Key takeaways

  • The war in Ukraine, the most significant military event in Europe since World War II, continues to produce ripple effects across global markets.

  • With the conflict now in its second year, it remains a major concern for western nations that support Ukraine and hope to avoid a broader conflict.

  • While no longer a dominant consideration for capital markets, the war does represent a significant risk factor facing investors in 2023.

Russia’s invasion of Ukraine and the conflict’s subsequent global ramifications have been in the headlines since the start of the war in February 2022.

The war is seen by some as a key inflection point in the geopolitical landscape, marking a move out of the post-Cold War era that’s existed since the fall of the Berlin Wall in 1989 and the dissolution of the Soviet Union that followed. There has been notable economic fallout from the war, adding a degree of uncertainty contributing to volatility in some markets.

The war in Ukraine represents the most significant military event in Europe since World War II. While combat has generally been limited to participants from Russia and Ukraine, other nations have provided military supplies to support the warring sides. In addition, the U.S. and other countries imposed substantial economic sanctions on Russia, many western companies pulled operations out of Russia, and potential supply disruptions created threats to the global energy and agricultural markets.

As the war continues with countless lives lost and significant destruction in its wake, the impact is being felt beyond the borders of Ukraine. Capital markets, government policymakers, central bankers and corporate leaders have all been forced to contend with a unique variable on a scale not experienced in decades.


The war drags on

Despite Russia’s apparent broader military advantages, the two countries seem to be mired in what has turned into a drawn-out struggle. After initial successes, Russia’s army encountered notable resistance in its effort to overtake major portions of Ukraine. By contrast, Ukraine’s ground troops made sizable progress in the latter half of 2022, reclaiming territory previously controlled by Russian troops. In the early months of 2023, fighting continues in eastern Ukraine. Recent battles largely resulted in a standoff. Russia frequently uses air power and missile attacks to inflict significant damage across broad parts of Ukraine, though it is not clear if these attacks advanced Russia’s war aims. “Russia is struggling harder and harder against the backdrop of a supreme leader [Putin] who is bound and determined in his objective of taking military control over Ukraine,” says David Bridges, senior geopolitical and security advisor at Fidelity Management and Research Company. Bridges, who had a 25-year career as an operations officer at the CIA, including significant time in the former Soviet Union and Eastern Europe, says Putin may have deceived himself about the level of effort that was required to potentially claim that victory.

“I don’t believe Putin is looking for an ‘off ramp,’” says Bridges. “He’s convinced that he can prevail, and that all he needs to do is push harder.” As western nations continue to provide military equipment to support Ukraine’s efforts, there is little sign that either side is prepared to back down.


Containing the war within Ukraine’s borders

The nations of the NATO alliance are holding firm in their support of Ukraine. NATO membership may also expand as it considers adding two countries to its alliance, Sweden and Finland, both in close proximity to Russia. Along with military equipment to support Ukraine, western nations continue to apply severe economic sanctions on Russia.

“We’ve seen a uniting of nations that may have had a cooler relationship before,” says Kevin MacMillan, head of state and federal government relations at U.S. Bank. “NATO leaders moved forward with a united view of the conflict.” Cohesion among western nations carried through in the implementation of economic sanctions and related measures.

While NATO countries have generally remained steadfast in their support, they have avoided sending troops to participate in the military engagement. The U.S. and other NATO countries have, to this point, limited their military involvement to providing significant weapons capabilities.

A lingering question since the start of the conflict is if the war could spread beyond Ukraine’s borders, eventually drawing NATO countries (including the U.S.) into the battle. Frequent statements by Russian President Putin further raise concerns about a more direct conflict that involves other countries, though Russia’s struggles in Ukraine and the depletion of its own military resources may deter Russia from expanding the conflict. Nevertheless, there does a path to a peaceful resolution appears to be elusive under current circumstances.

Bridges believes Russia’s invasion of Ukraine heralds a new era, or second Cold War, that will differ distinctly from the previous three decades. In the new environment, economic weapons, much like those being imposed on Russia today, may be a primary form of combat, as both sides seek to avoid actual combat between the U.S. and Russia.1


Assessing the economic fallout

Given the inter-connected relationship between economies across the globe, apprehension about the potential impact on the U.S. and world economies persists even more than a year into the conflict. Energy is a key part of the equation, given that Russia provides approximately 10% of the world’s oil output.

“The longer the war continues, the more urgent it becomes for European nations to identify longer-term solutions to meet its their energy demands.”

Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management

The impact is far greater in Europe. For example, prior to the war, Russia supplied about one-third of European natural gas and about one-quarter of its crude oil imports.2

“Europe benefited from a mild winter that helped to moderate energy demand” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. “Nevertheless, the war is clearly contributing to economic challenges facing Europe today.”

Oil prices soared in the months immediately following the start of the war, but prices have leveled off since. Nevertheless, it seems likely that oil prices will remain volatile in the near term. “The longer the war continues,” says Haworth, “the more urgent it becomes for European nations to identify longer-term solutions to meet their energy demands.” Haworth says that upfront investment in more reliable energy sources is ultimately a positive development, but it could cause short-term economic hardship.

