Can we keep the status quo going?
The recent developments between Russia and Ukraine continue to be carefully scrutinized by market participants, political and investment analysts. Some initially thought the ongoing situation would reach a peak and then be eased, yet the opposite has manifested so far. The matter is becoming increasingly unsafe, especially as some areas in Ukraine were asked to evacuate during the closing of the previous week. In the current week we will be focusing on some important meetings between officials that are of crucial importance for the escalation or de-escalation of the subject.
Focusing first on the most recent updates, we turn our attention to the Russian troops increasing in numbers nearby the Ukrainian border. The US had accurately understood that a Russian force had been building up and increasing its power on various fronts nearby Ukraine, which prompted them even to make a prediction on the date that a possible invasion would be carried out. In our view, the Russians have achieved a number of important objectives with their latest actions that deserve a more analytical viewpoint. First the Russians have made the US look senseless with their announcement related to the 16th of February being the day Russia would attack Ukraine. This may have been a deliberate tactic from the Russian side to manipulate the US into false expectations, while proceeding with a very different plan in the end. So far Russia has undertaken a number of important and strategic positions increasing troops and moving military equipment around the Ukraine border. Russian military exercises in Belarus, a country bordering with Ukraine had taken the spotlight recently while Russian warships have also been seen making maneuvers in the Baltic and Black Sea. With the military exercises, Russia has managed to achieve two things. First it remains in an active state, with a considerable amount of troops being ready to go if the decision to attack was taken. Second, they are applying more pressure on Ukraine making them feel like sitting ducks while being surrounded from various perspectives. Finally, Russia’s pressure and military activities has forced European and US government officials to consider new talks and a potential meeting between Presidents Biden and Putin. Even though such a meeting has not been confirmed with specifics, it can be seen as a solid opportunity to remove a lot of uncertainty over the subject. However, on a more negative perspective two key areas in Ukraine including Donetsk and the Donbas have performed evacuations of civilians.
Another important finding that stands out from recent developments, can be the response from the US government but also the media. The US press seems to be aggressively opposing Russia’s stance so far and have openly criticized Vladimir Putin’s actions and possible scenarios of dealing with the subject. The European press may have been more cautious with its views on the matter, giving the notion that negativity may have intentionally been spread in the US. On the other hand, the US Government has mostly used verbal threats as a response but also stating clearly that sanctions will be enacted if an attack was carried out on Ukraine. Minor numbers of US troops have been sent to different countries in Europe and could possibly weather the storm and engage in battle if tensions would arise.
In the past three consecutive weeks Gold prices have risen pushing prices to a new 2022 high level as a result of geopolitical tensions. Market participants believe the situation between Ukraine and Russia has kept traders on the buying side, while some are unwilling to let go of their orders making it seem that Gold prices could appreciate even further. Gold is known as an asset positively correlated to geopolitical tensions, especially among countries that are of significant global importance. In this case, Russia’s contribution to the Oil and Natural Gas market is highlighted. Other analysts suggest that a worsening of the matter can lift inflationary pressures to even higher levels primarily due to an increase of energy prices but also grains. Inflation at the moment remains a great thorn for the global economy and further increases in prices can cause a destabilization of economic growth. Under these circumstances, traders can be possibly using Gold as a hedge instrument. However, the question remains are these tensions expected to calm as the issue’s root could take years to be resolved?
As we noted in one of our previous reports on the subject, the Russian Ukraine matter had started many years back, when the Soviet Union was in power. After so many years, Ukraine’s interest turning towards joining Europe is still not accepted by Russia. Russia’s inflexible handling of Ukraine is seen as a suppression among Europeans, but also the US. Russia has openly indicated the problem arises as Ukraine wants to become a member of the North Atlantic Treaty Organization (NATO). In Russia’s view this would bring NATO forces and military equipment nearby its boarder making it easier for them to monitor was it happening in the area. This can be used as a major military advantage for NATO, should Ukraine actually join the group that may be considered as a threat to Russia’s military superiority in the region. From the opposite perspective Ukraine may see NATO as a way out of Russia’s shadow. Ukraine is not a small country, yet compared to Russia may be far inferior and especially militarily. With a chance to join NATO, Ukraine may feel a lot safer to make its own decisions and write out its own future.
In the past week, Ukraine President Zelenskyy confirmed that the global security rules that were set up many years ago are obsolete and are no longer working. To make changes in the status quo a great challenge could be required, a one that we cannot afford to see using military actions. A more diplomatic approach however is still on the table and that’s what the market is counting on currently.
