By Karin Strohecker

LONDON, (Reuters) – A possible invasion by Russia of Ukraine would affect a variety of markets. These markets include energy and wheat prices as well as the sovereign dollars bonds of the region. Stock markets and safe-haven assets are also affected.

These five charts show the potential for tensions to escalate on global markets.

1. SAFE HAVENS

The combination of inflation reaching multi-decade levels and impending interest rate hikes made this a poor month for bond markets. U.S. 10 year rates remain close to the key 2 % level, and German yields are above 0%. This is the first time in 2019 that the 10-year German yields have risen over 0%.

However, a conflict between Russia and Ukraine could alter that.

Investors tend to rush back to bonds when they experience major risks. This time, however, may be no different. A Russian invasion of Ukraine could further increase oil prices and inflation.

Forex markets consider the euro/Swiss Frank exchange rate the largest indicator of geopolitical danger in the Euro zone. The Swiss currency is long been considered by investors to be a secure haven. Although it reached its highest levels since May 2015, some of this was caused by a large sell-off on Wall Street.

The two-month peak in gold, which is also considered a refuge during times of economic conflict, remains.

GRAPHIC: ‘Safe Haven’ Prices as Ukraine Tensions Increase

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2/ GRAINS & WHEAT

The disruption of grain flow from the Black Sea area is expected to cause a significant impact on the prices of grains and fuel food inflation. This comes at a time where affordability has become a concern due to the COVID-19 epidemic.

The four largest exporters, Ukraine, Russia and Kazakhstan, ship grain out of ports on the Black Sea. They could be affected by any sanctions or military actions.

International Grains Council data shows that Ukraine could be the third biggest exporter and fourth largest consumer of corn worldwide in the next 2021/22 season. Russia is the largest exporter of wheat worldwide.

UBS strategist Dominic Schnider stated that “Geopolitical risk have increased in recent months within the Black Sea Region, which could impact wheat prices in future.”

GRAPHIC – Soaring food prices fuel inflation pressures

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3 – NATURAL OILS AND GAS

Tensions that turn into conflicts could have a devastating impact on the energy markets. Europe depends on Russia to supply around 35% its energy, most of which is via pipelines crossing Belarus and Poland into Germany. Nord Stream 1 also crosses Ukraine and goes directly to Germany.

The volumes of European gas shipped from Russia to Europe declined in 2020 due to lockdowns that suppressed demand. They did not fully recover last year, when prices rose to new records.

Germany said that it might stop the Nord Stream 2 Russian gas pipeline as part of potential sanctions in case Russia invades Ukraine. This pipeline will increase Europe’s gas imports, but it also highlights Germany’s dependence on Moscow.

Bjarne Schildrop, SEB commodities analyst said the markets expected natural gas exports of Russia from Western Europe through Ukraine or Belarus to fall significantly in case sanctions occur and that gas prices would be reassessed at Q4.

The disruption or curbing of oil markets may also affect them. Ukraine exports Russian oil to Slovakia and Hungary. Ukraine’s transit of Russian crude for export to the bloc was 11.9 million metric tonnes in 2021, down from 12.3 million metric tonnes in 2020, S&P Global (NYSE:) Platts said in a note.

JPMorgan (NYSE) stated that tensions could lead to a “material rise” in oil prices. They noted that a $150 a barrel increase would decrease global GDP growth by 0.9% annually in the first half, and more than double inflation to 7.2%.

GRAPHIC- European gas prices reached record highs December

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4/COMPANY XPOSURE

A Russian invasion could have serious consequences for listed western companies. However, any loss in revenues or profits to energy companies might be partially offset by an increase in oil prices.

BP, the British oil company (NYSE:), owns a 19.75% share in Rosneft. This makes up a third its production and has a variety of joint ventures.

Shell (LON.) currently holds a 27.5% share in Russia’s Sakhalin 2 LNG plant. Sakhalin 2 accounts for one third of Russia’s LNG exports. Shell also participates in joint ventures and partnerships with Gazprom, the state-owned energy company Gazprom.

Exxon, the U.S.-based energy company (NYSE:), operates via a subsidiary called Sakhalin-1. In which India’s State-run Oil and Natural Gas Corp holds a share. Equinor, a Norwegian company is active in the country.

According to JPMorgan calculations, Europe is the most risky region in the financial industry.

Austria’s Raiffeisen Bank International took 39% from the Russian affiliate, Hungary’s OTP, UniCredit around 77% and Societe Generale about 6% from theirs. Societe Generale was able to generate 6% from group net profits via its Rosbank retail branches. JPMorgan figures showed that ING is also a Dutch financial institution with a Russian presence, but it contributes less than 1% to net profit.

With loan exposures to Russia at $24.2 Billion and $17.2 Billion, the French and Austrian banking institutions have the highest Western lending rates. Data from the Bank for International Settlements shows that they are closely followed by U.S. banks with $16 billion, Japanese lenders at $9.6 trillion, and German banks with $8.8 billion.

There are also exposure opportunities in other industries. Germany’s Metro AG has 93 Russian-language stores, which generate less than 10% of the company’s sales and just 17% of its core profits. Danish brewery Carlsberg (OTC) is home to Baltika in Russia. This brewer holds almost 40% of Russia’s market.

GRAPHIC – Banks with Russia exposure

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5/ REGIONAL DOLLARS BONDS AND CURRENCIES

Any market fallout due to potential military action will see the Ukrainian and Russian assets at the forefront.

In recent months, the dollar bonds of both countries have performed below their peers as investors reduced exposure due to rising tensions between Washington and Moscow.

Ukraine’s fixed-income markets are principally the responsibility of emerging markets investors. Russia’s total standing on capital market has been declining in recent years because of sanctions and geopolitical tensions. However, this helps to mitigate contagion risks through these channels.

However, Russia’s ruble and Ukraine’s Hryvnia both suffered. They are now the most underperforming emerging market currencies this year.

Chris Turner, global head markets for ING, stated that the situation at Ukraine’s border with Russia presents significant uncertainties to foreign currency markets.

Turner said that “the events of late 2014 recall the liquidity gaps, U.S. dollars hoarding, that caused a substantial fall in the ruble at that time,”

GRAPHIC — Russia bonds plummet as Ukraine tensions rise

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(Reporting, graphics and editing by Karin Strohecker. Sujata Rao. Saikat Chatterjee. Marc Jones. Marc Jones. Nigel Hunt. Susanna Twidale. Writing by Karin Strohecker. Editing by Alison Williams. Catherine Evans.