For the past two years, CFOs have operated in unprecedented times. And now an additional layer of global economic uncertainty has been added—Russian troops launched an attack on Ukraine on Thursday. The oil and natural gas market, broadening sanctions, and inflation are areas to monitor, experts say.

Oil and natural gas

“I think the most important immediate impact is probably on already high and growing petroleum prices because Russia is a major producer,” David A. Gantz, Will Clayton Fellow for Trade and International Economics, Rice University’s Baker Institute for Public Policy, told me.

The geopolitical tensions caused by Russia’s entry into Ukranian regions have already pushed oil prices higher in recent weeks. “Benchmark crude prices rose by more than 15% in January to cross the $90 a barrel threshold for the first time in more than seven years,” The International Energy Agency said in its February 2022 oil market report, Fortune reported.

The recent sensitivity of global assets to the Russian ruble is the basis of calculations by Goldman Sachs’ strategists in a note released on Monday. A worst-case scenario: about a 10% decline in the ruble would increase oil prices by 13% and would result in a 27-basis-point decline in benchmark Treasury yields, according to the note. Fear of a crisis has put further downward pressure on Treasury yields as investors look for safe-haven assets.

“At some point we’ll be a greener economy,” Gantz says, but right now “the world economy rides on petroleum and natural gas—ships, airplanes, cars—almost everything depends on oil prices.” And oil prices are currently surging toward $100 a barrel, he says.

Germany has already announced it is halting the certification process of Russia’s Nord Stream 2 pipeline project. “Germany’s energy prices are going to increase,” Nazak Nikakhtar, a former U.S. assistant secretary of commerce for industry and analysis, told me.

If Germany sees itself embroiled in some type of conflict, that may result in decisions on what gets manufactured in a race for scare energy sources, says Nikakhtar, who is currently national security co-chair at the Wiley law firm. “It’s without a doubt this is going to impact our energy prices as well because there’s going to be a shift in whatever supply chains and energy resources Germany has,” she says. “It is going to impact the global movement of fossil fuels [and] natural resources.”

Broader financial sanctions

President Joe Biden announced on Tuesday financial sanctions on two large financial institutions in Russia (VEB and its military bank) and comprehensive sanctions on Russian sovereign debt. In addition, U.S. sanctions hit Nord Stream 2 AG on Wednesday.

“What I anticipate happening is going to be more incremental sanctions of this kind that is on par with incremental incursion by Russia,” Nikakhtar says. The fact that Biden is imposing sanctions on Russian financial institutions should be an “enormous signal for the business community that broader financial sanctions are on the table,” she explains.

“Putin could decide to invade the rest of Ukraine, sanctions could be ramped up on Russia, and Europe could take a real hit,” Brad McMillan, chief investment officer for Commonwealth Financial Network, wrote on Wednesday.

However, McMillan predicts that if the crisis gets worse, the markets will survive. “The fear is that, somehow, the Russia-Ukraine crisis will sink the markets,” he writes. “But for that to happen, either earnings have to drop (which is not likely to any significant degree) or valuations will have to drop (which would be constrained over time). People could panic, but so far that has not happened. Even if some investors do panic, market panics pass.”

Rising inflation

The consumer price index climbed to 7% at the end of 2021, and economists are forecasting it to fall to 3.3% in Q4 of 2022. But “there’s a higher probability of headline inflation overshooting the consensus and last year’s number, resulting in inflation, perhaps touching, 10%,” BNY Mellon’s Daniel Tenengauzer told Marketwatch.

“Inflation is inevitable,” Nikakhtar told me. “How much honestly depends on how much we decide to impose sanctions on these entities right now,” she says. “As supply becomes unavailable from Russia, the demand-supply pressures will lead to price increases, and these could very well be long-lasting.”

All three factors are unlikely to make planning for Q2 and beyond particularly easy. “If you’re a CFO, and you don’t like dealing with uncertainty, you have one more problem to figure into the equation,” Gantz says. 

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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Leaderboard

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Overheard

"This is a crime against the Ukrainian and Russian people. I want to wish everyone safety and security, even though I know there won't be. Reminder: Ethereum is neutral, but I am not."

—Vitalik Buterin, the Russian-Canadian co-founder of the Ethereum blockchain, condemned Russian President Vladimir Putin on Twitter, as reported by Fortune.