Tag Archives: ukraine

Ukraine Crisis Hits Soccer

Amid the political tensions between Ukraine and Russia, which have also involved most Western countries on Ukraine’s side, there are many economic and social repercussions to consider. As has been discussed on this blog, the economic implications of the crisis are vast, especially when looking within Ukraine. However, this period has been very tense business-wise between Russian companies and Western countries. A very unexpected implication of the crisis, at least for me, is that with the popular German soccer team Schalke. According to an article from the Wall Street Journal, Russian state-owned gas giant OAO Gazprom pays around $20 million a year to sponsor Germany’s Schalke soccer club. The problem here is not that Gazprom will halt its sponsorship, it is in fact very content with the market results of the sponsorship. However, out of this Russian-German connection, Russian President Vladimir Putin extended an invitation for the team to visit the Kremlin.

The article notes that “new complications for German business leaders who have been trying to maintain normal ties to Russia amid the mounting crisis in Ukraine. German companies trying to take a business-as-usual stance with Russia increasingly find themselves under political pressure at home to avoid appearing to be part of Moscow’s propaganda efforts.” Earlier this week, the team seemed inclined to accept the invitation. But today the backed down and declined it. Apparently, Schalke’s chairman, Clemens Tönnies, has serious business ties with Russia; besides the sponsorship of the team, him and his partners are investing over $800 million in pork factories in Russia. His initial response in an interview was that “the team would love to see the Kremlin and is interested in Moscow…and the Russian president is interested in Schalke and invited us.” But after political outrage on the behalf of German Chancellor Angela Merkel’s allies, today Mr. Tönnies took back his comment: “there was never and there is no commitment to such a visit…this would not be appropriate in light of the current political situation.”

It’s interesting to see the repercussions of the political tensions in Ukraine. And it is unexpected to see it manifested in areas like soccer. Luckily for German soccer lovers, the team says its fans are widely unaffected by the situation. With respect to the sponsor, they say most people just see the sponsor as a source of capital, and not a national flag. Personally, I think this is the right approach to the situation. Though it is more complicated when considering the Putin himself invited the team to Russia, it is important to remember that the Russian government’s actions do not represent every Russian’s views and wishes. In general, it is unfair and economically-illogical to punish Russian businesses for the actions of its government.

Why Ukraine’s Gas Shutoff Could Actually Lead to Long Term Growth

Today Ukraine received another blow from Moscow as Russian natural gas provider, Gazprom announced that it will be raising the price of gas for Ukraine by 81%. The CEO of Gazprom, stated that he will raise the cost from $268.50 to $485.50 for 1000 cubic meters starting this month. Russia justified this economic attack by stating that it is due to Ukraine being late on $2.2 billion worth of payments on natural gas. (WSJ – Ukraine Leader Warns of Gas Shutoff)

Ukrainian Prime Minister Yatsenyuk responded to the economic attack by stating that Kiev will not accept the new prices and will take the case to the international arbitrage court. Currently natural gas is Ukraine’s largest imported product and more than half of all their natural gas imports come from Russia. Yatsenyuk announced that Ukraine will look for solutions to lower their exposure to Russian imported gas. One short term solution that has been in the works is to import 20 billion cubic meters with the help of the European Union from Hungary, Slovakia, and Poland. Russia claims that the importation from the EU will break Ukraine’s contract for natural gas importation, so it is unknown how viable this option will be.

In the short term, it is very likely that Ukraine will experience an economic recession as they continue to absorb economic pressures from Russia and have to deal with a limited gas supply. These pressures will undoubtedly hinder their manufacturing sector, as well as the rest of their economy. Despite the likelihood of the gas shortage crippling Ukraine in the short term, in the long term it will likely help Ukraine build stronger ties with the EU, which will help Ukraine develop in the long term after the Crimea conflict dwindles.

Prime Minister Yatsenyuk already vowed to leave the Gazprom pipelines to Europe alone, so by not tampering with the gas flow to Europe, Yatsenyuk signaled that he is more willing to work in accordance with the European Union in the future over Russia. If this trend continues it is likely that we will see further agreements signed between the EU and Ukraine that will open up more trade between the two markets. According to Martina Bozadzhieva, Head of Research for Frontier Strategy Group, as Ukraine integrates more strongly with the European Union there economy will grow. According to data from Frontier Strategy Group, “integration with the European Union tends to improve the operating environment of a nation.” (WSJ – Ukraine Turmoil Has Huge Impact on Multinational Businesses) In the short term Gazprom’s economic assault on Ukraine will likely be effective of forcing the Ukrainian economy into a recession, but it will also force Ukraine to seek the support of the EU and integrate itself further with the European economy. This fundamental change will help Ukraine in the long term and help it make a quicker recovery.

