Can Your Portfolio Survive the Russia-Ukraine War?

Russia-Ukraine war sparks market uncertainty

 

Introduction:

The Russia-Ukraine war, entering its third year, continues to have far-reaching effects beyond the battlefield. The conflict has transformed into a dynamic geopolitical struggle that now significantly impacts energy markets, global supply chains, defense spending, and international diplomacy. As of June 2, 2025, a new escalation — Ukraine’s massive drone strike on Russian airbases — has added renewed volatility to global markets. This article evaluates the consequences of the ongoing conflict on the global economy, with a specific focus on the United States and India.

Current Developments: June 2025

Ukraine launched a large-scale drone operation known as “Operation Spider’s Web” on June 1, targeting five Russian airbases, including those deep in Siberia and the Arctic. Over 117 FPV drones were used, resulting in the destruction or damage of more than 40 Russian aircraft, including Tu-95 bombers and A-50 surveillance planes. Ukrainian officials estimate total damages at $7 billion.

Despite this escalation, Ukraine confirmed participation in peace talks in Istanbul on June 2, aiming for a ceasefire, prisoner exchange, and return of abducted children. The proposed roadmap includes a 30-day ceasefire followed by a summit between President Zelensky and President Putin.

Meanwhile, active military operations continue in Ukraine’s Sumy and Kharkiv regions. Russia has recaptured multiple settlements in Kharkiv, and over 56,000 civilians have been evacuated from contested areas in Sumy Oblast.

Global Economic Impact:

Energy Market Volatility

Russia remains a key global energy supplier. Attacks on its airbases and infrastructure can cause oil and gas prices to spike. Markets are pricing in risk premiums due to fears of supply disruption. A potential surge in crude oil prices beyond $90 per barrel is possible in the short term, increasing costs for importing nations.

Food Security Challenges: Ukraine, a major exporter of wheat and corn, is struggling to maintain agricultural output amid conflict. Supply constraints could trigger food inflation, particularly in regions heavily reliant on Ukrainian grain, such as parts of Africa, the Middle East, and South Asia.

Geopolitical Risk Premium: The sustained conflict contributes to global financial market instability. Investors tend to shift toward safe-haven assets like the US dollar, gold, and government bonds. Emerging markets may face capital outflows and currency depreciation.

Impact on the United States:

• Defense Sector Gains: Increased military support for Ukraine benefits U.S. defense contractors through new contracts and funding.

• Inflationary Concerns: Energy price increases may put pressure on inflation and delay expected rate cuts from the Federal Reserve.

• Market Volatility: U.S. stock markets, especially sectors tied to energy, defense, and agriculture, may see heightened short-term volatility.

• Consumer Sentiment: Prolonged geopolitical tension may dampen consumer confidence, though the domestic economy remains relatively resilient.

Impact on India:

• Crude Oil Dependency: India imports more than 80% of its oil. Rising crude prices could worsen the fiscal deficit, increase the current account deficit, and put downward pressure on the rupee.

• Agriculture and Fertilizers: Disruptions in Russian fertilizer exports could impact crop yields, leading to food inflation.

• Currency and Capital Markets: A risk-off global sentiment may lead foreign institutional investors to withdraw from Indian equity and bond markets.

• Strategic Adjustments: India is likely to strengthen trade ties with Russia to stabilize imports and may accelerate self-reliance in energy and defense sectors.

Sectoral Impact Analysis: Before and During Russia-Ukraine War:

Sector impact before vs during Russia-Ukraine war

Peace Talks and Ceasefire Roadmap Analysis:

Key peace talks and ceasefire timeline

Sector Impact Visualization: Pre-War vs Wartime:

Sectoral performance illustration: Pre-war vs during war

Graph Explanation: Sectoral Impact of the Russia-Ukraine War:

The graph above compares six major global sectors — Energy, Agriculture, Defense, Shipping/Logistics, Financial Markets, and Fertilizers — by their relative performance and stability before and during the Russia-Ukraine war, on a scale of 1 (poor) to 5 (strong).

• Energy and Shipping/Logistics sectors, which were relatively stable pre-2022, have suffered disruptions due to sanctions, supply bottlenecks, and infrastructure attacks.

• Agriculture and Fertilizers saw a significant drop in performance, largely due to the reduced export capacity from Ukraine and Russia, both of which are key players in global grain and fertilizer markets.

• Financial Markets moved from stable, low-volatility conditions to a high-risk environment, especially for emerging markets, due to global uncertainty and capital flight.

• Defense is the only sector that has shown marked improvement, driven by increased military spending and demand for defense technology globally.

Pros and Cons:

Pros:

• U.S. and Indian defense sectors may receive a boost from increased government spending.

• Opportunities for energy exporters to gain market share in a constrained supply environment.

• Acceleration of diversification in trade and supply chains, benefiting strategic partners.

Cons:

• Persistent inflation risks across food and energy sectors.

• Capital market instability, particularly in emerging economies.

• Strained fiscal positions in oil-importing countries like India.

• Prolonged humanitarian and geopolitical crises with global repercussions.

Retail and Institutional Market Sentiments:

Retail investors remain cautious, often rotating into safer assets or holding cash positions due to the uncertainty. Institutional investors are focusing on sectors poised to benefit from defense spending and energy price surges while hedging risk in emerging markets. There’s a clear preference for U.S. equities with global exposure and assets in defensive sectors.

My Personal Opinion:

Given the scale and persistence of the conflict, it’s clear that the Russia-Ukraine war will remain a major overhang on global economic stability. While certain sectors may profit in the short term, the broader economic landscape suffers from a lack of predictability, rising input costs, and policy shifts. The world is likely to see an extended period of geopolitical risk pricing, which will reshape investment strategies and national policies.

Final Verdict:

The Russia-Ukraine war has transformed from a regional crisis into a prolonged global disruption. Its effects permeate through the energy and food markets, defense policies, and investor behavior across continents. For economies like the U.S., the balance lies between geopolitical influence and inflation management. For India, the key challenge will be to mitigate import-related vulnerabilities while leveraging strategic autonomy. Global coordination and successful peace talks are essential not just for geopolitical stability, but also for restoring global economic equilibrium in 2025 and beyond.