In Britain, almost 2,000 miles away from the action in Ukraine, it’s easy to feel complacent about how war could affect our lives. Indeed, we are very unlikely to be drawn into a “hot” military conflict. But experts say that war between Russia and Ukraine will change everyday life in the UK in ways most people have not yet fully understood.
From mortgage-rate rises to bigger grocery bills, and cyber attacks to a new age of nuclear anxiety, here’s how Putin’s invasion could echo around the streets of Britain.
As one of the world’s largest oil and gas producers – it supplies about 40pc of Europe’s gas and is the world’s third largest producer of oil – Russia has a huge influence on markets, which ultimately hits people in Britain via our energy bills and at the pumps.
We are already facing record increases in energy bills in April, when the near-£700 rise in the energy price cap comes into effect, and record fuel prices as a result of global oil and gas supply constraints.
Household energy bills could increase yet again in October if wholesale prices remain high, which is a major risk of any further conflict in Ukraine. Energy regulator Ofgem is already considering reviewing the cap more frequently.
Britain’s direct exposure to the conflict is small as gas imports primarily come from Norway. The UK only gets around 3pc of its natural gas from Russia.
But Sarah Coles, of stockbrokers Hargreaves Lansdown, said prices would be forced upwards for British providers, despite little of their supply coming from Russia.
“While this means less threat of shortages, it’s not going to protect the UK from sky-high prices on the international markets,” she said.
Countries that normally rely on Russian gas – such as Germany, which has just frozen the approval of the $11bn Nord Stream II pipeline that was due to double the volume of Russian gas imported – will be turning to international markets for liquefied natural gas, said Ms Coles. “This will push prices up dramatically.”
Noble Francis, of the Construction Products Association, said: “We are likely to see significant double-digit gas price rises as markets react quickly before understanding the medium term impacts.”
European gas prices jumped as much as 41pc to €125 a megawatt-hour in the wake of Russia’s attack on Ukraine, while the UK equivalent surged by a third.
About 85pc of UK households have gas central heating and about a third of our electricity is produced by burning gas. “This means electricity prices will rise too,” said Ms Coles.
Analysts have warned of wholesale gas prices as high as £10 per therm in Britain if Russian supplies to Europe were to be completely cut off. That is roughly 20 times higher than long-term averages and five times higher than the current high prices – and is likely to trigger energy rationing.
Households are already feeling the squeeze from 30-year-high inflation, tax rises and rising mortgage costs, but Putin could worsen Britain’s cost-of-living crisis even further. The ripple effects from a Russian invasion of Ukraine, dubbed “the breadbasket of Europe”, would reach shopping baskets in the UK, threatening to cause higher and more prolonged inflation.
The Bloomberg Commodity Spot Index, which tracks commodity prices, has hit another record high.
“There’ll still be significant momentum behind inflation for some time to come,” said Deutsche Bank. The Centre for Economics and Business Research, a consultancy, said that inflation in major Western economies could hit close to 10pc.
This is aligned with Capital Economics’ forecast that rising European natural gas prices will add two percentage points to headline inflation. The firm had expected British inflation to hit 8pc, so this would bring the peak up to 10pc. A rise to 10pc would be 2.75 percentage points above the Bank of England’s current forecast peak, and would be five times its 2pc target.
Wheat and corn prices have both surged as global agriculture markets prepare for a supply shock that will fuel a worldwide crisis in food prices.
Ukraine’s military suspended its ports on Thursday as Russia forces launched an invasion by land and sea. Russian forces have restricted the movement of commercial vessels in the Azov sea, effectively suspending Ukrainian maritime trade.
In Paris, milled wheat prices rose 16pc to hit a record high of €322 a ton, while Chicago-traded corn futures passed 718 cents per bushel, the highest since last summer.
The jumps triggered market circuit-breakers that cap the amount a product’s price can increase in a single session, suggest further punishing increases are yet to come.
Russia and Ukraine are huge producers of products including grains and vegetable oil. Collectively, they globally supply 29pc of wheat, 19pc of corn and 80pc of sunflower oil. Although they primarily supply Asian and North African markets, the conflict will choke global supply as buyers scramble to secure imports from elsewhere and drive up prices for a range of products, from bread to biofuels.
Michael Magdovitz, a commodities strategist at Rabobank, said the impact could be “catastrophic” if ports are still closed when harvests begin in the spring and summer.
“Grain markets are not incredibly resilient at the moment because stockpiles are quite low for grains already,” he said. “There’s a lot of questions about whether or not we can get a substantial resupply. With Ukraine and Russia out of the market, it’s impossible to.”
Russia is also the world’s second-largest exporter of oil. The price of Brent crude has hit $105 per barrel, surpassing $100 for the first time since 2014. Capital Economics consultants forecast that in a worst case scenario, oil prices could rise to between $120 and $140 per barrel.
“This is going to feed fairly quickly through to even higher fuel prices on forecourts,” says Coles.
Petrol prices last week hit a record high of £1.49. Now, the price will edge past £1.50, she says. “Diesel has already breached this milestone, and is on its way even higher.”