Although the Russia-Ukraine war stands to affect the economy and financial markets, the Federal Reserve’s potential reaction is potentially more concerning, according to Jeremy Siegel, senior investment strategy advisor at WisdomTree and professor of finance at the Wharton School of the University of Pennsylvania.
The war could hit the economy and markets in two big ways, he said Monday afternoon during the webcast “Staying Focused Amid the Ukraine Crisis.”
One is on the price of oil and another is how sanctions on Russia could affect the finance system itself, he told viewers.
Although some people have compared the current U.S. oil situation to what the country experienced in the 1970s, the U.S. is far less reliant now on imported oil, he said.
Meanwhile, an “aggressive” move by President Vladimir Putin of Russia against one of the NATO countries would be a potential “black swan” event, he said.
Here are five implications of the crisis on investment strategies, according to Siegel:
1. The Russia-Ukraine crisis stands to raise the price of oil.
“I imagine the uncertainty is adding $5 to $10 per barrel to oil,” he said. Saudi Arabia does “have some capacity” and “they don’t want it to go too high [in price because] that just accelerates the move towards electric” vehicles, he told viewers. “There’s that sweet spot they like.”
Even before the war, however, “we all know that oil was in short supply and going up” in price, he pointed out. “Way before Ukraine, the experts that I talked to said it was going to hit $100” a barrel.
So “we can’t blame this all on Ukraine,” but the crisis “will add certainly a little extra layer there,” he predicted.
2. Financial sanctions on Russia could have broader effects.
The invasion has led to a rise in the price of Bitcoin, Siegel said, predicting the impact of the attack on Ukraine could extend further through the financial system.
The 10% increase in Bitcoin value on Monday was related to the U.S. Treasury Department’s new sanctions against Russia’s central bank, Siegel said.
Additionally, removing Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) secure financial messaging services system could affect the overall financial system, including when it comes to settlements, he predicted.