LONDON — The recent ratcheting up of tensions between Russia and Ukraine could spillover into the European economy, but may also present a buying opportunity, strategists have suggested.

NATO and the West have reacted furiously to the massive Russian buildup at Ukraine’s border, despite Moscow repeatedly denying any intention of invading its neighbour.

Boris Johnson was the guest of honor at Tuesday’s press conference. Ukrainian President Volodymyr Zelenskyy warnedA conflict that reaches beyond two nations would be considered a war and “full-scale warfare.”

On Monday, a research note said that Goldman SachsSven Jari Stehn is the chief European economist. He suggested that the European economy could be affected by a drop in trade, tighter credit conditions, and reduced gas supplies.

Goldman Sachs expects no significant effect on trade, given the relatively low euro area export exposure to Russia/Ukraine. Stehn noted, “while tighter financial terms could have notable impacts on European growth in principle,” that the euro area’s financial conditions had not changed meaningfully during previous episodes of Russia-Ukraine tensions.

“The Euro area’s low cross-border exposure to Russia, Ukraine and other countries is one reason why there are so few financial spillovers,” he said.

The Wall Street titan believes spillovers from the gas market should be the best thing to monitor.

Stehn stated that while higher wholesale prices would probably have a limited effect on consumers, it is possible to mitigate the impact of lower wholesale-to-retail gas prices and government support programs. However, reduced gas supplies could lead to significant production disruptions in Europe.

Russia is Europe’s biggest gas supplier, typically providing 30-40% of Europe’s demand for gas via its pipelines. However, the euro zone has begun to shift consumption away from Russian pipe and towards liquified natural gases (LNG). Goldman strategists pointed out that Russian gas from Ukraine has been decreasing in recent decades.

Stehn stated that there was a risk of sanctions against Russia’s Nord Stream 2 pipeline (NS2), which could lead to cuts in flows to Europe. This would likely increase the tightness on European gas markets, as our commodity strategists anticipate through 2025.

Stehn explained that, “Taken together our analysis suggests that the growth risk from Russia-Ukraine conflict looks manageable except for an increase in tensions and/or sharply tighter economic conditions across Europe,” Stehn added.

‘Buying opportunities’

Oxford Economics strategists echoed the positive medium-term outlook last week, while avoiding any sudden escalations. They stated that the “buying opportunity”, according to the balance of probabilities, is for assets in affected regions and worldwide.

But they warned that Russia’s next incursion outside of Crimea would have significant impacts on volatility and asset values in the short term.

Oxford Economics predicts that the Russian ruble will weaken in the worst case scenario. This would test its high of $83 against the U.S. Dollar for 2015. Russian stocks also would suffer.

Euro zone equity would see a modest downturn in this scenario, as rising gas prices will impact growth and reduce profit margins. The strategists said that investors looking to protect themselves against the risk could find some shelter in the Energy sector.

In the case of a diplomatic resolution, Oxford Economics believes that markets will calm down and Nord Stream 2 will be approved. Asset prices should rebound given Russia’s strong fundamentals.

The firm believes that the U.S. will respond with “biting” sanctions in case of an incursion. However, as the EU is occupied by internal divisions and the U.S. has no choice but to use mild sanctions like a ban or targeting Russian banks.

The ruble would then be at 83 against the US dollar. At that point, it could be “easily on a trajectory towards 100,” especially if there was a decisive breach,” research notes added.

All three scenarios are more benign and would have little impact on stocks. It is a bit like the Crimean crisis of 2014 when Russian markets were affected but the spillovers to the Euro zone were minimal. The bloc also performed well for six months than the global index.