The ongoing tensions between Russia and Ukraine have impacted the global diplomacy, markets, politics and every other sphere of life across the world. The Russia-Ukraine saga took another turn on Monday when the Russian President Vladimir Putin recognised the two breakaway regions of eastern Ukraine, Donetsk and Luhansk, as independent. Following this, Putin ordered the deployment of the troops in these breakaway areas. The breakaway regions – Donetsk and Luhansk – are collectively known as the Donbass region that broke away from the Ukrainian government control in 2014 and proclaimed themselves to be independent “people’s republics”. These regions were unrecognised until Putin’s comments on Monday regarding the same. Russia has also signed two identical friendship treaties that granted it the right to build bases in the separatist regions and they, on paper, can do the same in Russia.
So, how has the West responded so far? United States President Joe Biden signed an executive order today to impose trade sanctions on the two breakaway regions – Donetsk (DNR) and Luhansk (LNR) in eastern Ukraine that were recognised by Russia on Monday. This executive order prohibits any new investment in these regions by Americans from wherever they are based. Besides this, it also forbids any importation and/or exportation, re-exportation, sale or supply of goods, services or technology from the DNR and LNR regions of Ukraine directly or indirectly into the United States. Last but not the least, this order also prohibits any approval, financial, facilitation or guarantee by an American person wherever located of a transaction by a foreign person where the transaction by that foreign person would be covered by prohibitions if performed by an American person or within the US. Besides the US, other countries like Japan and the EU are also mulling punitive action either in the form of sanctions or orders. Also read: Ukraine tensions intensify selling on D-Street; 10 firms lose market value
Is Moscow bluffing or is it on a tightrope? Well, the answer to that is not easy. Russia used a similar tactic with the former USSR republic, Georgia, recognising breakaway regions in order to justify an open-ended military engagement. This was also done to thwart Georgia's NATO aspirations. These same considerations, experts say, can apply to Ukraine as well. Meanwhile, the Kremlin is faced with international sanctions and condemnation for abandoning the Minsk process after maintaining that it was committed to it. It also has the responsibility for two territories ravaged by 8 years of war and in need of massive economic support. American experts, in contrast, such as Michael McFaul, former US ambassador to Russia, openly called Putin's action as constituting the first stages of a planned invasion and that the situation is going to get ugly in the coming hours, if not days. Russia, on the other hand, till days before, had maintained that it has no plans to 'invade' Ukraine.
Will Biden and Putin still meet after Russia’s recognition of the Donbass region? As per media reports, the US and Russian presidents have tentatively agreed to meet in an attempt to avoid another invasion of Ukraine after Russia’s annexure of Crimea in 2014. The White House has said that this meeting will take place only if Russia does not invade Ukraine. French President Emmanuel Macron has, however, sought to broker the possible meeting between Biden and Putin. Macron had said in a statement that he pitched to both leaders a summit on “security and strategic stability in Europe.” Also read: Russia-Ukraine crisis: India calls for restraint at UNSC
Markets in the coming months Markets, both domestically and internationally, have remained on the tenterhooks ever since the Russia-Ukraine crisis worsened and the Biden administration imposed sanctions on the newly recognised breakaway regions in Ukraine. Though the trend is bullish in Indian markets, Tradingo Founder Parth Niyati believes that there will be high volatility over the next month due to this crisis. In the international markets, however, investors are eyeing safe havens as global stocks tumbled and oil prices surged due to the Ukraine issue. Indian markets -- According to Tradingo’s Parth Niyati, the overall trend is bullish but there may be high volatility over the next month therefore short-term traders should remain light while long-term investors should look at this correction as a buying opportunity. He further says, “We are very bullish on capital goods, infrastructure, real estate, banking, consumer goods, and auto ancilliaries space therefore we advise investors to look for buying opportunities in these areas.” Global markets -- Senior Asia economist at UBP Carlos Casanova believes that “we are much closer to military intervention, which of course is going to drive a lot of the risk off sentiment in the markets.” He further added that the short-term volatility in the global markets has been caused both by the geopolitical factors and the US Federal Reserve was ‘relentless.’ He also said that the consequences of this will be – higher oil prices, equity sell off and investors flocking to safe-haven assets like Japanese Yen. A recent note by Goldman Sachs states that there is a scope for risk premia to rise further across all sectors in case a war breaks out between Russia and Ukraine. It further said that their forecasts on how much the global markets will fall on the basis of how much the rouble depreciates. “On that basis, the rouble is still more than 10 per cent away from its maximum underevaluation level of the past two decades,” analysts Dominic Wilson, Ian Tomb and Kamakshya Trivedi said in a note. Will there be more cyberattacks in Ukraine? Ukraine authorities have said that they have seen online warnings about hackers preparing to launch major cyberattacks on government agencies, banks and defence sector. Ukrainian government-run cybersecurity agency CERT-UA said that it has found warnings about potential cyberattacks on a hacking forum. One message had “referred to the lease of servers to prepare new attacks on the websites of the public sector, the banking sector and the defence sector.” These apprehensions are not unfounded as Russia was likely behind an attack which impacted the defence ministry portal and disrupted banking and terminal services at large state-owned lenders. Will oil prices be increased and for how long can this rise in oil prices be sustained? According to Moody’s, an escalation in tensions along the Russia-Ukraine border is likely to boost oil prices even higher than what they already are. The research firm also believes that this rise in oil prices cannot be sustained over a long period of time “because of economies’ limited ability to absorb higher oil costs and continue growing.” The research firm explains that continuously high oil prices can impact economic growth and fasten the substitution to alternative sources of energy, prompting oil prices to fall back to the reinvestment range eventually. It further states, “Geopolitical developments that aggravate supply uncertainty boost oil prices. At around $90/bbl, the oil price already reflects lingering uncertainty about the outcome of US-Iran negotiations, rising risks in the Middle East and tensions on the Ukraine-Russia border.” (With agency inputs)
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