The Inflationary Shock of the Russia-Ukraine Crisis

Russia’s invasion of Ukraine has ramifications for global inflation and growth, according to Franklin Templeton Fixed Income. The team examines the dynamics underlying energy and certain agricultural commodities to explore the inflation implications.

Russia’s invasion of Ukraine has already caused a tragic human toll. It also brings yet another disruptive shock to a global economy already coping with persistent supply chain disruptions and fast-rising inflation. The clearest and most immediate economic impact of the conflict will be stronger and more durable inflationary pressures, driven by a negative supply shock to energy and some agricultural commodities—as detailed in the remainder of this note.

While pronounced, this inflationary shock should not offset the robust momentum of the global economy’s ongoing recovery from the pandemic shutdowns, powered by very expansionary fiscal and monetary policies. The growth impact should be muted in the United States, though an adverse effect on business confidence is likely. Europe will suffer more, given its significant dependence on energy imports from Russia. The European Central Bank (ECB) therefore seems likely to delay its plans to remove monetary stimulus—whereas Federal Reserve Chair Jerome Powell has signaled the US central bank will almost certainly go ahead with a first rate hike this month.

The inflationary shock seems set to be prolonged—as argued in the sectoral discussions below. The longer-term impact on growth will depend on how the conflict evolves and whether economic sanctions might be extended to impose a harsher squeeze on Russia’s energy sector. While uncertainty remains very high, our working assumption at this stage sees higher inflation for longer but only a moderate negative impact on US growth.

Below, our industry sector specialists take a closer look at the price moves in certain commodities and examine the longer-term implications for inflation and growth.


Russia is the world’s third-largest oil producer, behind the United States and Saudi Arabia. Russia’s January 2022 production was over 11 million barrels per day (mmbbls/d).1 Additionally, Russia is the second-largest oil and refined products exporter, behind Saudi Arabia. In December 2021, Russia exported around 5mmbbls/d of oil and nearly 3mmbbls/d of refined products.2 About 60% of Russia’s exports were directed to Europe and roughly 20% to China, in each instance both via pipeline and seaborne routes.