Russia's invasion of Ukraine entered its second week with Russian military forces increasing attacks on the civilian areas of Ukraine's largest cities. The loss of life is a tragedy, and the displacement of more than a million people is likely to become Europe’s largest refugee crisis of the century.
The United States and its allies have imposed financial sanctions on Russia after the first incursion, with penalties increasing daily. These are intended to completely isolate Russia from the rest of the world and inflict real economic costs in an attempt to stop the invasion. The financial implications of this war are complex and may be felt globally by businesses and individuals.
While our thoughts and priorities will continue to be focused on the people and liberty at risk, we do want to share with our clients the potential impacts of the Russia-Ukraine War on you and your businesses.
IT & Cybersecurity Concerns
As the importance of cybersecurity continues to rise, so does the presence of cyberwarfare.
Hours before the invasion of Ukraine began, Microsoft found a “new round of offensive and destructive cyberattacks directed against Ukraine’s digital infrastructure.” Russia has a history of using sophisticated cyber capabilities to target critical infrastructures and remained undetected in long-term access to cloud environments. In response, Ukraine has urged hackers to target Russia.
Additional attacks and exploitations of vulnerabilities are not only likely—they’re imminent. They can compromise third-party infrastructure and software, deploying custom malware that threatens systems globally. Insurance providers are also adjusting their requirements to account for the increase in cyberattacks, and most are now requiring an annual third-party assessment from a third party. Now, more than ever, it’s imperative to make cybersecurity a part of your business strategy or risk the theft and loss of your data.
Fuel and Transportation Concerns
It's hard to predict how exactly the war will affect supply chains, but there are key areas where issues are expected. For example, Reuters reported oil prices have risen above $100 a barrel for the first time since 2014.
Other issues include key material shortages, material cost increases, production capacity impacts, demand volatility, and capacity constraints. Additionally, important logistics routes, such as flight paths from Asia across Russia and the Black Sea maritime route, will be impacted and result in delays and disruption as airspace, ports, and routes are closed and rerouted.
To prepare for disruptions, you should evaluate vulnerabilities in your supply chain. You can:
- Stay connected with your suppliers, production facilities, warehouses, and sales organization in order to avoid volatility.
- Build inventory of essential supplies that can pad your business through a few weeks or months to help prepare for temporary disruptions.
- Rely on multiple suppliers from different countries.
- Find suppliers within your own country to help lessen issues with transportation delays and shutdowns.
- Review contracts with your vendors to see if you can get more favorable payment terms to protect yourself in the case of lost revenue.
Your Investment Portfolio
The war in Ukraine caused an initial drop in market values that may have caused unease among investors. Since then, the US market has bounced back. This is due, in part, to a swift response from NATO and European nations which has helped keep things stable.
The uncertainty of conflict means there will likely be additional market volatility in the coming weeks and months. Investors might be tempted to sell or shift their investments. We advise against that. Reactionary pulls or a freeze in purchasing is more likely to hurt you than help you. The last six wars the U.S. was involved in were followed by a 10-year rise, doubling in WWII and increasing 500% during the Gulf War. Nothing is guaranteed, but historically, it pays to stay the course: continue to buy and hold index funds, don't try to predict the market, and only sell them off as part of a long-term strategy.
Rising Interest Rates
At the beginning of the year, it was reported that inflation was rising at its highest rate since 1982, which the Federal Reserve Bank labeled as “transitional.” But with the fallout of the Russia-Ukraine War, inflation is expected to continue to rise.
In the past, geopolitical events caused the Fed to cut borrowing costs. However, due to the inflation risk already present, we do not anticipate this will be the case. Bank officials have said they will remain on track to raise interest rates from near zero in a series of increases starting in March.
Companies should be preparing for an increase in rates for new lending beginning as early as the mid-March meeting. Additionally, some experts are predicting the Federal Reserve will continue to increase interest rates nominally five or more times over the course of the year.