Certain Stocks Could Benefit as Russia-Ukraine Conflict Continues

The Russia-Ukraine conflict has been making political headlines for quite some time now. While the risk of military conflict between Ukraine and Russia is a potent geopolitical risk for the broader stock markets, it could also boost some stocks.

French President Emmanuel Macron visited Russia and Ukraine. He said that Russian President Vladimir Putin has assured him that Russia won’t escalate tensions. However, Russia quickly denied the reports that it won’t undertake any new military measures at the Ukraine border.

According to The Washington Post, Russia is set to start a 10-day military drill in Belarus, which is among its staunchest allies among the former Soviet countries. The military exercise, which would feature advanced weapon systems like the S-400, is seen as a show of strength and a signal to Ukraine.

The military exercise would be the largest deployment in Belarus since the Cold War days. Ukraine’s capital Kyiv is less than 100 miles away from the border with Belarus.

First, a Russia-Ukraine war isn't imminent considering the massive costs that it would entail for Russia. Putin might just be trying to steer NATO away from what it sees as its circle of influence. However, with thousands of soldiers ready on both sides and tensions running high, there's always a scope for strategic miscalculations.

After the breathtaking rally over the last three years where the S&P 500 with dividends almost doubled between 2019 and 2021, U.S. stocks have taken a breather in 2022 and have come off their highs.

High inflation, expected interest rate hikes, slowing growth, and high valuations have already led to a risk-off environment. A full-fledged conflict between Russia and Ukraine would be the last thing that markets want right now. We could see a fall in U.S. stocks if the tensions between Russia and Ukraine escalate more.

For Russia, the conflict with Ukraine has costs and gains. While there's a cost associated with maintaining thousands of troops at the border, the country has also benefited from higher commodity prices, which are at least partially due to the Ukraine tensions.

Russia is among the biggest aluminum and energy producers. Aluminum prices have surged to their highest level since 2008, while crude oil and natural gas prices have also spiked. Crude oil prices are threatening to surpass $100, which is a possibility that Putin talked about in 2021.

Companies that make arms and ammunition could see buying interest if the tensions escalate between Russia and Ukraine. However, the real impact is being felt on the stock prices of aluminum and energy companies.

Alcoa, which warned about an aluminum supply disruption amid the Russia-Ukraine crisis, could be among the biggest beneficiaries of the tensions between the two countries. Energy companies, which include both crude oil and natural gas companies, could also benefit.

Europe depends on Russia for its energy needs, which is why European leaders have been calling for peace between Russia and Ukraine. However, if there's a military confrontation between Russia and Ukraine, the former could see sanctions that might hit its energy exports.

Apart from energy companies in the Middle East, U.S. oil and gas companies might also benefit from higher exports to Europe. Energy companies are reporting bumper earnings amid the rise in energy prices.