Effects on Russia’s Economy

According to the Wall Street Journal, Russia is experiencing an extreme growth in capital outflow. According to the article, this can be related to the recent annex of the Crimean peninsula. In the first quarter of 2014, its capital outflow should be between $65 billion and $70 billion. This has had adverse effects on the economy. Russia’s economy’s growth has been hindered because the increase in capital outflow has cut into investment spending. With all of the money going out, there is not a lot of money coming in for investments.

An article in the New York Times by Andrew E. Kramer discusses the increase in economic pressure that Russia is imposing on Ukraine. According to the article, about 25% of all of Ukraine’s exports go to Russia. Factories in Ukraine have been benefitting from this. In a series of blogs in the New York Times, Russia’s economy has been suffering at the cost of this situation with Ukraine.

Personally, I do not understand why Russia would be willing to sacrifice its own economy for a crisis with a neighbor. At the same time, Ukraine’s factories are benefitting. The way this crisis is working is that Russia is willing to hurt its own economy and help the economy of its rival neighbor. That does not make any sense. Along with that, Russia’s actions have not been seen as favorable in western eyes. The western world is very important politically and economically. Positive relations with it are crucial to success in the world. Russia is continuing to shoot itself in the foot with this crisis in Ukraine. This country is very strong and has a bright future. Putin is throwing it all away.

In my opinion, Russia should pull out of Ukraine as soon as possible. The country will be viewed more positively by the western world. Furthermore, Russia would be saving its own economy. In order to fulfill its potential, the country would need an influx of investments. The only country that would not benefit would be Ukraine. However, the country would not suffer as much. The larger changes would be in the Russian economy. If Putin were to serve his country well, he would end this crisis with Ukraine at once. His country would benefit immediately. Personally, I do not understand why a political leader would want to hurt the economy of his or her country, but maybe that is why I am not in politics.

How Long Can Russia Hold Out?

Today, as the US and other leaders of the now G7 group of nations shunned Russia and its antics in Ukraine, a clear message was sent to the former Soviets: change your actions or there will be severe consequences. The G7 agreed to economic sanctions of Russian energy, finance, banking, and weapons industries until the country backed off of its annexation of Crimea. Instead of the G8’s annual meeting in Sochi this upcoming June, the now G7 will instead travel to Brussels and have their meeting there. (WSJ)

The question now I believe is to what extent will these sanctions be successful and how does that compare with other economic damage being done purely due to the political and economic unrest created by Putin’s actions. What I am getting at here has to do with the cost benefit analysis of the sanctions. For the US, as explained in this WSJ article, sanctions against Russia really would not have much of an effect as only 1% of annual US trade occurs with Russia. The meat of the sanctions would come from European countries and as shown by the following graphic, could hurt Europe as much as they do Russia:

Screen Shot 2014-03-24 at 10.15.46 PM

 

 

 

 

 

 

 

With almost 160 billion euros worth of oil and gas sent to the European Union in the first 9 months of 2013, there is substantial demand that would have to be gotten elsewhere if the EU were to in fact, sanction like the G7 is talking about. It is also unfortunate for the EU that over 15% of their gas needs come through Ukrainian pipelines that Russia could feasibly have some sort of control over now as well. Russia is the EU’s 4th largest trading partner and has substantial banking and automotive ties in the EU countries to boot. So obviously the G7 has something much more complicated than just sanction and wait going on here.

The good news here though, is that the G7 may not even have to impose as extreme of measure as are being talked about due to the unrest in the financial markets in Russia. As news broke of the tense situation back towards the beginning of March, Russian stock indexes dropped as far as 10% in a single day and have continued falling since. These are accompanied by massive losses in value in the Russian Ruble and the MICEX Russian Index (not hedged against losses in currency value) has fallen to almost 30% losses on the year at points. Accompanied by massive capital outflows from Russia and it becomes feasible that Russia could enter a recession without the US or the G7 ever having to do anything more than threaten to sanction. (Bloomberg) This is the most interesting part of the whole story I think, that while these threats of sanctions can be quite complicated as well as costly, there is really nothing as clear as Russian oligarchs losing over 20% of their wealth as quickly as Putin can send troops to the Ukraine.

