Russia-Ukraine Conflict Sparks Volatility In ETFs

Russia-Ukraine Conflict Sparks Volatility In ETFs

Geopolitics has overshadowed inflation/interest rate fears in recent days.

Senior ETF Analyst
Reviewed by: Sumit Roy
Edited by: Sumit Roy

It’s hard to imagine that the inflation and interest rate fears that permeated financial markets so intensely this year could be overshadowed, yet that’s exactly what’s happened.  

Concerns about the conflict between Russia and Ukraine have been bubbling for some time now, but they fully came to a head this week after Russian president Vladimir Putin ordered troops into two disputed territories that much of the international community considers part of Ukraine.  

Just before that, Putin had recognized the independence of the Donetsk People’s Republic and Luhansk People’s Republic, two areas where separatists are fighting the Ukrainian military for control.  

Suddenly, the Russia-Ukraine conflict has become top of mind for investors who worry that it could become a much larger war, one in which Russia makes a move to invade and take over all of its neighbor’s territory.    

To discourage it from moving further into Ukrainian territory, the U.S. and its allies imposed fresh sanctions on Russia, including the pausing of a key natural gas pipeline between Germany and Russia; financial restrictions on Russian oligarchs and banks; as well as an end to the trading of Russia’s government bonds on exchanges in the U.S. and other allied countries.  

Western leaders warned that even harsher punitive measures will be unleashed in the event Russia moves further into Ukraine. 

Significant Concern  

Though geopolitics rarely has had a lasting impact on U.S. markets in recent years, some analysts are calling Russia’s invasion of Ukraine the most significant military conflict in Europe since World War II. That alone is cause for concern, especially considering Russia has the largest stockpile of nuclear weapons in the world. 

No matter how remote the use of nuclear weapons is today, just the prospect of one large country invading another is something this generation of investors has really had to deal with. 

And even under more benign scenarios, sanctions on Russia could have an economic impact. Oil prices jumped above $99 for the first time since 2014 this week, stoking further inflation pressures at a time when growth in the U.S. CPI is at a 40-year high.  

Further Russian aggression will only lead to more sanctions and potentially less oil on the market if the country’s energy sector is targeted. 

The U.S. and its allies are keeping mum about exactly what additional sanctions they will impose if Russia continues to advance on Ukraine, but restrictions on Russia’s oil and gas sectors can’t be completely ruled out. 

ETF Impact  

In terms of ETFs, the most obvious fallout from the Russia-Ukraine conflict is on Russia equity ETFs. The VanEck Russia ETF (RSX) and the iShares MSCI Russia ETF (ERUS) tumbled 9% and 10%, respectively, on Tuesday. 

Both ETFs have fallen more than 36% since peaking in October. The poor performance is even starker when you consider that oil and gas account for a huge chunk of Russia’s economy (20%, per the Wall Street Journal), and those commodities have been surging lately. 

Indeed, energy is another area where there’s been significant ETF activity in response to the Russia-Ukraine conflict. The United States Brent Oil Fund LP (BNO) is up 25% this year, while the Energy Select Sector SPDR Fund (XLE) is up 21%. 

BNO was up about 2% on Tuesday, but the equity-focused XLE was down the same amount amid a pullback in the broader stock market (the S&P 500 tumbled 1%, bringing its losses from the all-time high to more than 10%). 

Expect more volatility in markets if the Russia-Ukraine conflict continues to drag on, and particularly if it escalates. On the flip side, a cooling of tensions might see stocks stage a relief rally at the same time that oil pulls back.  


Follow Sumit Roy on Twitter@sumitroy2  

Sumit Roy is the senior ETF analyst for, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for, with a particular focus on stock and bond exchange-traded funds.

He is the host of’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays,’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.