A Russian invasion of Ukraine could send shockwaves through financial

The highly unpredictable nature of Russia’s threat against Ukraine has rippled across financial markets without much impact on stocks. But if Russia were to move its troops across the border, it could cause a major risk-off event — sending equities lower and commodity prices even higher.

The U.S. plans on stinging sanctions if Russia moves into Ukraine. Russia, which says it has no intention to invade, could inflict pain on the rest of the world through its strong hold on some key commodities.

For now, the markets are not pricing any such calamity, but oil prices would spike and European gas prices could surge even more than they already have if Russian troops enter Ukraine. Oil and some other commodity prices have already built in some premium, and Russian assets have been hit.

If there were an invasion, the dollar could strengthen, U.S. bond yields would likely move lower and commodities — including wheat and palladium — would rally.

“There’s another round of U.S.-Russian talks. As long as talks are going on, it’s hard to imagine Russia would go to war,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. He noted that the Russian ruble, off 2.2% for the year, outperformed other emerging market currencies in the past five days with a 4.1% gain.

“Because they’re still talking, the market knows it doesn’t have to worry about it right now,” Chandler said. “Markets aren’t as concerned about it as maybe as much as the politicians.”

High stakes

However, RBC head of global commodities strategy Helima Croft said the odds of an invasion may be higher than some in the markets expect. “Even if it’s at 50%, that is a really high risk, given the stakes involved,” she said.

Some analysts believe Russia will choose not to invade and instead cause other problems for Ukraine, like cyber warfare or other economic disruptions. But if Russia does invade, the U.S. and the U.K. have promised swift retaliation in the form of economic sanctions on President Vladimir Putin, Russian oligarchs and other individuals, its financial system and industries.

“What I do know is if those tanks cross the border, oil will go above $100 dollars a barrel,” Croft said. “We’ll certainly feel it on the European gas market. We’ll feel it on the wheat market. We’ll feel it across a variety of markets. Russia is not a one-trick pony.”

Croft said Russia is the world’s largest wheat exporter, and together with Ukraine, they account for roughly 29% of the global wheat export market.

“They’re not just a gas station. They’re a commodity superstore. They’re a massive metal producer. Where we think it gets painful is food and energy prices,” Croft said, adding that it would cause more inflation in an already inflationary environment.

“If they stop…