What would a Ukraine peace deal mean for your money?

US president Donald Trump is set to meet Russian counterpart Vladimir Putin in Alaska tomorrow (Friday 15 August) and the two are expected to discuss terms for a peace deal in Ukraine.

Putin’s invasion of the country in 2022 prompted a notable market downturn, and it is no exaggeration to say that much of the world is still struggling in the wake of the economic fallout.

Russia is one of the world’s largest oil producers, and the sanctions imposed against its exports by the US and Europe fuelled runaway inflation by pushing up oil prices.

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Ukraine, meanwhile, is a key producer of wheat, often referred to as the breadbasket of Europe. The decimation of its economy has been a key driver of food inflation (which, in the UK, ran at 4.5% in the year to July, according to the latest ONS data).

While hopes for a full peace agreement are slim – there are concerns that Trump will make concessions to Putin that Ukrainians will find unacceptable – a cessation in hostilities would not only be hugely welcome news on a human level, but it could also have substantial implications for your finances.

How likely is a Ukraine peace deal?

Trump has signaled that he is prepared to get tough with Putin ahead of the Alaska meeting, yesterday promising “very severe consequences” if Putin rejects a ceasefire following a talk with European leaders.

These consequences would likely take the form of tougher economic sanctions. Trump has already slapped additional tariffs on India for continuing to import Russian oil, and has threatened that these could be increased.

But while those leaders maintain that Ukraine needs to be included in any negotiations – and Trump has suggested that he could be open to Ukraine’s president Volodymyr Zelensky joining a second round of talks after tomorrow’s summit – the big concern remains whether or not Trump will be able to reach an agreement that both sides in the conflict deem acceptable.

According to Kaan Nazli, EMD portfolio manager at Neuberger, it is probable that “Russia will propose some form of ceasefire, contingent on Ukraine accepting certain – potentially onerous – conditions” and that “a durable, comprehensive peace agreement will remain far out of reach".

“Russia’s priority is likely to frame Ukraine as the obstacle to peace, rather than to pursue a genuine settlement,” Nazli adds.

But that doesn’t mean that any form of ceasefire is out of reach. A temporary pause in the conflict could have significant financial impact, and potentially pave the way for a full peace agreement further down the road.

How might a Ukraine peace deal impact inflation?

The war in Ukraine caused an upsurge in inflation, and it follows that a pause or end to hostilities would have a disinflationary impact, particularly if it enabled an easing of the trade sanctions that have been in place since it began.

Oil prices have been falling this week ahead of the meeting between Trump and Putin. Brent crude prices fell to a two-month low of $65.63/bbl yesterday, which Jim Reid, global head of macro research and thematic strategy at Deutsche Bank, says “helped to alleviate some concerns about inflationary pressures in Europe”.

In Nazli’s view, a ceasefire would offer global disinflation tailwinds. These would be particularly pronounced in Central and Eastern Europe as well as Turkey, and could lower headline inflation rates in the eurozone by 20 to 30 basis points.

“The impact on the UK economy is likely to be slightly better due to the higher reliance on energy imports,” said Nazli, “easing pressure on energy-intensive sectors such as chemicals and manufacturing.”

The investments that could win or lose from a Ukraine peace deal

In essence, a Ukraine peace deal would be great news for risk assets, which typically underperform during periods of turmoil, but it would impact certain investments which have seen gains during the conflict negatively.

Gold is one of these. The events of 2022 prompted a rush to invest in gold as consumers and central banks moved to protect themselves from the impact of the global market downturn.

“In most cases, global conflict and trade uncertainty drive gold prices, and with many hoping for a positive outcome ahead of Friday’s meeting, investors will be keeping a close eye on how the gold market responds,” said Rick Kanda, managing director at The Gold Bullion Company. “A breakthrough in talks could impact gold's safe haven appeal.”

Defence stocks have also been big winners from the conflict, for obvious reasons, but could lose out in the event of a peace deal. Military suppliers like BAE Systems and Rheinmetall fell on 11 August as news of the upcoming summit broke.

It is highly unlikely, though, that European nations would scale back their increased military spend in the event of a deal.

“While a ceasefire may slow the pace of further increase, defence spending is expected to remain structurally higher than before the conflict,” says Nazli.