Global stocks tumbled and energy prices surged on Monday as attacks on Ukraine escalated and governments considered ever-tighter economic sanctions on Russia, including cutting oil imports Russian. It was Wall Street’s worst day in over a year.
The S&P 500 fell 3%, its biggest daily decline since October 2020. The Nasdaq composite fell 3.6% and is now 20% off its November peak, entering territory known on Wall Street as a bear market, indicating a serious slowdown.
Along with the shock and uncertainty of the war, the conflict heightened concerns about prolonged inflation around the world.
Russia is a major exporter of energy products, supplying 10% of world oil and 40% of European natural gas. US lawmakers pushed on Monday to ban imports of Russian energy into the United States. Calls have also been made to suspend normal trade relations with Russia and Belarus in response to the invasion of Ukraine.
Brent crude, the global benchmark, ended Monday up around 4.3% at $123.21 a barrel, but previously the price had hit $139. The price of oil has soared around 26% over the past week as the conflict escalated.
Some analysts believe Russia’s attack on Ukraine is likely to have lasting implications for commodity markets. In addition to energy, Russia is a big producer of commodities like wheat, aluminum and palladium, which is used in cars and phones – and prices for those commodities have also skyrocketed.
And, as Citigroup analysts wrote recently, this geopolitical turmoil is occurring as many countries have pledged to “undo” their energy habits involving fossil fuels in order to combat climate change.
Lawmakers’ bipartisan push to cut oil imports is adding pressure on President Biden to turn off the tap. On Sunday, Secretary of State Antony J. Blinken added to expectations during his recent tour of countries close to Ukraine that some sort of embargo was in the works.
“We are now in very active discussions with our European partners on banning the import of Russian oil into our countries while, of course, at the same time maintaining a stable global supply of oil,” Mr. Blinken on “Meet the Press” on NBC.
A sharp drop in oil and natural gas supplies from Russia would create major problems for both industrial users and consumers. Cutting Russian oil would force many refineries that normally process it to find other sources.
Although oil is a relatively flexible commodity, there are many grades of crude and a refiner cannot always substitute one for another. Washington’s sanctions on Venezuelan crude, for example, have led refiners in the United States to buy more Russian oil as a substitute, increasing import levels. On Saturday, Shell, Europe’s biggest oil company, said it had bought Russian crude oil because supplies from “alternative sources would not have arrived in time to avoid market supply disruptions”.
Investors were already worried about inflation, which was the highest in decades in the United States and Europe after the pandemic shuttered factories and left supply chains rumbling.
Economists expect the consumer price index on Thursday to show that prices in the United States rose 7.9% in the year to February. And this reading was taken before the effects of the war really started to be felt. Gasoline prices, for example, hit their highest level in the United States since 2008 on Monday: $4.06 a gallon, according to AAAup 45 cents from a week ago.
Central banks have started to take aggressive steps to raise interest rates as they shift their focus from supporting economic growth to fighting inflation. The end of easy money and the lure of higher rates – which make riskier investments less appealing – had already sent stocks plummeting even before the Russian invasion.
But the financial fallout from the war is hitting Europe the hardest. Natural gas is less flexible than oil and Europe is much more dependent on it as a fuel. Natural gas prices in Europe were already several times higher than they were a year ago and soared further, reaching 345 euros per megawatt hour on Monday before falling back to 215 euros, a gain of 11.7 %.
“It’s so expensive that you’re going to cause major losses to public services,” said Henning Gloystein, director of Eurasia Group, a political risk firm.
The Stoxx Europe 600 fell 1.1% and ended Monday down more than 15% from its January 5 high. The DAX index in Germany fell 2%, putting it in bearish territory.
“Amid severe uncertainty, European risk markets have every reason to sell,” Holger Schmieding, chief economist at German bank Berenberg, wrote in a note on Monday. But he said “a real financial crisis seems unlikely in the advanced world.”
“Fear can beget fear. But as with previous severe shocks, markets should eventually pull through the dramatic risks of short-term events,” he said.
The S&P 500 is 12.4% off its January high. The energy sector, up about 35% year-to-date, is the only part of the S&P 500 that hasn’t fallen this year. Big tech stocks, which make up a large chunk of the Nasdaq and also weigh heavily on the S&P 500, have been hit particularly hard by uncertainty about the future of U.S. interest rates.
Coral Murphy Marcos and stephen gandel contributed report.
March 7, 2022
An earlier version of this article and an accompanying alert misstated the last time the S&P 500 fell more than it did on Monday. It was October 2020, not May 2020.