One year since the start of the Ukraine conflict – how the world's changed and what it means for investors

It’s been a year since Russian forces invaded Ukraine and as the war now enters its second year, there’s still no end in sight.

Above all, the conflict has sadly had a devastating human impact, displacing millions of Ukrainians and threatening the country’s independence. Our thoughts are first and foremost with Ukrainians everywhere, and we continue to hope for an end to this terrible war.

The war in Ukraine has created a level of geopolitical tension not seen since the Cuban missile crisis in 1962 and this has had a major impact on the global economy and policy making.

It’s also had a big impact on international relations, with Sweden and Finland formally applying for NATO membership.

With hopes of a resolution dwindling, it’s likely the conflict will keep having an impact on the global economy for a while yet. Here’s a closer look at five ways it’s been impacted so far and what the future could hold.

This content isn’t personal advice, if you’re not sure what’s right for you, ask for financial advice. All investments fall as well as rise in value, so you could get back less than you invest.

Kathleen Brooks is Founder of Minerva Analysis, a market analysis company. Hargreaves Lansdown may not share the views of the author.

1. The global transition to net zero

Four months before the Russian invasion of Ukraine, Glasgow hosted the COP26 UN Climate Conference. The key agreements reached at this conference included 190 countries agreeing to phase down coal power. This was meant to lead to a 76% decrease in planned new coal-fired power plants across the world.

However, the Russian invasion of Ukraine left some wondering if the humanitarian crisis would overshadow the climate crisis and push the cause out of the limelight.

The biggest issue is the world still relied on fossil fuels when war broke out. Since Russia is one of the world’s largest exporters of oil and natural gas, there was a panic about supply of these key commodities. Fears about demand, and sanctions on Russian exports led to eye-watering price rises for energy, and sky-high inflation across the globe.

Rather than focus on weaning countries off fossil fuels, in the US there were large releases from the Strategic Petroleum Reserve. Liquid natural gas (LNG) shipments also surged as Europe and Japan tried to get access to natural gas without having to use Russian supplies.

In Asia and parts of Europe, some countries resorted to using more coal as a cost-effective way to produce energy. Global greenhouse gas emissions in 2022 were 58 gigatonnes, the largest level ever recorded – a big blow for progress towards net zero.

However, in the long term there’s hope.

The production of green energy sources and electric vehicles has received a welcome boost in the last year. This was thanks to supply chain issues easing and helping increase the supply of semi-conductors. The price of cobalt, a key input for electric vehicle batteries, has also slumped – another positive.

Looking ahead, two factors are important to make sure the transition to net zero can get back on track.

First, the conflict between Russia and Ukraine doesn’t spread, which could further derail global efforts to reach climate targets. And second, public opinion needs to remain in favour of the green transition.

2. Geopolitics – a growing west and east divide?

When Moscow ordered the invasion of Ukraine, international relations shifted dramatically.

The US President made an unplanned visit to Kyiv on 20 February to mark the grim anniversary and pledged to support Ukraine until the end of the conflict. This sends a clear message to Moscow that the west, led by the US, will continue to support Ukraine.

In contrast, China has been keen not to directly support Russia, however its top diplomat visited Moscow in the days after President Biden’s Kyiv trip, to discuss the war in Ukraine.

With the west favouring Ukraine, and China seemingly closer to Moscow during this conflict, the war’s highlighted the strategic rivalry between the US and China. This could well impact diplomatic relations between the two superpowers down the line, opening the doors for more market ups and downs.

3. The resilience of the UK's biggest companies

The past year has shown that the economy and geopolitics aren’t directly reflected in the performance of financial markets.

The index of the UK’s biggest companies proved resilient in 2022 to the prospect of rising interest rates – it prospered from its heavy weighting of energy and defence companies. In contrast, the index of US technology companies fell more than 20% in 2022.

UK large companies versus US technology companies

Past performance isn’t a guide to the future. Source: Bloomberg, 30/12/2022.

This underscores one of the most important lessons in investment – staying invested. Investing for the long term means maintaining a constant vision of our long-term goals and regularly reviewing investments to make sure they continue to meet needs, when events are placed in our paths.

4. The thorny issue of energy security

The war in Ukraine has highlighted a new supply chain crisis – the importance of maintaining energy supply and investing in energy storage.

Europe was the most exposed when it came to energy supplies from Russia. However, dire predictions about an energy crisis in Europe this winter didn’t come to pass. While it was helped by a warmer than average winter, it was mainly because of Europe’s superior natural gas storage capacity.

In Europe, gas storage capacity is about 25% of annual consumption, compared with less than 1% for the UK. This hasn’t helped UK inflation and it’s still above European levels. Energy prices are a key part of headline inflation and more volatile energy prices in the UK compared to Europe have therefore pushed prices up.

This is a stark reminder as to the importance of having a good energy mix and has highlighted the vulnerabilities inherent within economies that rely heavily on energy imports.

5. A new trading environment

The last year’s shown how we’ve shifted to a less stable geopolitical and economic environment. Economies must adjust, but so should companies and investors.

Corporate resilience has been a key takeaway from the last 12 months and will continue to be well into the future. As investors ride the wave of a more volatile era, corporates and markets might be able to do the heavy lifting.