How the Russian Tension Will Affect Your Finances!

As humans, even the most informed, trained, and level-headed individuals can respond out of emotion and fear to impending threats. The most recent example of this is the Russian invasion of Ukraine and the geopolitical, economic, and social impact it is causing.

Let me preface this by stating that my thoughts and prayers go out to the individuals and families impacted by this invasion.

Instead of discussing the conflict itself, how it started, what may escalate it, or what will potentially end it, I thought we instead would focus on what we can learn amid this conflict.

Conflict is a part of life. Of course, we hope that we will not have to face it, but sometimes conflict comes in different and expected ways. Therefore, it\’s inevitable for us to face it and learn how to navigate it.

You may have heard it said before that life is less about what happens to you and more about how you respond to it.

Our response is a choice that all of us have to make. We react based on different thoughts and ideologies ingrained in us or what we watch. Although we often have an immediate response, we are surprisingly resilient in the face of adversity or challenge. We have faced several conflicts and threats in recent years, and often it can seem a bit surprising how much history repeats itself and how similar our responses can be.

However, your response may surprise you when you hear news of the impact of rising prices for natural gas or barrels of oil affecting fuel prices. Then come to find out they have less impact on you than you initially thought, but you already have adjusted to face the conflict.

Looking at the war and pending rumors of war, let\’s look at some scenarios and risks we are facing at the present moment.

High Oil Costs

According to Statista, the average cost per barrel of oil in 2022 is expected to double the average price in 2020. Now, although technically the cost per barrel has not been this high since 2014, think about the impact you and your family may experience from higher gas prices.

According to an article in the New York Times, \”Russia produces 10 million barrels of oil a day, roughly 10 percent of global demand, and is Europe\’s largest supplier of natural gas, a critical fuel for power plants and heat. The United States is not a big importer of Russian oil — it gets about 700,000 barrels a day, or roughly 3 percent of its demand.\”

Now I am not discounting the impact of higher prices on commodities, and I would be lying if I was not concerned about how sustainable the price increases we have seen are. I\’m more specifically speaking about the importance of evaluating what comes at us: rising gas prices, interest rates, overall inflation, or geopolitical unrest. We need to consider this based on what we can control, what impacts us, and in turn, what adjustments need to be made in our budgets to factor in the impact.

According to Franklin D. Roosevelt, the only thing to fear is fear itself, after all, and according to Jeremy Grantham, a superbubble as well.

There is a lot of coverage on the everything bubble or what Jeremy Grantham would call a \”superbubble.\” He stated in an interview with Yahoo!, \”I like to categorize a bubble as a state of euphoria which involves greed, irrational exuberance, and overpriced assets which are disconnected from their fundamentals. For example, the Tulip Bubble of the 17th century and the Housing Bubble of 2008 are both examples of where one specific thing was bid up to insane prices – almost completely backed by investor speculation rather than real demand.\”

He mentions that a superbubble is a magnified version of this, stating, \”The first sign of a Super Bubble is crazy behavior (in terms of irrational stock buying patterns), and there is no doubt we saw a lot of that in 2020. Thanks to the stimulus checks, student loan pauses, and people stuck at home, more capital was freed up to flow through the economy, and we saw a boom in speculative trading in stocks from AMC (NYSE:AMC) to GameStop (NYSE:GME). In addition, we saw the rebirth of Crypto and even NFTs. Now Grantham thinks the Crazy Behavior is mostly behind us and we are now in the buy the dip mode, or the bull trap, which is another characteristic of a bubble.\” The article also mentions that Grantham believes, \”\”US stocks are in their fourth \”superbubble\” of the past 100 years, and that a massive pullback can \”begin at any time.\”\”

Other than the fears around oil and natural gas surging, increased cost in sourcing other Russian commodity exports like grains and precious metals could cause inflation to set in further on prices connected to aluminum, titanium, and platinum, to name a few.

Now, you can always find someone contrary to the sentiment of investors, but more and more people are following the thought processes that we have hit the peak and will plateau, correct, or plummet. We have seen a ton of volatility in markets in the last few weeks since many were already nervous about a pending recession, inflation, interest rates, another string. But adding war and unrest complicated the picture further.

Cyberattacks

Other than factoring in the rising prices, according to a CNN article called \”Here\’s how the Russia-Ukraine conflict could hurt your wallet\”, \”The hacking of the Colonial Pipeline last year showed just how disruptive a cyberattack can be in the real world. The cyber intrusion shut down one of the most important pipelines in America, sparking panic buying that left many gas stations in the Southeast empty. A successful cyberattack on America\’s financial system — a top worry of Fed Chairman Jerome Powell — could be even more disruptive. A cyberattack is just one example of how the Russia-Ukraine situation could spill over into daily life.\”

What Can I Do?

So as you can see, so much of these current events are seemingly out of our hands to control. However, it does not mean that you or I have nothing to do. We can try our best to factor in the impact of this volatility, look at what you value as a consumer, and isolate those areas while minimizing the areas that have a lower impact on your quality of life.

Reevaluate

When there are many unknowns, it\’s a perfect time to evaluate. It\’s not a time to simply sell off everything because the markets are in retreat, and that\’s what others are doing. Instead, it\’s a time to evaluate your position, risk tolerance, and season of life.

We cannot live our lives in fear, it\’s not only unhealthy to do so, but it steals the joy of life.

So use this opportunity to look at what you enjoy most in life and double down in those areas while reevaluating what areas might matter less to you. Doing so may prompt you to sell off, scale back, or rebalance to factor in some of the volatility we may be continuing to experience.

Works Cited