war finance

What the war in Europe means for your finances

On February 24, 2022, we woke up in a different world: For the first time since the Second World War, a country in Europe attacked another sovereign state and attacked it directly militarily in order to expand its own sphere of influence. Russia’s attack on its neighbor Ukraine has already cost the lives of thousands and hundreds of thousands are fleeing. Compared to this horror, our problems in this country are small.

Nevertheless, the war in Europe may have an impact on your daily life, your financial situation – and you are worried. We, as a consumer medium, have therefore researched what the Russian war of aggression means for some important areas of life, including

  • energy prices
  • retirement and investment
  • bitcoin and gold
  • Workplace
  • fixed deposit

In the article, we explain these points in more detail and give tips on what you can do. 

Energy prices: Electricity, gas, oil, and petrol are becoming even more expensive

Even before the Russian invasion, prices for electricitygasoil, and petrol were high in Germany. The war makes energy prices even higher for us consumers. The prices of the various energy sources often move in the same direction, sometimes with a time lag.

The purchase prices on the electricity exchanges tripled between the beginning of the war and the beginning of March. Gas purchase prices more than doubled in early March compared to pre-war levels. It is probably only a matter of time before the providers pass on the (further) price increases to us consumers. Electricity and gas were expensive even before the Russian invasion.

The prices for us customers for heating oil and fuels have already risen significantly: you pay more than EUR 1.70 per liter for heating oil, and even more than EUR 2 per liter for petrol and diesel (as of March 7, 2022).

However, the purchase price of crude oil is striking: after the price of crude oil rose sharply at the beginning of the war – to almost 130 US dollars – it fell again significantly in mid-March to a good 100 US dollars for a barrel of North Sea Brent. This is almost back to the price level before the Russian war against Ukraine. In mid-March, however, prices at German petrol stations had not yet fallen to the same extent. That should bring high profits to the mineral oil companies at the moment, while motorists groan under the high fuel prices.

There is still a risk that the prices for gas, heating oil, and motor fuels will jump again. Because Russia has so far supplied about 50 percent of Germany’s gas requirements and is also an important oil supplier. Gas deliveries via pipelines are currently continuing, but it is questionable for how long.

Oil is already arriving less and less from Russia because many traders no longer want to ship it. And voices are already being raised in Germany not to buy any more gas and oil from Russia – as a further sanction against the aggressor. That would hit Russia hard, but also consumers in Germany.

What you can do:

  • If you heated with oil, check whether you can still fill up your tank reasonably cheaply. You can find cheap oil suppliers via comparison portals such as Esyoil or Heizoel24.
  • The gas or You can switch electricity providers if you find one cheaper than your current one. Portals such as Check24 or Verivox, for example, help with the comparison.
  • As a tenant with central gas heating, your landlord shoots it rising gas prices in front. You’ll pay more later on the utility bill. You can ask your landlord to look for a cheaper gas supplier.
  • When it comes to filling up, petrol and diesel are often cheaper in the evenings after 6 p.m. at certain petrol stations in the area. You can find them with apps such as ADAC fuel prices, Mehr-Tanken, or Clever Tanken. If instead of the classic Super E5 you want the biofuel Super E10 to fill up, you can usually save additional money. Super E10 contains “only” 90 percent petrol from crude oil and up to 10 percent from plants. With Super E5, 95 percent comes from oil.

Retirement provision and investments: What happens to my shares and ETFs?

In crises, in particular, it pays off to invest in many different stocks – and thus spread the risk over many shoulders. A passive equity fund ( ETF ) on the MSCI World equity index is well suited for this.

This contains a good 1,500 stocks from highly developed industrial countriesnone from the emerging country Russia. The MSCI World also fell a few percentage points when the war began; for internationally active companies, Russia is not available as a sales market for the time being. At the beginning of March, however, the index was back at the pre-war level.

Another stock index popular with German investors is the MSCI World All Country Index (ACWI). In addition to industrialized countries, this also includes stocks from emerging countries such as Russia. All Russian stocks were removed from the index on March 9, 2022, i.e. are sold – a price of zero was assumed.

However, the Russian share in the MSCI World ACWI at 0.4 percent was negligible anyway. Investors will get over that. Even in the MSCI Emerging Markets index with stocks like Gazprom, the Russian share was only 3.3 percent. Russia was also kicked out of this index. To this end, the index provider MSCI has reclassified the Russian Federation from a developing country to a “standalone market”.

However, if you own shares in individual Russian companies, there is a risk of total loss. Russian shares are currently hardly tradable on the stock exchanges and are worth almost nothing.

