The market has a cruel way of pricing in reality, and for the Russian economy, that reality just got a lot more expensive. The attack on the Moscow oil refinery is not just a tactical strike; it is a direct assault on the Kremlin's fiscal lifeblood. For years, we have watched the Russian state depend on hydrocarbon revenues to prop up its war machine and social contracts. An attack on a refinery in the capital, not some distant outpost, sends a clear signal to global investors: the risk premium on Russian assets has just spiked.
Let's talk about the bottom line. Gilt yields in the UK may be our bread and butter, but the ripple effects of this event will be felt in London trading floors. Capital flight from Russia, already a torrent since the invasion of Ukraine, will now accelerate. The rouble will weaken. Inflation, that silent tax on the ordinary Russian, will climb higher as fuel prices react to disrupted supply chains. The central bank will be forced to tighten monetary policy further, choking off whatever vestiges of economic growth remain.
The UK government's call for restraint is interesting from a fiscal perspective. It suggests a concern for escalation risk. But restraint is not a strategy. It is a hope. The market does not trade on hopes. It trades on data, on supply and demand, on the hard numbers of barrels per day and refining capacity. The attack on Moscow refinery has taken capacity offline. That is a fact. And facts have consequences for the bottom line.
In the City, we are watching the yield curve. Any further disruption to Russian energy exports will put upward pressure on global oil prices, feeding into UK inflation expectations. The Bank of England will have to factor this new volatility into its rate decisions. The prudent investor should brace for a bumpy ride. The attack is not just a story about war; it is a story about risk, about the cost of capital in a world where sovereign assets are no longer off-limits.
Skepticism is warranted. The government's plea for restraint may be politically necessary, but economically, the damage is done. The market has already begun to price in a higher cost for Russian energy infrastructure. And for the average Russian, the war has indeed come home. The refinery is a symbol of normal life. Its disruption is a reminder that no asset is safe. The bottom line is clear: volatility is the new normal, and fiscal responsibility has never been more essential.
