The Ukraine crisis and the weaponisation of finance – Financial Times

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A torrent of news has underlined the threat to global recovery from the Ukraine crisis — as well as its potential to amplify other shocks — as the US and its allies stepped up efforts to isolate Moscow.

Russia doubled interest rates to 20 per cent as sanctions sent the rouble plunging while moves were advanced to cut the country off from the global financial system. Meanwhile, Russian bonds tumbled as investors braced for the possibility of the country defaulting on its debt for the first time since 1998.

Stocks in the US and Europe dropped on news of the tightening sanctions and specifically the uncertainty around Russia’s membership of Swift, the global financial payments system, in what some have termed “the weaponisation of finance”.

This morning the US Treasury announced its most aggressive step yet, with a ban on US individuals engaging in any transactions with Russia’s central bank, its national wealth fund and its finance ministry as part of measures to stop Russian president Vladimir Putin and his inner circle from raising funds abroad.

Tremors are being felt far away from the actual fighting in Ukraine. The price of Brent crude, the international oil benchmark, rose 4.2 per cent to top $102 a barrel, spelling out more problems for emerging markets on top of increasing costs for other commodities, while in the UK, petrol prices rose above £1.50 a litre for the first time ever.

As our Big Read explains, governments were already struggling to cope with rising prices as they inched towards recovery, but the news that the world’s second biggest oil exporter had gone to war with a country at the centre of European energy infrastructure has the potential to completely recast the market.

European natural gas prices have also surged on fears Russia could withhold exports, which account for about a third of the continent’s needs.

The effect on business is also widespread, from airlines such as Finnair suffering from airspace bans, to European banks that have large exposure to Russia, to other multinational groups facing reputational damage as well as taking a hit from western sanctions aimed at destabilising the Russian economy. Some big names such as BP have already begun divesting their stakes in Russian companies.

And while financial markets are often thrown into convulsion by world events, the current crisis could have much more long-lasting effects, says columnist Rana Foroohar. One of them, she argues, will be a quickening of the shift to a bipolar global financial system — one based on the dollar, the other on the renminbi.

Key reads

Corporate fallout by sector

Explainer: How central bank sanctions could hobble Russia

List of sanctions on Russian individuals and institutions

Latest news

  • Football’s governing body Fifa is set to cave in to pressure to suspend Russia from this year’s World Cup

  • Switzerland broke with its tradition of political neutrality to announce it intended to match EU sanctions on Russia

  • The US has sent a delegation to Taiwan to remind China not to step up pressure on Taipei as Washington focuses on the Ukraine crisis

For up-to-the-minute news updates, visit our live blog

Need to know: the economy

The Covid surge in Hong Kong intensified, filling up hospitals and mortuaries and prompting an exodus of residents. The city has reported more than 171,000 cases out of a population of 7.4mn, compared with 109,000 for the rest of China, and could face an even stricter lockdown.

Latest for the UK and Europe

As parts of the UK remove their remaining pandemic restrictions, policymakers and business leaders are hunting for clues as to what business shifts over the past few years are becoming permanent. Our analysis shows that the country’s suburbs and smaller towns have benefited from the move to local shopping, while developers are gambling on a mass return to the office.

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One particular bugbear of struggling UK retailers has been business rates. Ministers are now considering a plan to reduce them with funding from a new online sales tax. Other problems include post-Brexit border delays that have hit importers and exporters and “Brexit dividend” rule changes on data protection that critics say will make business harder.

Campaigners and pharma companies are at odds over lessons learned from the current pandemic that could help Europe cope with future crises. Industry believes the swift development of vaccines is innovation at its finest, but activists have hit out at the failure to provide equal access.

Global latest

The situation in Ukraine is unlikely to stop the US Federal Reserve raising interest rates in March as it seeks to contain the highest inflation in 40 years, writes US economics editor Colby Smith. The winding down of Fed stimulus is likely to cause turmoil in the market for mortgage-backed securities.

Need to know: business

Full-year losses at Swedish “buy now, pay later” group Klarna soared from SKr1.4mn in 2020 to SKr7mn last year as it suffered increased credit defaults. Australia’s biggest BNPL company Zip has bought another competitor, Sezzle, as part of its push into the US. The sector ballooned during the pandemic, with the UK market estimated to have more than doubled to £5.7bn in 2021.

Waterstones, the UK’s largest bookseller, is close to buying its smaller rival Blackwell’s, as it takes advantage of a pandemic-fuelled reading boom. UK book sales reached their highest point in a decade in 2021, despite stores being closed during lockdowns.

The low interest rates of the pandemic era that have inflated valuations in financial markets have left far fewer attractive investments, according to veteran investor Warren Buffett. However, his Berkshire Hathaway conglomerate still managed to increase operating profits by 45 per cent on the previous year thanks to investments in traditional industrial conglomerates, financial behemoths, energy giants and utilities.

Sign of the times: after almost a century UK retail bellwether John Lewis is dropping its “never knowingly undersold” price promise in the face of intense online competition.

There is, however, a downside to this rush to digital, points out management editor Andrew Hill: it can mean that non-IT savvy older customers are neglected.

The World of Work

The pandemic has fuelled the growing market for new digital forms of corporate training including the opportunity to role-play online at low cost, without feeling awkward or restrained in front of their colleagues. “It’s a unique component of learning that has been sorely missing,” says one provider.

Covid cases and vaccinations

Total global cases: 433.5mn

Total doses given: 10.7bn

Get the latest worldwide picture with our vaccine tracker

And finally…

From actor Matthew Broderick’s guide to Broadway to super-gallerist Larry Gagosian’s views on money, taste and power and Anish Kapoor’s “mad, mad project” to take over Venice: it’s all here in the How To Spend It spring arts special

British-Indian artist Anish Kapoor
British-Indian artist Anish Kapoor plans his assault on Venice as part of this year’s Biennale © Julian Broad © Anish Kapoor. All rights reserved DACS, 2022

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