest ~0.2% Euro Area GDP increase in our base case given fragile state of affairs.
  2. Inflation and rates. Scale of lower gas prices matters but ECB to look past any mechanical inflation drop.
  3. Trade. Energy importers with geographical proximity to the war will gain most (CEE region, Turkey).
  4. Natural gas. Most critical commodities channel – easing sanctions, higher Russian supply, lower prices.
  5. Crude oil. Limited boost to Russian supply as production constrained by OPEC+ strategy, not sanctions.
  6. Gold. Even if Russia’s bullion reserves are unfrozen, the 2022 freeze precedent has reshaped minds.
  7. Base metals. Aluminium and nickel production remained stable post-war, whilst palladium is unsanctioned.
  8. Energy companies. Russian stakes (BP – Rosneft, TotalEnergies – Novatek) gain, as does OMV, Equinor.
  9. Utilities/power companies. Generation companies and renewables underperform on low power prices.

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