*Article* **The Impacts of the Russia–Ukraine Invasion on Global Markets and Commodities: A Dynamic Connectedness among G7 and BRIC Markets**

**Md. Kausar Alam <sup>1</sup> , Mosab I. Tabash 2,\* , Mabruk Billah <sup>3</sup> , Sanjeev Kumar <sup>4</sup> and Suhaib Anagreh <sup>5</sup>**

	- <sup>4</sup> Faculty of Management Studies, University of Delhi, Delhi 110007, India
	- <sup>5</sup> Higher Colleges of Technology, Dubai P.O. Box 25026, United Arab Emirates
	- **\*** Correspondence: mosab.tabash@aau.ac.ae

**Abstract:** The conflict between Russia and Ukraine has been causing knock-on effects worldwide. The supply and price of major commodity markets (oil, gas, platinum, gold, and silver) have been greatly impacted. Due to the ongoing conflict, financial markets across the world have experienced a strong dynamic regarding commodities prices. This effect can be considered the biggest change since the occurrence of the financial crisis in the year 2008, which explicitly influenced the oil and gold markets. This study attempts to investigate the impacts of the Russian invasion crisis on the dynamic connectedness among five commodities and the G7 and BRIC (leading stock) markets. We have applied the time-varying parameter vector autoregressive (TVP-VAR) method, which reflects the way spillovers are shaped by various crises periods, and we found extreme connectedness among all commodities and markets (G7 and BRIC). The findings show that gold and silver (commodities) and the United States, Canada, China, and Brazil (stock markets) are the receivers from the rest of the commodities/market's transmitters of shocks during this invasion crisis. This research has policy implications that could be beneficial to commodity and stock investors, and these implications could guide them to make many decisions about investment in such tumultuous situations. Policymakers, institutional investors, bankers, and international organizations are the possible beneficiaries of these policy decisions.

**Keywords:** Russia and Ukraine conflict; commodities; G7 and BRIC markets; TVP-VAR; connectedness

**JEL Classification:** G11; G15; H12; J15

#### **1. Introduction**

The conflict between Russia and Ukraine has been causing knock-on effects worldwide. The supply and price of major commodity markets (oil, gas, platinum, gold, and silver) have been greatly impacted.<sup>1</sup> Due to the ongoing conflict, financial markets across the world have experienced a strong dynamic regarding commodities prices. This effect can be considered the biggest change since after the occurrence of the financial crisis in the year 2008, which explicitly influenced the oil and gold markets.<sup>2</sup> Given this effect, the price of both Brent and West Texas Intermediate (WTI) crude oil has climbed to more than USD 100 per barrel on February 24 while facing the Russian and Ukraine conflict. This invasion has equally changed gas prices, which augmented to USD 3.54 per gallon, and gold prices crossed the figure of USD 1900 per ounce (Liadze et al. 2022).

Accordingly, the prices of commodities are strongly connected with the stock market (Naeem et al. 2022). Therefore, an appropriate connectedness among the five major commodity markets and G7, and BRIC (Brazil, Russia, India and China) markets may be

**Citation:** Alam, Md. Kausar, Mosab I. Tabash, Mabruk Billah, Sanjeev Kumar, and Suhaib Anagreh. 2022. The Impacts of the Russia–Ukraine Invasion on Global Markets and Commodities: A Dynamic Connectedness among G7 and BRIC Markets. *Journal of Risk and Financial Management* 15: 352. https:// doi.org/10.3390/jrfm15080352

Academic Editor: Kentaro Iwatsubo

Received: 29 June 2022 Accepted: 2 August 2022 Published: 8 August 2022

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beneficial for investors in their decision-making processes during the Russian and Ukraine conflict. To the best of our knowledge, this is the first study to examine the rapport between the G7 and BRIC stock and commodity markets before and during the Russia–Ukraine conflict. Thus, the investigation of connectedness among the major commodities and countries will be beneficial for investors and policymakers regarding right and quick decisions for easy investment during the Russian and Ukraine conflict as well as better outcomes by minimizing financial losses.

