Russian equities weren’t amused with a second day of war escalations from the Kremlin.
Local shares extended losses Wednesday, after suffering a dramatic rout during the prior session on fears that sham referendums to justify annexing 15% of Ukraine presage an intensification of the conflict.
Luhansk, Donetsk, Kherson and Zaporizhzhia are all scheduled to “vote” over the next week on annexation. The results are a foregone conclusion. As has so often been the case over the past half-dozen or so years, Moscow is totally unconcerned with optics. The referendums are sheer, blatant farce, and outside of Vladimir Putin’s domestic propagandizing, the Kremlin probably won’t put a lot of effort into claiming otherwise.
The MOEX fell as much as 9% on Wednesday, before trimming losses. On Tuesday, the benchmark fell as much as 11% before closing around 9% lower. The figure (below) underscores the scope of investor consternation. Note that Tuesday was the worst day since the onset of the invasion.
The four-day rout came to almost 15%. If it continues, Moscow will probably take steps to stabilize the market. Sentiment was also impaired by jitters around a possible tax hike tied to commodity exports.
Dmitry Medvedev (who was, of course, president during a brief interregnum that overlapped with Barack Obama’s first term), declared the annexations “irreversible,” and emphasized that Russia would be fully within its rights to defend the territories with maximum force.
That, in turn, opens the door to the deployment of tactical nuclear weapons, a threat Putin underlined during an irritable address to the nation on Wednesday, when the Kremlin announced a partial mobilization.
I should emphasize that this is a crossing the Rubicon moment. Ukraine will never accept these annexations. Neither will the international community. Indeed, it isn’t especially likely that the Kremlin will be able to secure formal recognition from all (or any) of its allies. At the least, many will prefer to remain silent on the issue to avoid running afoul of the US Treasury, which will doubtlessly sanction everyone involved — or everyone involved who isn’t already sanctioned.
Earlier this week, Recep Tayyip Erdogan suggested Putin should return all seized territory, including Crimea. The invasion, he told PBS, “cannot be justified.” Although Turkey is a NATO member, Erdogan insists he’s neutral. “Since 2014, we have been talking to my dear friend Putin about this, and this is what we have requested from him: Return Crimea to its rightful owners,” Erdogan responded, when queried by Judy Woodruff. “But since then, unfortunately, no step has been taken.”
Erdogan’s description of Putin as “a dear friend” is simultaneously sincere and tongue-in-cheek. Erdogan is friendly with the Kremlin — until he isn’t. He (famously) clashed with Washington over the purchase of advanced Russian missile systems, and is always eager to make a show of meeting with Putin to discuss areas of mutual concern. Often, those meetings amount to little more than chest-puffing contests. At various intervals during Syria’s never-ending civil war, though, Erdogan made clear to Putin that to the extent Turkey’s objectives in the country were consistent with Russia’s, that was convenient, but when not, Russia would need to stand aside and let Erdogan pursue his cross-border activities unimpeded. Generally speaking, Putin acquiesced.
It wouldn’t be accurate to suggest Russia “needs” Erdogan as a friend. Certainly not in the same way Putin needs Xi Jinping. But it’d be entirely fair to suggest that Putin doesn’t want an antagonistic Erdogan either. And I doubt seriously that Erdogan is enamored with the prospect of Russia annexing more territory. There’s a very real sense in which these sorts of escalations make a fool of Erdogan, who’s been keen to tout Ankara’s role as mediator, particularly as it relates to freeing trapped grain shipments.
In any case, other world leaders were quick to describe Russia’s first mobilization since World War II as a sign of weakness. Romanian Prime Minister Nicolae Ciuca noted that Putin’s timing left something to be desired. “Today is international peace day,” he said.