The next time Mr. Putin asks his friends for a little money from the private sector and they do not have it, he may come to regret the path he has taken here on the Ukraine.

 

(Revised) Russia Hurt by Ukraine Crisis

The crisis in Ukraine is far from over, even though the major protests have ended and former president, Viktor F. Yanukovych, has fled the country. Yanukovych still claims to be President, but is essentially out of the picture for now. But the troubles in Ukraine, and particularly the  succession of Crimea, are putting a damper on the Russian economy. For those not familiar with the situation, Crimea is a peninsular, autonomous parliamentary region in southern Ukraine which consists of predominantly-Russian peoples. It became a part of Ukraine when it gained independence with the breakup of the Soviet Union in 1991. Crimea mostly sympathizes with Russia, and the elections last Sunday decided they would join Russia.

So what if Crimea wants to join Russia, why should the world care? Well for one thing, Ukraine does not want to lose Crimea. And since the EU and the United States are sympathetic to the new Ukraine (planning to give $15 billion in loans, grants, and investments), these countries are condemning Russia’s push towards the acquisition of Crimea. The economic implications imply that trade with- and investment in- Russia will be reduced, and the effects will be felt in the Ukraine, the EU, the US, but mostly in Russia.

According to an article from the Financial Times, Russian companies are pulling billions out of western banks, in fear that the US will place sanctions over the Crimean crisis and that this could lead to an asset freeze. The fear alone, something we are well aware of in economic expectations, has had significant impacts on the Russian economy. The yield on Russia’s 10-year government bonds increased from 8% in January, to 9.7% on Friday. Also, the rouble is trading for 36.7 for a dollar (almost at its weakest rate in history). Russia’s top 10 billionaires are suspected to have lost $6.6 billion in their combined net worth, over this past week alone. “Strobe Talbott, president of the Brookings Institution, who served in the State Department under Bill Clinton, said: “The irony is that the Russian banking sector has made quite a lot of progress in plugging into the global system. That means it is vulnerable, and a good lever for applying pressure.”” Evidently, the Russian banking sector is going to suffer deeply – not only from possible sanctions, but from the expectations surrounding them.

Europe and the US are expected to impose travel bans and asset freezes on certain individuals close to Russian President Vladimir Putin, at first. And Russia is thus expected to respond with the same restrictions. Investors have already pulled $33 billion out of Russia in January and February, and that figure is expected to near $55 billion by the end of March, according to Russian investment bank Renaissance Capital. On top of this, Russia will face costs to maintain Crimea: estimates are that it will have to commit to roughly $10 billion per year over the next five years in order to build infrastructure, support pensions and pay social benefits to the region’s 2 million citizens.

Russia will experience a significant effect from all of this, as well as the EU and US. But effects on western countries will be miniscule compared to those in Russia. The EU’s ex ports to Russia account for 1% of EU GDP, while Russian exports to the EU are worth nearly 15% of Russian GDP. Germany has significant investments in Russia, and its impact is expected to be at most 0.1% to 0.2% on economic growth, over the next 12 months. This would be rather insignificant for the European recovery. The US is expected to see similar effects.

Thus, it is important to consider the vast implications of the crisis in Ukraine. Mostly, we should expect to see the Russian economy suffer after the Crimean decision to join Russia. However, the long-term effects are unclear. I suspect tensions will ease within a year, and sanctions will be reduced, allowing trade and investment to increase close to current levels. So far, Crimea has voted in favor of joining Russia, and the US has responded with sanctions on individuals close to Putin, and tensions (specifically between Russia and Ukraine) continue – as expected. Hopefully, tensions will ease soon, but I don’t see Crimea being returned to the Ukraine in the near future, making it a difficult situation all around. In terms of the benefits to Russia, I see them as completely outweighed by the costs, in this annexation of Crimea.