However, recent studies have found connectedness between the Russia and Ukraine conflict during the short time frame data on key global economies, such as the United States of America, Canada, the United Kingdom, and the European Union (Liadze et al. 2022; Yousaf et al. 2022; Mbah and Wasum 2022). Studies have found negative impacts on the stock market, commodity price, and energy price (Yousaf et al. 2022; Berninger et al. 2022). For example, Yousaf et al. (2022) investigated the conflict between Russia and Ukraine in the G20 and other selected stock markets using the event study approach. They identified that the day of invasion revealed a strong negative impact of this military action on a majority of the stock markets, especially on the Russian market. Tosun and Eshraghi (2022) investigated the financial market reaction to announcements of companies remaining in Russia during the eventful two weeks following the invasion. They found a higher trading volume and selling pressure on remainders, and it was difficult to make any effective decision during the time of political conflict. In general, the Russia–Ukraine war created a challenging economic impact on other countries and on the global economy. Wang et al. (2022) revealed that the total volatility spillover increased from 35% to 85%, exceeding the level seen during the pandemic. The role of commodities changed in both return and volatility spillover systems. Crude oil became a net transmitter of return spillovers, whereas wheat and soybeans became net receivers of return spillovers. Silver, gold, copper, platinum, aluminium, and sugar became net transmitters of volatility. Geopolitical risk Granger caused the spillover indices. High levels of return and volatility spillovers are associated with high levels of geopolitical risk (Wang et al. 2022). The purpose of the current study is to investigate the impacts of the Russian invasion crisis on the financial markets, in particular to identify the main sources of energy market price changes among G7, BRIC and the five commodity markets. According to the recent work by Balcilar et al. (2021), Papathanasiou et al. (2021), and Zhang et al. (2021), the current approach used consists of the time-varying parameter vector autoregressive (TVP-VAR) coming from Antonakakis et al. (2020), which improves the classic technique of Diebold and Yilmaz (2012). Moreover, this method will answer whether these markets' spillovers or connections are higher during the Russia–Ukraine war compared to normal times. We have chosen this methodology because it overcomes restrictions of the basic methodology, as it allows for fluctuations over time and thus provides a more robust estimate. Additionally, the gradation of every roll window width is not an obligatory condition, as roll window analysis is not incorporated, which preserves the use of every available information. Due to the short sample of our paper (1 September 2021–23 February 2022) and during 24 February–24 March 2022, this is a good advantage in case of a conflict between Russia and Ukraine. Moreover, G7 economies represent the developed part of the world and have strategic importance in world GDP, development, trade, investments, and supply chain of commodities (as the largest consumer of the world in PPP) (Waheeduzzaman 2011; Wei et al. 2020; Jiang et al. 2020). Conversely, BRIC markets have played a momentous role in world development, trade, investment, and sectoral cooperation since their inception in 2001 (Iqbal 2021). As a result, BRIC countries in light of other emerging economies (China and India) have emerged as two leading importers (largest consumer base in terms of population) and production hubs of the world, whereas Russia is the principal producer and exporter of energy commodities (Huynh et al. 2020; Shahzad et al. 2019). In the last two decades, the BRIC market group has attracted a large segment of capital inflows, where the highest amount of FDI, FII, and strategic cross border investments are being made (Sauvant 2005; Singhania and Saini 2018; Naeem et al. 2022). Correspondingly, in the last 15 years, the

pace of development has slowed down in developed countries after the global financial crisis (GFC) and the European debt crisis, while BRIC countries have emerged as an engine of world economic growth (Radulescu et al. 2014; Siddiqui 2016).

The empirical analysis discloses that among the other nations, four major economies including the US, Canada, China, and Brazil are the major receivers of losses among G7 and BRICS countries. Similarly, the analysis displays the fact that gold and silver are the receivers from the rest of the commodities/market's transmitters of shocks during this invasion crisis. Our empirical findings will be of interest to market participants and policymakers, as they show that among the five commodities, natural gas remains relatively intact through retransfer mechanisms and can thus form a practical diversification element when added to a portfolio. Similarly, the central banks from these economies should proceed carefully regarding the management of these commodities and should reduce any information asymmetric among the stakeholders of commodities to sustain the market functioning.