Both Russia and Ukraine are major suppliers of wheat and other agricultural products to various parts of the world. This contributed to a rise in commodity prices that was felt worldwide, along with potential food shortages, particularly in developing countries. Several months after the war began, markets adjusted, and prices dropped from their peaks. However, Haworth says issues could still arise. “We have to be mindful that if an issue occurs such as an impairment of Russia’s ability to import oil or an interruption in Ukraine’s wheat shipments, that could result in an inflation surprise the market doesn’t currently anticipate.” Haworth says for now, energy and grain markets aren’t disrupted, but the continuation of the war contributes to ongoing uncertainty over vulnerabilities in those markets.

“In the U.S., we’re a bit more insulated from the economic fallout from the war compared to Europe and other parts of the world,” says Tom Hainlin, national investment strategist for U.S. Bank. Yet he says there is a greater risk for multinational companies. “If Europe’s economy slows, it will certainly have a negative impact on business activity in that region for companies doing business in Europe.”


Investment considerations in a period of uncertainty

From an investment perspective, the conflict in Ukraine has been overshadowed by other developments, such as ongoing concerns over inflation and the major shift in monetary policy by the Federal Reserve. “Inflation and the Fed’s response to it are still the primary considerations for investors,” says Hainlin. “The Russo-Ukraine war is more of a ‘tail-risk’ event. If a resolution can be reached to end the conflict, that could trigger a market rally. If the situation escalates, this would clearly present a negative event risk that could have a detrimental impact on markets, at least on the margins.”

Recently, a degree of cooperation emerged between China, which represents the second-largest economy in the world, and Russia. While China has restrained from providing significant military support, it has boosted trade activity, providing an important economic boost to help offset economic sanctions placed on Russia by western nations. “China is likely to move cautiously in its relationship with Russia, as it does not want to face similar economic sanctions from the west,” says Haworth. “That may limit how closely China and Russia become linked as the war continues.”

Haworth says the war remains one of the variables clouding the investment outlook for 2023, along with Fed rate hikes, persistent inflation and concerns of a potential recession on the horizon. “Markets are in a position where investors are waiting to see how events and economic data unfold before setting on a more sustained course in either direction,” says Haworth. He recommends that investors maintain a more defensive approach as they position their portfolios.

Be sure to talk to your financial professional about what steps may be most appropriate for your circumstances.

Related articles

Analysis: How persistent might inflation be?

Inflation spiked sharply over the past year. Learn what this could mean for your finances and if there’s any end in sight to higher prices.

How far will the market correction go?

With stocks slipping in and out of bear market territory, learn how the market correction and ongoing volatility could impact your investments.

Start of disclosure content
  1. Lee, Nathanial, “The second Cold War is already beginning, experts say, and many of the battles are being fought with economic weapons,”, March 25, 2022. 

  2. McBride, James, “Russia’s Energy Role in Europe: What’s at Stake With the Ukraine Crisis,” Council on Foreign Relations, Feb. 22, 2022.

Start of disclosure content

Investment and insurance products and services including annuities are:
Not a deposit ● Not FDIC insured ● May lose value ● Not bank guaranteed ● Not insured by any federal government agency.

U.S. Wealth Management – U.S. Bank | U.S. Bancorp Investments is the marketing logo for U.S. Bank and its affiliate U.S. Bancorp Investments.

Start of disclosure content

U.S. Bank, U.S. Bancorp Investments and their representatives do not provide tax or legal advice. Each individual's tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

The information provided represents the opinion of U.S. Bank and U.S. Bancorp Investments and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.

Start of disclosure content

For U.S. Bank:

Equal Housing Lender. Deposit products are offered by U.S. Bank National Association. Member FDIC. Mortgage, Home Equity and Credit products are offered by U.S. Bank National Association. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice.

U.S. Bank is not responsible for and does not guarantee the products, services or performance of U.S. Bancorp Investments, Inc.

U.S. Bank does not offer insurance products. Insurance products are available through our affiliate U.S. Bancorp Investments.

Start of disclosure content

For U.S. Bancorp Investments:

Investment and insurance products and services including annuities are available through U.S. Bancorp Investments, the marketing name for U.S. Bancorp Investments, Inc., member FINRA and SIPC, an investment adviser and a brokerage subsidiary of U.S. Bancorp and affiliate of U.S. Bank.

U.S. Bancorp Investments is registered with the Securities and Exchange Commission as both a broker-dealer and an investment adviser. To understand how brokerage and investment advisory services and fees differ, the Client Relationship Summary and Regulation Best Interest Disclosure are available for you to review.

Insurance products are available through various affiliated non-bank insurance agencies, which are U.S. Bancorp subsidiaries. Products may not be available in all states. CA Insurance License #0E24641.

Pursuant to the Securities Exchange Act of 1934, U.S. Bancorp Investments must provide clients with certain financial information. The U.S. Bancorp Investments Statement of Financial Condition is available for you to review, print and download.

The Financial Industry Regulatory Authority (FINRA) Rule 2267 provides for BrokerCheck to allow investors to learn about the professional background, business practices, and conduct of FINRA member firms or their brokers. To request such information, contact FINRA toll-free at 1-800‐289‐9999 or via An investor brochure describing BrokerCheck is also available through FINRA.

U.S. Bancorp Investments Order Processing Information.

Municipal Securities Education and Protection– U.S. Bancorp Investments is registered with the U.S. Securities and Exchange Commission and the Municipal Securities Rulemaking Board (MSRB). An investor brochure that describes the protections that may be provided to you by the MSRB rules and how to file a complaint with an appropriate regulatory authority is available to you on the MSRB website at