Financial markets around the world are taken aback as tensions between Ukraine and Russia escalate.
Investors and traders even sold US stocks which have limited exposure to the region. According to FactSet, “[t]The combined exposure of S&P 500 earnings to Russia and Ukraine is around 1%.”
From a business perspective, this exposure is not universally negative.
“We are seeing interest in Russia and Ukraine, which could arguably be tied to some of the short-term security issues here,” Aaron Jagdfeld, CEO of Generac GNRC,
said during his earnings call on Feb. 16. Generac manufactures and sells standby power generators.
A widely cited business risk appears to be disruptions to oil and natural gas supplies, a concern that has driven up energy prices for businesses and consumers. The West Texas Intermediate CL.1 price,
crude has jumped 22% this year.
But keep in mind that the United States is one of the largest fossil fuel producers in the world, led by Chevron CVX,
EOG EOG Resources,
and Conoco Phillips COP,
“Rising oil and gas prices could further benefit North American energy companies, whose stocks have been among the best performers over the past year,” Fidelity Investments analysts wrote on Feb. 16.
Scott Sheffield, CEO of fracking company Pioneer Natural Resources PXD,
told analysts on Feb. 17 that energy demand alone could push oil prices up to $150 a barrel. Pioneer is one of the largest landowners in the Permian Basin, which is ground zero for hydraulic fracturing in the United States
“It’s ignoring the situation in Iran and Ukraine,” Sheffield said. “There’s no reason to put up a hedge when it’s obvious things could easily move north.”
The threat of military action is obviously a major concern for companies that have a physical presence in the region.
However, many of the businesses that are there now were also there in 2014 when Russia invaded Crimea.
Among the companies are:
“As a people company, it’s about making sure everyone on our team is in the right place,” said Christophe Beck, CEO of the specialty chemicals company, on February 15. “Unfortunately, we had some experience a few years ago when Crimea was the focus and we handled that very well.
EPAM EPAM Systems,
“We remember 2014 and 2015 all too well, and then 2020 as well,” Arkadiy Dobkin, CEO of the software consultancy, said on Feb. 17. “In 2021, to navigate this situation, we pursued something that we have actively begun to implement since 2014, both organic and M&A-based efforts to improve the geographic diversification of our talent and the do so without any degradation in the quality of our services.”
DXC technology DXC,
“We’ve been successful through events like this,” Mike Salvino, CEO of the IT consultancy, said earlier this month. “If necessary, we are ready to support a movement of our people to Poland. … We have equipped all of our people with technology. So think about computers, cell phones, network connections. We also found accommodation.
: In a call with analysts in January, the credit card company’s CEO, Michael Miebach, spoke about steps the rest of the world could take in response to Russian aggression.
“We’ve seen sanctions applied in previous years and we’re basically getting there,” he said. Although he acknowledged the current situation was still unfolding, saying “we’ll have to see how it plays out.”
Although the business community may be better prepared today than it was in the past, there is no sign that we are safe. The situation in Ukraine is fluid and it is certainly too early to rule out the risk of a major escalation.
Sam Ro is a MarketWatch columnist and editor of the TKer newsletter.