What you can do: If your money is in worldwide ETFs, you can wait and see. Panic selling isn’t a good idea – you might sell your stocks short. Let your savings plans continue as normal. ETFs are still a good building block for your retirement provision.

If you own cryptocurrencies like Bitcoin

Investing in Bitcoin and other cryptocurrencies have always been speculative and risky. And in times of crisis, it is even more difficult to predict how the prices of crypto coins will develop. With the beginning of the war, the bitcoin price fell a little and within a few days rose again to the previous level (in euros).

Because of Western sanctions, Russia is largely cut off from international payment transactions via banks (exclusion from the SWIFT payment network ). There are signs that cryptocurrencies are being used to circumvent sanctions against Russia – crypto exchanges have not yet barred Russian customers.

A flight to cryptocurrencies would result in the Bitcoin price rising. However, it is not yet foreseeable whether Bitcoin and Co. will become Russia’s war currency.

What you can do: We find it cynical to buy cryptocurrencies in order to speculate on profiting from the bloody war against Ukraine. In addition, Bitcoin and Co. remain highly speculative. If you want to build wealth over the long term, we recommend investing in ETFs instead.

Gold as a crisis currency?

Gold is commonly referred to as the crisis currency. It is considered a safe haven in times when high inflation is spreading or the current economic system is cracking and people no longer trust it. The fear that the Russia-Ukraine conflict will spread has prompted many investors and probably also institutions in Germany to build up gold reserves.

Indeed, on March 4, 2022, the price of gold reached its all-time high. An ounce (31.1 grams) cost the equivalent of 1,800 euros. For comparison: when the eurozone threatened to break up in 2012, the price per ounce was about 500 euros lower.

What you can do: A small addition of gold to the portfolio, say 10 percent, can stabilize it, i.e. protect against fluctuations. However, the long-term annualized return on gold has – at least in the past – always remained below that of an international equity portfolio. Gold in the vault can therefore serve as a calming factor for you as an investor; it shouldn’t be so much about profitable investments.

What the war could mean for your job

Outside of the supply of raw materials and wheat, the German and Russian economies are not very closely intertwined. Germany exported goods worth around 23 billion euros to Russia in 2020. This means that the country is not one of the top 10 German foreign trade partners, it just ranks 15th. Goods shipped to Russia included mainly electrical engineering, machinery, chemical products, and automobiles and automobile parts. These industries could lose revenue as a result of Putin’s war against Ukraine.

Conversely, some companies in Germany are dependent on deliveries from the Ukraine and Russia – especially wiring harnesses for cars from Ukraine. These deliveries have not arrived or have been delayed since the beginning of the war. The BMW main plant in Munich had to temporarily shut down production due to a lack of parts adjust completely. The lines also stood still in Dingolfing and Steyr, and shifts were omitted in Leipzig and Regensburg. The lack of deliveries of wiring harnesses from Ukraine at Volkswagen, Audi, Porsche, and the truck manufacturer MAN have similar consequences. Thousands of employees are affected, many of whom have to go back to short-time work in mid-March.

The Russian aggression in Europe is already having a very concrete impact on the local workforce, especially in the automotive industry. “Manufacturers and suppliers are working flat out to compensate for the failures and disruptions in the supply chains and to ramp up alternatives,” says the association of the automotive industry. In their statement, the German car manufacturers expressly support the sanctions against Russia. It is quite possible that the industry can adapt quickly and that jobs will be preserved.

What you can do: You know best whether your company is one of the few that has close ties to the Russian economy. This does not apply to most companies in Germany. The risk of losing your job due to the Russian war is therefore rather low. Anyway, staying calm is the best option right now.

What if you have fixed deposits in Russian banks?

In recent years, many consumers in Germany have invested money for a certain period of time. Among other things, there were (from the point of view of the time) interesting offers from the European branches of some Russian banks, including Sberbank.

In the face of sanctions against Russian banks – some have been banned from the international payment system SWIFT – the European branch of Sberbank has also suffered. The European Central Bank (ECB) expects the bank’s European subsidiaries to be “failing or likely to fail.”

According to a press release dated February 28, deposits had flown out to a considerable extent and had worsened the liquidity situation of the banks.

What you can do: If you have deposits at a European branch of Sberbank, these are guaranteed by the EU-wide deposit insurance up to 100,000 euros. You can read how to proceed in our article on deposit insurance.

About the Author

Karren Brandenburg

Karren Brandenburg is a travel and shopping expert. She has been quoted in Street Insider, Yahoo Finance, Reuters, ABC News, and MarketWatch. Karren has a total of 18 credit cards, using reward points to see the world on a budget.