Although it’s kind of an international political issue, it’s freaking the market out for the past few weeks. I’d like to offer some ‘good case scenario’ analysis.
So first of all, a large scale invasion won’t happen. If it does, the sanctions on Russia will be crippling. The trade with Europe will be affected and many American companies have vital interest in them and in the broad European economy. I doubt if anyone wants that to happen at all.
Second of all, let’s examine the motive of Putin. What does he want? He knows Ukraine is drifting away and at this point it’s pretty much irreversible. But to safeguard the border, he would have to have some ‘buffer zone’. Therefore he orchestrated the ‘independence’ of these two regions, placing the military around Ukraine as a threat to make sure Ukraine does not respond fiercely. Now that he got the buffer zone he wanted, it’s doubtful that he is willing to escalate this. Since Ukraine is not In NATO, the NATO will basically just be training and supplying some weapons. It’s very unlikely that they will venture an incursion into the Donbas region.
Now finally, what does the US want? Why the US is acting like a maniac, almost unilaterally declaring that Russia is going to invade Ukraine like ghengis khan leading his steeds and cover the country with blood? Why it’s denying any possibility of accepting some of Putin’s demands as if wanting there to be major conflict? First of all, US wants an unstable and weak Russia. Making the situation bigger will allow the US to come up with more severe sanctions. It can also shake up the ties between European countries and Russia, ensuring that the US’s dominance will persist (if we ignore China for a second). There is absolutely no way that the US is going to put boots on the ground. But the weapon companies are very happy to sell more weapons, either to the pentagon to donate them or to Eastern European countries who feel threatened by the move. So weaker opponent and profit on the fears, why not?
My guess is that this is Putin’s multi-year (or even decade) plan to encroach the eastern Ukraine, possibly up to Kyiv. This step will be just like the 2014 Crimea crisis, put a little dent in the market and then it’s effects will fizzle out.
(That is not to say any interest rate hike or balance sheet reduction won’t affect the market. That
is definitely the major uncertainty the FUD we see is leeching onto. I’m not sure how that will play out.)
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