Vladimir Putin will find he’s “gravely miscalculated,” Boris Johnson said Tuesday, as the world pondered war following the Kremlin’s decision to recognize separatists in Ukraine.
The UK is looking at what else it can do to help, and Johnson reiterated that the evidence suggests Putin plans a “full-scale” invasion. It’s “vital,” he said, that any such military expedition not succeed.
European and US shares were jumpy, falling, then rising, then falling again with the ebb and flow of all-caps Bloomberg headlines. A Russian lawmaker indicated that although parliament will ratify agreements with separatists republics, the treaties aren’t specific with regard to borders. That matters. Initially, markets traded on the assumption that separatists’ claims over the entirety of Luhansk and Donetsk would be recognized. They control just a third of the territory.
Although Putin ordered “peacekeeping” security forces to the breakaway regions, the Donbas republics could make do with anti-aircraft batteries, Eduard Basurin, a spokesman for the Donetsk separatists said. It may not be necessary for Putin to deploy regular military units.
As for Western sanctions, the EU was considering measures targeting at least 350 Russians, including Duma members and commanders. The scope of US and UK sanctions will ultimately dictate the market mood — up to and until Putin orders military action.
Obviously, trading any of this in real time was a fool’s errand, best left to algorithmic market “participants.” Western assets will be a headline-driven circus for days.
Russian equities, meanwhile, extended recent losses to ~19% (figure below). The benchmark was some 30% below its October high at one point, before shares trimmed declines.
If you like catching falling knives, Russian shares are now the cheapest since 2009, and the cheapest ever on a forward P/E basis versus emerging market peers.
Of course, the profit outlook for Russian corporates could deteriorate depending on the scope of Western sanctions, which in turn depends on what Putin does next.
The ruble also managed to trim losses, but the figure (below) shows the currency decoupling entirely from crude, a testament to the panic Putin engineered.
Brent rose as high as $99 on Tuesday. Clearly, the energy situation in Europe will be even more fluid now. Germany said “things have changed” regarding Nord Stream 2. Certification can’t happen right now, Olaf Scholz said. Volodymyr Zelenskiy insisted the project should be stopped. Energy was the standout sub-index in the Stoxx 600.
“Moscow’s recognition of the [separatist] republics’ independence could simply be intended to formalize previous tendencies favorable to Moscow… but the move will leave the conflict unresolved like others in the region such as those in Moldova or Georgia and demonstrate the West’s inability and unwillingness to effectively intervene, thereby also effectively ending the already dubious prospect of Ukraine NATO membership,” Stratfor remarked. “Alternatively, Moscow could use the treaties allowing it to station Russian troops in the breakaway republics for military action against Ukraine in the coming days.”
“[This] appears to be madness,” Rabobank’s Michael Every wrote. “Russian troops moving into what the world still regards as Ukraine is going to be taken as a further invasion [and] recognizing the two Donbas republics, while not incorporating them into Russia, achieves nothing,” he added. “There is now no way [Putin] can win Kyiv back to Russian influence peacefully.”
“There is now no way [Putin] can win Kyiv back to Russian influence peacefully.”
I think it’s safe to say he’s no longer trying, if he ever did…
First: Putin cannot afford an all-out ground war. Second: if one keeps a standing army in a dictatorship, they better keep the standing army occupied or else the standing army will displace their leaders.
Baltic Nato countries will not look at inaction by NATO heavy weights favorably. This move certainly drives wedges between western allies. We will see if Russia pays any price.
Remember though that all three baltic Nato countries are also part of the EU, Schengen and the Euro monetary system. Russia moving into those would be many, many steps too far for Putin and would certainly evolve into a full on war with the West.
My wife is Latvian, so that subject hits home.
I’m not suggesting Russian military action against the Baltic states. I’m saying that Baltic states will not be happy about thethe US and company giving Russia a slap on the wrist while it de facto annex’s additional Ukrainian territory.
Taiwan next?
I keep wondering if part of this whole mess is some sort of secret agreement between Putin and Xi where each will be providing cover for the other.
Mr Lucky – China moving on Taiwan is VERY unlikely to happen. Zero probability.
Why can I say that so unequivocally? It’s because I have options positions to hedge against that contingency.
I think it is clear going back to 2016, Putin has said publicly that the push of NATO into Eastern Europe was an insult to Russia. In letters he has released recently Putin has brought this up. It is also clear to me that Putin only understands one thing winning and losing militarily. He is personally a billionaire so sanctions will have no impact on him personally,
In fact I think Putin is laughing at us right now knowing that we sent over 9000 troops when the the US believes he could have 190k around Ukrainine currently. Putin believes we are weak, if we don’t send in at least 50k troops and build the force up from there, Putin will occupy the Ukraine, then set his real plan in action which is to take over the other Eastern European countries that were let go in the 1990’s.
Romania, Poland, the Baltics etc. are all EU countries. Belarus and Moldova are already Moscow friendly, so I just can’t see how Putin could go anywhere beyond Ukraine.
The History of Eastern Europe is filled with complexities. My father who was a Research Scientist in the US fought in the German (offensive ) of Stalingrad and was also fluent in Russian being a Hungarian. I was born there and heard a lot of stories some written in his memoirs.. Tough times for all concerned in those days ..I came out in a Barge during the bombing (Budapest ) at the age of six months . Geopolitics is exiting , The trouble is it can be cynical.
Of the former USSR states that became independent and are neither in NATO nor the EU, Ukraine is the economic prize.
If Putin can take control of Ukraine, and cement control of Belarus (from where Russian forces aren’t likely to leave soon), that’s a big win. Naturally the NG taps will open up and other inducements flow, when he accomplishes that.
Europe, in particular Germany, is thinking how much is Ukraine “worth” and does it want to take on Russia at this fraught time, or simply sanction a few minor banks and quietly accept the gas.
However, recognizing two small areas at the eastern end of Ukraine is a long way from taking the country. Can Putin achieve the latter without a bloody, destructive siege of Ukraine’s capital? Can Europe, in particularly Germany, watch that happen and stay quiescent?
Because that’s what Germany has been, a mute non-factor that even blocked German-made weapons from being sent to Ukraine for fear of interrupting the NG that they rely on even more after shutting down their nuclear plants.
Does the average German realize that for the buy-off of energy they will be acquiescing to the return of the USSR and destruction/death on a scale unseen in Europe since WW2? I guess we’ll see.