Posted 28th February 2022

BP’s Fire Sale of Rosneft Highlights Economic Impact of Russia’s Aggression

Kinesis Market Analysis by Carlo Alberto De Casa

Macroeconomic Analysis

BP’s decision to sell its entire stake in Rosneft at a potential loss of $25 billion brought into stark relief the ramifications when geopolitics intersects with economics. This fire sale is the biggest impact that Russia’s invasion of Ukraine has had on equities markets so far as while the plunge on global indices was dramatic, the underlying value of the bulk of companies hasn’t materially changed.

To put BP’s potential loss into perspective, the energy company had recently reported its highest net-profit in eight years at $12.8 billion so this write-off equates to almost double BP’s profits from a bumper year for energy companies. 

Looking at the wider stock market it is a sea of red on Monday with Friday’s brief recovery quickly forgotten. With fierce fighting taking place at numerous Ukrainian cities and the opportunity for diplomatic interventions now passed, Ukraine now faces being at war with Russia with limited help from outside countries. 

With countries unwilling to provide direct military assistance to Ukraine, economic sanctions are instead the tools of choice to try and deter Russia from further aggression. The country has been removed from the Swift international banking payment system with Russia’s central bank deciding to hike interest rates up to 20% as well as other capital controls in an attempt to offset some of the effects caused by the ruble sinking to its lowest ever level against the US dollar as well as inflation. 

While sanctions are designed to create maximum pressure on Russia, given the country’s central importance to energy, metals and agriculture markets, it is impossible for these impositions not to have an impact on the global economy with any dwindling in Russian exports clearly going to drive already elevated prices higher still.

Gold Price Analysis

February 25 kinesis gold chart
Gold ($/g) chart – 15 minutes – from Kinesis Exchange

The outbreak of war in Ukraine has unsurprisingly seen a surge in trading volumes in gold, the ultimate safe haven asset. But while there has been a rush to gold and the price has gained significantly, $1,900 an ounce looks to be presenting significant resistance to the precious metal’s ability to climb higher yet. This reflects that while the geopolitical outlook remains hugely supportive for gold, the broader macroeconomic setting in which a series of interest rate hikes by central banks across the world are expected provides a ceiling to how high this non-yield bearing asset can climb.

Silver Price Analysis

Silver is trading comfortably above $24 an ounce having attracted support both from the metal’s safe haven appeal as well as the whole commodities complex being pulled up by the imposition of sanctions on Russia. However, $25.40, the November high, looks to be the ceiling for how high silver can go with a brief climb above that level followed by a sharp fall. 

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