The suggesting sections concerning this manuscript are organized as observed: Section 2 describes the review of existing and past literature on the concerned area. Section 3 contains the data and methodology of the paper. Section 4 shows results and discussions. Section 5 concludes the study with some policy implications and limitations.

#### **2. Literature Review**

In the past, the invasion of Russia on Ukraine was also considered the most crucial and critical geopolitical disaster, and many worldwide leaders have given their opinions on this crisis.

The current analysis deems to pursue the resource dependency theory in the current perspective. This theory has been utilized by previous literature to see the outcomes in politics. For instance, the analysis of Sprout and Sprout (1957) appeared to not only explore the physical resources, e.g., geography and metals, but also to check the effect of invasions on mental factors including thinking capability and other human reactions. Similarly, another analysis by Pfeffer and Salancik (2003) emphasized the relevant role of scarce and crucial resources, while Beitz (1979) corresponded by stressing at resource fairness that may serve as the root of peace. Advancing the discussion, the study of Reuveny and Barbieri (2014) has explored the relevant impact of war on the utilization of natural resources and has asserted the significant impact on minerals. Selznick (1949) examined the connection between political affairs and enterprises and highlighted the role of political affairs even at the international level on multiple firm-level strategies. Each country owns a specific bundle of resources, e.g., climate, location suitability, fertile land, resources having high demand, and excess availability of common natural resources (Davidson 1980). Given to this, the resource dependency theory supplements a composition to deal with key questions: what are the resources that Russia lacks in terms of quality and quantity? This theory further provides the theoretical background regarding energy sources in Ukraine which are lacking by Russia and urges it for invasion. What are the resources that Russia is interested in acquiring or relocating to their own country? What will be the policy implications of the ongoing war on available resources of Russia and the rest of the world? Hence, the theory facilitates the geographic regions in Ukraine that can be marked as the interest in Russia to be acquired.

The geopolitical risk (GPR) has changed the relationship between European, Russian, and global commodities, where European markets and Russian bonds are collectively transmitting the shocks and affecting returns and volatility in the short and long term (Umar et al. 2022a). Geographical positions of the countries and firms to the war location have implications of returns if countries are located within the boundary of 1000 km, in which it has generated greater negative returns in the four-week time from the war (Federle et al. 2022). Further, during this conflict, results are generated by negative dynamic conditional correlations that USD, JPY, silver, Brent, WTI, and natural gas are found to be a safe haven compared to the Russian rouble to the as indicated (Mohamad 2022). Additionally, Umar et al. (2022b) found the changes in the behaviour of returns among various financial assets due to GPR even in the normal market conditions, and it is dependent upon the type of market and market situations. Diverse assets depicted different risk patterns in terms of magnitude and timeframe. Bonds and equities have a war impact in the long term, and cryptos have nullified in the short term, while the Swiss franc, gold, silver, green bonds, and oil are the most shock-fighting assets (Bedowska-Sojka et al. 2022). After the Russian invasion, oil was strongly connected with bitcoin, bonds, gold, US dollar, and stocks. Oil also changed its status from a net receiver to a net transmitter of spillovers (Adekoya et al. 2022)

