Over a barrel . . .

Monday 14th March 2022

Putin felt the cards were all in his favour and he had the West "over a barrel," because he thought it was disjointed and would be weak and indecisive in the reaction to the invasion of Ukraine.

In the build up to the invasion, Germany for example, was criticised in their own paper Die Zeit in Hamburg over an offer to supply 5,000 helmets to Ukraine. How it has changed since the invasion with the sanctions being ever strengthened and indeed Germany cancelling the new Nord Stream 2 pipeline. Since the war started last month, the West has adopted tough measures targeting Putin, Russia's financial system and its high-maintenance oligarchs. Earlier this week, the EU nations agreed to adopt further sanctions on 160 individuals and added new restrictions on the export of maritime navigation and radio communication technology.

Of course Russia is a major producer of many commodities and so sanctions clearly have the potential to impact the broader global economy in ways that are difficult to predict. It also makes it hard for other countries to impose some sanctions, given how reliant they are on some of these commodities, such as natural gas (of which 15% of the world's supply comes from Russia and have the world's largest supply). Russia also accounts for approximately 10% of the world's supply of oil, having the 8th largest supply in the world. Higher petrol prices are hitting consumers across the world, with Royal Dutch Shell announcing this week it would no longer buy Russian oil or gas. The US is banning all Russian oil and gas imports and the UK will phase out Russian oil by the end of 2022. The EU gets 25% of its oil and gas from Russia and says it will switch to alternative supplies and make Europe independent from Russian energy "well before 2030".

We think there are two implications:

1. The higher energy and commodity prices should increase the willingness of governments and businesses to invest in renewable energy and focus more on improving their efficiency of energy use. With another disturbing report from the Intergovernmental Panel on Climate Change (IPCC) published last week, warning of the 'irreversible' impacts of global warming, the need to cut fossil fuel use is clear. The current situation in Europe reinforces the case for both the greater security renewables can offer and reducing reliance on many of the major oil-producing countries, such as Russia.

2. That interest rates will not be increased by as much as first predicted at the beginning of the year. Inflation is generally controlled by increasing interest rates. This means debt costs more so squeezing our wallets and purses and we therefore spend less, which in turn reduces price rises. This is demand led inflation in that we have money and are willing to spend it so prices go up. However, the current inflation pressure is supply led due to the higher commodity and food prices, so our spending will be impacted in any event, without increasing interest rates. Just look at our petrol prices rises according to the RAC foundation the average price of diesel was £149.03 per litre on 31st December 2021 and £170.09 on 11th March 2022 - a 14% increase.

Time in the market, not timing the market

One of the difficulties is seeing your portfolios fall and should you therefore sell and invest back in the market once the situation settles, hoping that it is the lowest point of the falls. In practice timing the market is very hard and can be costly if you get it wrong. Research by Schroders highlights potential losses if your attempts to time market highs and lows go wrong. Just look at the table above, which shows the difference between staying invested versus timing the market.

Sticking with your portfolios we feel is important and to ride out the recent falls. It is one of the reasons having a cash buffer is so important.


And back to "Over a Barrel" in that Putin also thought he would simply roll over Ukraine and they be subservient to his macho power. It is both encouraging and heart-breaking to see this has not been the case. Encouraging that it has not gone as the Putin planned but heart-breaking that the Russians become ever more brutal in their offensive.

Our thoughts, like yours no doubt, are with the people of Ukraine.