According to the International Monetary Fund, Russia’s military offensive in Ukraine, as well as the sanctions imposed as a result, will have a “serious impact” on the global economy.

According to the Washington-based lender, the ongoing conflict has already pushed up energy and commodity costs, adding inflationary pressures from supply chain disruptions and sending a surge of more than one million Ukrainian migrants to neighboring countries.

“The economic effects are already quite substantial,” said Kristalina Georgieva, managing director of the International Monetary Fund. “While the situation is highly fluid and the outlook is susceptible to unprecedented uncertainty,” she added.

“Price shocks will have an impact all around the world, particularly on impoverished households where food and gasoline make up a larger amount of their expenses. The economic harm would be even more terrible if the conflict escalated “she stated

“The sanctions against Russia will have a huge impact on the global economy and financial markets, with significant spillover effects to other countries,” says the report.

The Russia-Ukraine crisis has already pushed oil prices to multi-year highs, raising transportation costs, worsening already high inflation, driving up the prices of basic goods, and denting the global economy’s tentative recovery from the Covid-19 pandemic, potentially tipping some countries into recession.

As the violence escalated and oil buyers boycotted cargoes from the world’s second-largest supplier of petroleum, oil prices soared on March 4, closing the week at multi-year highs.

At the close of trading on Friday, Brent, the worldwide benchmark for two-thirds of the world’s oil, rose 6.9% to $118.11 per barrel. The US crude benchmark, West Texas Intermediate, was 7.4 percent higher at $115.68.

Brent closed at its highest level since February 2013 and WTI at its highest level since September 2008. During the global financial crisis, Brent touched a record high of $147.02 on July 11, 2008, while WTI jumped to $146.90.

According to Daniel Yergin, vice chairman of IHS Markit and a renowned author and energy market historian, the world could be on the verge of an energy catastrophe comparable to the 1970s.

Last week, Mr. Yergin said, “This is going to be a huge logistical issue, and people are going to be scurrying for barrels.” “We’re in the midst of a supply shortage.” It’s a logistical emergency. It’s a payment problem, and it could rival the 1970s in severity.”

A nuclear deal with Iran, which some hope may act as a pressure valve once the country’s oil production resumes, will only provide a limited reprieve.

“If energy speculators believe a nuclear deal with Iran is close, any drop in crude prices could be short-lived. Iran maintains it will be able to quickly ramp up production, but the possibility of Russian supply disruptions is too much of a shock for the energy markets “Edward Moya, a senior market analyst at Oanda, echoed this sentiment.

Once sanctions are lifted, Iran, as one of the largest Opec producers, will be able to increase exports by approximately a million barrels per day in a matter of months. Because its crude oil production is restricted by US sanctions, Tehran has been exempted from the Opec+ agreement’s production cuts. Iran’s output might restore to full capacity, at 3.8 million barrels per day if Washington lifts the sanctions, according to the US Energy Information Administration.

The IMF stated that the economic harm in Ukraine is “already substantial,” in addition to the human suffering. Roads and bridges have been damaged or destroyed, while seaports and airports have been closed and damaged.

“While it is difficult to estimate finance needs precisely at this time,” Ms Georgieva added, “it is evident that Ukraine will face considerable recovery and reconstruction expenditures.”

The IMF said it intends to present Ukraine’s request for $1.4 billion in emergency finance to its executive board for consideration as soon as next week.

Ukraine’s foreign and domestic currency long-term issuer ratings, as well as foreign currency senior unsecured debt ratings, were lowered by two notches to Caa2 from B3 on Friday by Moody’s Investors Service. The country’s junk rating suggests that it is experiencing financial instability or that it may lack enough cash reserves in relation to its demands and financial obligations, making it speculative and posing a significant credit risk.

Ukraine’s ratings will be reviewed for a further downgrading by Moody’s, and the conflict will have a “serious impact” on the country’s economic and fiscal health due to considerable damage to its production capacity, according to Moody’s.

According to the IMF, the sanctions against Russia’s central bank will “severely limit” Russia’s access to international reserves needed to underpin its currency and financial system. Since the beginning of the year, the country’s rouble has dropped more than 61% to around 121 to the US dollar, significantly above its previous level of 75 to the greenback.

International sanctions against Russia’s banking system, as well as the exclusion of some banks from Swift, have “seriously affected” the country’s capacity to accept payments for exports, pay for imports, and conduct cross-border financial transactions.

“While it is too early to predict the entire impact of these sanctions, we have already observed a significant drop in asset prices and the rouble exchange rate,” the multi-lateral lender said.

The IMF warned that countries with close economic linkages to Ukraine and Russia are “particularly vulnerable” to scarcity and supply interruptions, and are disproportionately affected by rising refugee inflows.

To help pay the costs of the current crisis, Moldova has requested an augmentation and rephasing of its $558 million IMF loan program. The IMF said its team is actively exploring possibilities with Moldovan officials.

The IMF said it will continue to examine the impact of the crisis on other countries in the area, particularly those with current IMF-backed loan programs and those with high vulnerabilities or exposures to the crisis.

“The protracted battle, as well as the attendant sanctions,” the fund stated, “will have a significant impact on the world economy.” The lender stated that it will advise its members on how to calibrate their macroeconomic policies in order to control any spillovers and trade disruptions.

According to money manager Franklin Templeton, the Russia-Ukraine crisis has increased geopolitical risk and signals a dramatic transition toward a more multi-polar world order.

“The end outcome will almost certainly be more frequent and unpredictable flare-ups, as well as increased market volatility. Higher market volatility may also provide additional opportunities for global investment managers to produce alpha “Tracy Chen, a portfolio manager on Brandywine Global’s fixed income team, agreed.

The US Federal Reserve will likely not deviate materially from the market’s pricing of rate hikes, according to Derek Deutsch, managing director and portfolio manager at ClearBridge Investments. With inflation risks skewed even more to the upside by conflict-related commodity price surges, the US Federal Reserve will likely not deviate materially from the market’s pricing of rate hikes.

“Such inflationary pressures are felt more clearly and immediately in Europe, which could lead to the European Central Bank adopting a more dovish policy approach,” he said.