Researchers focused on the relationship between stock markets and energy markets for taking investment decisions and a better understanding of the price fluctuations between the markets (Lin and Su 2020; Peng et al. 2021). The relationship between the two markets have been changed dramatically during the world financial recession, i.e., the global financial crisis (GFC), the great crash of the stock market (GCS), and the European debt crisis (EDC) (Wen et al. 2019, 2020a; Aromi and Clements 2019). The COVID-19 situation also had a significant effect on the global energy markets. In addition, Bouri et al. (2021b) found that US stock, crude oil and gold spillovers seem to intensify during crisis periods. Sharif et al. (2020) outlined that price of oil had a significant effect on US markets and job security, operations of the business, and amenities of mandatory regions were directly impacted in the period of COVID-19. Moreover, Bouri et al. (2021a) found that the dynamic total connectedness across the five assets (gold, crude oil, world equities, currencies, and bonds) was moderate and quite stable during early COVID. Abuzayed et al. (2021) found that bivariate systemic risk contagion between the global stock market and each individual stock market evolved during the sample period and intensified as COVID-19 spread worldwide. Iqbal et al. (2022) found an intensive extreme spillover among the realized volatility of various energy, metals, and agricultural commodities more intensive during the COVID-19 pandemic. As a result, the investors have changed their investment decisions and strategies in stock and energy markets (Mazur et al. 2020; Wen et al. 2020b).

Wars and other natural disasters always hamper economic growth massively. Recently, the two major global economies of Russia and Ukraine have been in the battle and are busy assaulting each other. Both countries are utilizing their military powers to encounter the enemy. This fight has had huge global economic consequences all across the world, as every country is either directly or indirectly globalized in today's time. In addition to such losses, it is further estimated that global GDP will reduce by 1% in the year 2023 due to the globalization effect (World Bank 2022). This loss can be estimated as a USD 1 trillion-dollar reduction in the total GDP of the world. Similarly, the conflict between Ukraine and Russia will add almost 2% to 3% to net inflation across the world (World Bank 2022). In parallel, Ukraine and Russia are major providers of merchandise that include wheat, titanium, corn, etc., on the global stage. Thus, the conflict between both countries can give more to economic complexities regarding the supply of such commodities across the world. Due to the special rebate received by suppliers, the value of such merchandise can move beyond the approximations due to the major chunk and contribution of both states in the global merchandises market. Similarly, this war between Russia and Ukraine can hamper the supply of smartphones, aircraft, and other similar products and thus can intensify the price level of such commodities.

Despite the consequences for other nations, this war can lift the inflation rate to 20 percent in Russia during this year. After COVID-19, this war can prove mounting to more inflation in the Western region of the world. It can be expected that economic growth in the UK can reduce from 0.8 to 4.0 percent in the year 2022 and to 0.5 percent in 2023. Currently, the inflation rate in the UK is 7 percent, which can lower to 5.3 percent excluding the effect of the current war (World Bank 2022). However, the February 2022 outlook report exemplifies that this inflation can go by the rate of 2.7 percent and 2.3 percent in 2023 and 2024, respectively (European Central Bank 2022). The ongoing war between Ukraine and Russia has intensified the other economic issues, e.g., the monetary policy

uncertainty, hampering business confidence, and damaging of overall consumer demand, which was already at the bottom level due to COVID-19-driven price increases. Referring to such damages, it can be further expected that the Russia–Ukraine conflict can increase economic damages on both sides, such as the disruption of trade flows initiates major shortages in the complex food value chain: production, processing, packaging, storage, transportation, and retail sales. In turn, manufacturing will result in excessive logistical costs and high-risk premiums due to missed delivery deadlines and damaged goods (Van Bergeijk 1995). Meanwhile, studies have investigated the connectedness between the commodity price during the COVID-19 period and have found that commodity prices were adversely affected (Mokni et al. 2021; Umar et al. 2021; Iqbal et al. 2022). Wang et al. (2022) studied geopolitical risk and the systemic risk in the commodity markets under the war in Ukraine. They found that a role of commodity changes in both return and volatility spillover systems. Recent studies have found a negative relationship among the global economy, stock market, energy market, commodity price, and resources due to the Russia and Ukraine war (Liadze et al. 2022; Yousaf et al. 2022; Mbah and Wasum 2022; Berninger et al. 2022; Deng et al. 2022). Similarly, investors have an additional penalty due to the ongoing business corporations from the Russia and Ukraine war (Tosun and Eshraghi 2022). Lastly, the world economy is suffering a lot as a result of war crisis (Mbah and Wasum 2022).
