Here is an FT video summarising the current Ukraine situation and nicely unpacking the geopolitics:
This largely captures my own view. The danger in Ukraine is not of Western intervention. It clearly sits within Russia’s sphere of influence in a way that the former Yugosalvia did not. Besides, Yugoslavian conflict was born out of a withdrawing and defeated Russia post-Cold War. Now it’s revitalised and expanding once more.
The danger here is of a long running proxy war as Russia steadily destabilises and annexes Ukraine and “the West” is forced into clandestine support of Ukrainian resistance.
That would lead to a long and bloody outcome for Ukraine as well as:
- risk premia being built into those commodities that Ukraine and Russia is exposed to including wheat, nickel, oil, gas and iron ore at the margin;
- being a moderately serious blow to the European recovery (especially eastern) given the higher energy costs that will result;
- being a severe blow to the Russian economy, with probable recession, and will likely reverse the current flush of love in markets for emerging economies earlier than failing Chinese growth and the taper was going to do it, as well boosting safe haven flows.
For wider markets, it’s an unwelcome return of geo-political risk and deteriorating US hegemony and is likely to weigh on high-beta investments, as well as raise risk premia generally.
Not disastrous (except for poor Ukraine) but not irrelevant either and a long term problem that will get worse before it gets better.