Stocks Don’t React to Crimea News

After the news about Crimea’s vote to leave Ukraine and join Russia, there was the possibility of seeing a reaction in the stock market. However, people are relieved to see that the U.S. stock market rose, despite potentially-problematic political tensions with Russia. It seems like for now, the situation is not severe enough to prompt a significant disruption in the market. A Wall Street Journal article explains that “the outcome matched market participants’ expectations… prompting investors to unwind cautious bets meant to protect against potential market-spooking headlines. Looking ahead, investors are awaiting details of any economic penalties to be imposed on Russia by Western leaders, who have said a Russian annexation of Crimea would be illegal.” This morning, the official sanctions were announced by President Obama: “sanctions on specific individuals responsible for undermining the sovereignty, territorial integrity and government of Ukraine…second, sanctions on Russian officials — entities operating in the arms sector in Russia and individuals who provide material support to senior officials of the Russian government.”

The sanctions are very limited, only concerning specific individuals tied to Putin’s government. So the stock market, in ignoring the Crimea news, is not likely to be affected by this announcement either. “U.S. stocks climbed, rebounding after last week’s selloff, as investors took Crimea’s widely expected vote to secede from Ukraine in stride.” The Dow Jones Industrial Average rose 192 points, or 1.2%, to 16259 in today’s trading. The S&P 500 rose 18 points, or 1%, to 1860. The Nasdaq Composite Index also rose 45 points, or 1.1%, to 4290.

And good indicators continue to pronounce themselves in favor of recovery. Federal Reserve data showed U.S. industrial production rose 0.6% in February (which was higher than expected). Capacity utilization increased to 78.8% (a slight, but important change). Alan Gayle, director of asset allocation at RidgeWorth Investments, says that the data supports the notion that U.S. economic growth is still on track, and a series of weak points around the start of the year were mostly about severe winter weather than a falter on economic recovery.

Thus, the good news today is two-fold: stocks rose despite the news from Crimea (which is a good sign persistent, stable recovery) and the recovery seems to be strong. At this point, growth is slow but steady – which may be exactly what the economy needs. If we saw excessively-fast growth and stimulus, we would be more concerned with inflation than the economic recovery. It is best to focus on this kind of current growth, which seems to be relatively stable.

Weak Economic Sanctions Likely Will Have No Effect on Russia

Yesterday marked a big day in world history as Crimea voted in favor of seceding from Ukraine in order to join Russia. The annexation of Crimea will be the biggest annexation of a European territory in many decades. The vote came with a lot of opposition from the United States and the European Union, as both parties made announcements of sanctions to be carried out against Russia. President Obama’s first round of sanctions included the “blacklisting” of seven Russian politicians and four Ukrainian politicians believed to have supported the annexation of Crimea. The European Union responded with the blacklisting of 22 Russian politicians, with four being listed by both parties. Putin and his cronies responded to these light sanctions with laughter. Vladislav Surhov, a Putin aide who was blacklisted by the United States, responded to news of his sanctions by saying, “What interests me about the United States are Tupac Shakur, Allen Ginsberg, and Jackson Pollock. No Visa is needed to access their works. So I’m not missing anything.” Many of those “blacklisted” aren’t believed to have any foreign assets, so the effects of this first round of sanctions are extremely minimal. (WSJ – Russia Moves Closer to Absorbing Crimea, Despite Sanctions)

As a result of the weak sanction proposals announced by the US and the EU today, it is believed that Putin will make an announcement tomorrow in Moscow announcing the absorption of Crimea. The US and EU will likely respond to this announcement with stronger rounds of sanctions against Russia. Currently in Washington there is legislation being drafted to broaden the sanctions to any company doing business with any blacklisted Russian individual or company. The current proposal is very similar to the sanction proposal announced in 2007 by the Bush Administration against Iran. The sanctions imposed against Iran effectively reduced Iran’s oil exports by half and froze the international banking system in Iran, effectively crippling the Iranian economy. Despite the similarities in sanction proposal, any proposal will likely be limited due to Europe’s reliance on Russian trade.

According to Eckhard Cordes, the Chairman of Eastern Committee of German Business, “Tough economic sanctions would quickly weaken not only the Russian economy, but also Europe’s economy.” Over the past two decades many European firms have invested billions of dollars into Russia to take advantage of a European market with robust growth opportunities. As a result many of Europe’s largest firms, such as BP, Societe General, Danone, and Royal Dutch Shell, have significant assets in Russia that they rely on for a large portion of their revenue. As a result of the influence of many large European firms, it is hard to see any significant sanctions being enacted against Russia. As put simply by Frederic Oudea, the CEO of Societe General, “both regions have too much to lose.” This belief was portrayed in the markets today as many of these companies with large exposure to Russia traded up. (WSJ – Response to Crimea Vote Sets Western Companies on Edge) Simply put it is believed that the self-inflicted costs of sanctions far outweigh any benefits from the sanctions.

