Economists at ABN Amro have made significant changes to their macro outlook following the Russian invasion of Ukraine in late February. They continue to expect the conflict to trigger a lasting global trade re-alignment. Subsequently, the economists update their three scenarios outlining how they expect this to play out.
Base case: Energy and commodity supply shock lasting one-year
“Sanctions and self-sanctioning leads to significant reduction in oil, some gas (LNG), and other commodity imports from Russia. Prices are persistently elevated, with supply disruptions lasting around one year until alternative supplies are secured. EUR/USD: Move to 1.05. Energy (2022-23 averages) Brent: $110-130/bbl WTI: $105-125/bb.”
Negative scenario: Supply disruptions last up to two years
“As in the base case, but Russian oil and gas supply is completely cut-off, either through official embargoes or Russian retaliation to sanctions. Trade re-alignment takes longer, leading to more persistent supply disruptions of up to two years. EUR/USD: Move to parity or below. Energy (2022-23 averages) Brent: $130-160/bbl WTI: $125-155/bbl.”
Positive scenario: More rapid and/or smoother trade re-alignment; disruptions lasting 6 months
“Trade flow s realign more quickly, shortening disruption to energy and other supplies to around 6 months. The US and perhaps some OPEC countries raise oil output to fill the gap left by Russia, and/or Russian oil is bought by eg. China, freeing non-Russian supply to go to Europe. Same applies to other commodities. EUR/USD: 1.10. Energy (2022-23 averages) Brent: $80-110/bbl WTI: $75-105/bbl.”