Ukraine-Russian war on fossil fuels

As the cost of living rises and world economies head for a 2023 slowdown, Flinders University researchers are forecasting ongoing effects of the Russian-Ukraine conflict on key barometers – notably in the energy sector and global stock markets.  

While the conflict has hit much of Western Europe now struggling with the negative effects of gas supply cuts, higher power price and uncertainty on their stock markets, investors are focusing on renewable energy stocks and global energy firms with footholds in North America and elsewhere. 

Dr Jak Kakhkharov, Senior Lecturer in Finance at Flinders University.

“Renewable energy stocks have performed very well as sanctions by the West with world-leading energy exporter Russia followed its invasion of Ukraine,” says Flinders University Lecturer in Finance Dr Jak Kakhkharov, from the College of Business, Government and Law.      

“As the war drags on, we could see even more focus on the speed and amounts of funds devoted to a transition to a ‘green’ economy.  

“Unfortunately, it appears that the conflict will continue for a long time, and it is going to have long lasting disparate impact on different sectors.” 

The analysis of stock markets of different countries at the start of the military campaign shows a significant and negative impact of the war on the stock markets of Hungary, Russia, Poland, and Slovakia even before the invasion.  

Stock markets in some other countries located remotely to the conflict zone, including Australia, India, Japan, South Africa and Spain, followed in the post-invasion days. 

“This effect demonstrates that in a globalised world, none of the countries is secured against conflict fallout.  

“It appears that globalised economies turned out to be more vulnerable to this conflict, whereas markets of some NATO countries exhibited higher returns, possibly due to expectations of higher military expenditures.”  

The study so far shows that energy firms competing with Russian energy companies performed better than other energy firms. And while the sanctions have serious implications for fossil fuel stocks and international energy security, it has led Russia to divert energy exports to India and China.  

“The exporters in these countries are paying lower prices for energy imports from Russia, which may eventually strengthen their competitive position vis a vis the Western alliance that adopted the sanctions.  

“Another interesting phenomenon to observe is the differential effect of the war on various economies, with most existing research focused mainly on the economic fallout of the Second World War.  

“Eight rounds of EU sanctions, Russian demands of payments for gas in roubles, restrictions on using Russian tankers, partial military mobilisation in Russia, a price cap on maritime transport to third countries of Russian crude oil and many others, have created external shocks which are worth studying to forecast how different sectors react,” Dr Jakhkharov says.  

The International Energy Agency (IEA) this week confirmed forecasts that Russia’s invasion of Ukraine is likely to accelerate the world’s transition to greener energy from fossil fuels.

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College of Business, Government and Law Research