This week we get to take a break from talking about inflation to talk about… inflation. Although, in this case, what effects Russia’s moves on Ukraine might have. Russia’s economy is the 11th largest in the world as measured by nominal GDP, which seems significant until we realize it is smaller than Canada’s and 1/10 the size of China’s. Ukraine is 55th. Where Russia is most consequential in terms of their economy on the world stage is energy – petroleum and natural gas. Europe is a net importer of natural gas, a significant portion but not all of which comes from Russia. They have been increasing LNG imports from the US and Qatar, but that is mostly offset by a steady decline in domestic production. Natural gas is not the only major piece of the European energy portfolio, but it is material. Prices have already been high, and the decision to delay certifying Nord Stream 2 in response to Russian aggression means little relief is on the way. Globally, “OPEC+” has been falling short of targets to increase production post-COVID wind-down and the Ukraine conflict will not help climbing prices for oil either. The West is putting the framework for a new sanctions regime in place but that will mostly be about deciding who takes what share of the economic pain to box out Russia. Rising oil prices have similar effects on the economy as rising interest rates, so we are interested to see how the Fed digests the changing macroeconomic environment and the need to be aggressive on policy rates later in the year. Looking longer term, assuming the priority does not become preventing total war as Putin tries to reassert the borders of the former Soviet Union, we see this moment as a tipping point for Europe to accelerate their transition to a low-carbon future because it is an undeniable security imperative for the EU member states.  [Sources: US Energy Information Administration and McWilliams, B., G. Sgaravatti, G. Zachmann (2021) ‘European natural gas imports’, Bruegel Datasets, first published 29 October, available at]