Ukraine Russia War Crisis

  • Published | 25 February 2022

As world leaders work to ease tensions between Russia and Ukraine, the crisis in eastern Europe has the potential to spread to other nations. Thousands of Russian troops have gathered outside Ukraine, raising concerns about an invasion. Moscow's full on assault of Kyiv could begin at any time,' according to the White House...

Ukraine Russia War Crisis-minOn February 21, 2022, Russia recognized the Donetsk People's Republic and the Luhansk People's Republic as separate Republics and deployed troops at Donbas, thereby withdrawing from the Minsk Protocol. Putin declared on February 22 that the Minsk agreements were no longer legitimate. The Federation Council unanimously authorized the use of armed force in the territories the same day.

On the morning of 24 February, Putin announced that Russia was initiating a "special military operation" in the Donbas and launched a full-scale invasion into Ukraine.

The Russian Defence Ministry on 24 Feb 2022 morning announced that it had taken on Ukraine’s air defenses and its Air Force with a series of precision attacks after airports and runways across the country were rocked by explosions.

Multiple Western countries are expected to offer Ukraine military support due to the military imbalance between Russia and Ukraine. Several NATO allies in Eastern Europe have received reinforcements. Russia has been sanctioned by the United States, the United Kingdom, and the European Union (EU) as a result of Russian soldiers entering DPR and LPR territory. Sanctions were imposed against the financial sector as well as government officials. Trade with the DPR and LPR has also been restricted by the EU. The certification process for the Nord Stream 2 gas pipeline has been delayed by Germany, with Australia, Canada and Japan having declared more restrictions. Belarus might face sanctions if it aids Russia in the invasion, according to the EU. Several countries across the globe have issued travel warnings for Ukraine.

A full throttle Russian invasion of Ukraine would have ramifications across a range of markets, from wheat and oil prices to sovereign dollar bonds in the region, as well as safe-haven assets and stock markets.

  1. Safe havens
  • Even though a Russian invasion of Ukraine risks huge surge in oil prices — and therefore inflation — investors typically rush back to bonds after a significant risk event, and this time may be no different.
  • Bond markets have had a tense start to the year, with U.S. 10-year rates still lingering near the critical 2% level and German 10-year yields above 0% for the first time since 2019.
  • The Euro/Swiss franc exchange rate (at a five year low) is recognized as the most important indicator of geopolitical risk in the Euro zone in the forex markets, since the Swiss currency has traditionally been viewed as a safe haven by investors.
  • Gold, which is generally considered as a safe haven in times of war or economic turmoil, is clinging to 13-month highs.
  1. Grains & Wheat
  • Any interruption in the movement of grain out of the Black Sea region is expected to have a significant influence on pricing and fuel food inflation at a time when affordability is a major worry around the world as a result of the COVID-19 pandemic.
  • Ukraine, Russia, Kazakhstan, and Romania, four key exporters, carry grain from Black Sea ports that may be disrupted by military action or sanctions.
  1. Natural Gas & Oil
  • If tensions escalate into conflict, energy markets will be impacted. Around 32-35% of Europe's natural gas comes from Russia, much of it via pipelines that run via Belarus and Poland to Germany. Also, the Nord Stream 1 pipeline that goes directly to Germany, and others via Ukraine.
  1. Company Exposure
    • A Russian invasion might also have an impact on publicly traded western companies, however any revenue or profit losses for energy companies could be somewhat compensated by a potential increase in oil prices.
    • Shell has a 27.5% ownership in Russia's first LNG facility, Sakhalin 2, which accounts for a third of the country's total LNG exports, as well as other joint ventures with state-owned Gazprom.
    • ExxonMobil operates through a subsidiary, the Sakhalin-1 oil and gas project, in which India's state-run exploration Oil and Natural Gas Corp is also a shareholder. Equinor, a Norwegian company, operates in Russia as well.

With the developments taking place at a rapid pace, all major economic/military powers have their eyes glued to where this conflict is headed. Any major engagement in this conflict can lead to various other global powers also getting involved, which may have huge ramifications for the entire global economic scenario in the short to medium term, for sure. At the time of publishing this article, the Russian troops have already reached the capital city of Ukraine, Kyiv, with armed tanks rolling down the city streets. News also came in that Russia has announced a full blown land, air and sea assault on Ukraine, with Ukraine seeking help from western powers. Also, EU as well as US, Canada and Australia are considering hardest possible sanctions on Russia, to an extent to ousting Russia from UN Security Council. With all of this at play, it remains to be seen what proportions does this crisis reach, with a Gulliver and a Lilliput facing each other head to head. This conflict is also more of an assertion of Russia against western powers that may have far reaching consequences in short, medium and long term. Mostly importantly, it should turn out to be a litmus test for gauging the prowess / relevance of all the peace making / human welfare arrangements like UNSC, etc., that we have put in place post WWII.

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