LONDON (Reuters) -World markets are watching closely as U.S. President Donald Trump and Russia's Vladimir Putin meet in Alaska later on Friday to seal a possible ceasefire agreement in Ukraine.

This was a conflict that sparked an energy shock, sent food prices soaring, battered European assets and cut Russia's economy off from much of the Western world.

Details and the longevity of any agreement will be key.

"The big issue will be, of course, that even if we get a ceasefire, how sustainable is that?," said Zurich Insurance Group's chief markets strategist Guy Miller.

Here is how Europe's biggest conflict since World War Two has shaped markets.

1/ EUROPE HURT

Europe's reliance on cheap Russian gas meant its economy and stock market were ill-equipped to handle surging energy prices, and Germany's economy, Europe's industrial powerhouse, stagnated. 

Stocks were broadly punished, with sectors reliant on low energy prices, such as industrials and chemicals, notably hit. 

European banks also took a drubbing but have since recovered as those exposed to Russia cut ties.

It has not been all doom and gloom and the European STOXX 600 index is not far off March's record high.

Aerospace and defence stocks have had a supercharged rally since February 2022, with gains ranging from over 600% for Leonardo to over 1,500% for Rheinmetall. 

"If the fighting stops in Ukraine, I'd expect defence stocks to come off a little bit but I think the fundamental reason why defence stocks have rallied is still there," said Toni Meadows, CIO at BRI Wealth Management.

"If Putin is still there and Trump is still there, then the need for Europe to spend on defence is still there."

2/ HEATED  

The invasion triggered a surge in European energy prices. Brent crude rose as much as 30% to $139 a barrel, while natural gas prices soared nearly 300% to record highs. 

Crude subsided in the following months. But Dutch TTF futures, the regional benchmark for natural gas soared as Europe scrambled for an alternative to the Russian gas that fed over 40% of total demand. 

Europe has since become increasingly reliant on U.S. super-chilled liquefied natural gas. The European Union has committed to boosting its purchases of U.S. crude, gas and coal from around $75 billion in 2024 to $250 billion per year to 2027, under a new U.S. trade deal - a figure most experts say is unrealistic. 

Oil and gas prices are below 2022 peaks, but they are higher than five years ago, up 50% and 300%, respectively.

3/ GENIE OUT OF THE BOTTLE

Following the COVID-19 pandemic, the war ensured the inflation genie was well out of its bottle as energy and food prices soared with agricultural exports from Russia and Ukraine - two leading grain exporters - disrupted.

Central banks backtracked on the notion that an inflation spike was "transitory" and aggressive interest rate hikes followed.

Since late 2022, inflation and rates have come down in big economies and focus shifted to U.S. tariffs.

High food prices remain a concern, especially for developing economies. World food commodity prices rose in July to their highest in over two years, according to the United Nations' Food and Agriculture Organization.

"If Ukraine could operate normally as an economy, that would help food prices around the world," said April LaRusse, head of investment specialists at Insight Investment. 

4/ UKRAINE AND RUSSIA

Ukraine's economy was battered by the war. The country was forced to restructure $20 billion of its government debt last year as it could no longer afford the repayments given the demands of the conflict.

Its bonds then rallied on hopes that a re-elected Trump would broker a peace deal but plunged following increasingly ugly exchanges between Trump and Ukraine's Volodymyr Zelenskiy culminated in February's infamous Oval Office meeting.

The bonds recovered some ground again this week.

Russia's economy also contracted after the West introduced sweeping sanctions but soaring defence spending led to a rebound in 2023 and 2024. After jacking up rates to combat the subsequent inflation spike though, some Russian officials now warn of recession risks.

Russia's rouble sank to a record low soon after the invasion, but rebounded to seven-year highs later in 2022 as imports dried up. It is up nearly 40% against the dollar this year. 

Russia and China meanwhile now do more of their trade in the yuan, which has overtaken the dollar as Russia's most traded foreign currency. 

5/CURRENCIES UPENDED

The war hit the euro, which fell almost 6% against the dollar in 2022 as the economic impact was felt.

Analysts say any improving sentiment created by a ceasefire could help the euro, but note that other factors, such as monetary policy were also key.

"The euro might benefit, but we wouldn't see this as a game changer for the currency," said Frederique Carrier, head of investment strategy for RBC Wealth Management in the British Isles and Asia. 

While safe-havens such as the dollar and Swiss franc benefited, the conflict shaped currencies in other ways.

Analysts say the use of sanctions against Russia and a decision by the West to freeze some $300 billion of Russian states assets in 2022 has accelerated de-dollarisation, in short, efforts by countries to decrease reliance on the dollar.