Furthermore, the announcement of the sanctions seemed to have minimal constrains on firm investments in Russia. Despite Ford announcing that they will be seeking consulting on their investments in Russia, many analysts said that they believe further sanctions will not affect many European firm’s ability to collect revenue on their Russian assets. Overall, the current sanctions, as well as Europe’s reliance on Russian trade, seem to be forecasting all impending threats towards Russia as discredited. Unless, the EU is willing to take economic concessions in order to sanction Russia it seems unlikely that they can provide Russia with a credible threat. As the EU continues to move through their recovery, it seems unlikely that they would make any sanctions that would jeopardize their economic recovery.

Conflict in Crimea: Impact on the EU Energy Market in the Short and Long Term

The recent conflict in Ukraine took an interesting turn today when the Crimean parliament formally applied to join Russia and separate from Ukraine. Many facets of the Russian, Ukrainian, and global economies have been affected by the crisis in Ukraine, but one industry that has gotten a lot of attention in particular is energy, and for good reason. Given the EU’s dependence on Russian natural gas (a majority of which is supplied to the EU through the Brotherhood pipeline that runs through Ukraine), the quickly escalating tension between western leaders and Mr. Putin have raised concerns about the supply and price of natural gas. A sudden jump in gas prices would hurt households and companies across the EU, but as a recent Economist Intelligence Unit report, “Ukraine: The energy impacts,” indicates, the energy risks for the EU are less troubling than they first appear.

The report reveals that EU reliance on Russian natural gas has steadily declined since the mid 1990’s. Due to past pricing disputes with Russia in 2006 and 2009 the EU has made a strong effort to substitute its Russian natural gas consumption with alternatives such as liquefied natural gas, coal, and renewable energy. Furthermore, the EU has been looking to other countries for its natural gas needs. Although Russia still accounts for roughly 30 percent of the EU imports of natural gas, Norway and Algeria are starting to play a larger role. As seen by the following bar graph showing the distribution of EU natural gas imports in 2011 and 2012, Russia’s market share is decreasing:

                                                            Distribution of EU Natural Gas Imports by Country 2011-12

Although gas and alternative fuel prices may rise slightly, the report emphasizes that the short term effects on the EU’s natural gas supply will not be too worrisome due to three main reasons:

  1. The Existence of Other Pipelines from Russia to the EU: The Nord Stream pipeline through the Baltic Sea to Germany and the Yamal pipeline through Poland and Belarus offer the EU alternative methods of importing gas from Russia, making the threat of a pipeline shutdown in Ukraine less scary. Mr. Putin could still, in principle, cut off or tighten supply to the EU as a political tool, but as the next reason explains, he is unlikely to do so.
  2. Russia’s Dependence on EU Natural Gas Demand: The EU is one of the largest buyers of Russia’s natural gas, and therefore significantly contributes to Russian GDP (about 3% of total output). Mr. Putin is unlikely to cut off or tighten supply for too long because the costs of such an action would not outweigh the possible political gains.
  3. Timing (End of a Mild Winter): Because the crisis comes at the end of a comparatively mild European winter, the EU has had time to stockpile significant natural gas reserves, which could, by themselves, be used to supply the region for a two months at least.

The long term effects are likely to involve an EU effort to rely even less on Russian natural gas. Some potential effects that the report mentions and I have brainstormed are:

  1. Increased EU Demand for Norwegian and Algerian Gas: I would argue that EU demand for Norwegian gas especially will increase because it provides the EU an effective hedge from political risk. Although Norway is not a part of the EU, it is very closely associated with it and is much less likely to stir up political conflict compared to its larger competitor in the East.
  2. Increased EU Demand for LNG: Liquefied natural gas is the EU’s most readily available alternative to Russian natural gas, so it is probable that it will start importing more of it. It is even possible that the U.S. shale gas industry stands to benefit from this shift, but this is only realistic in the very long term because building the infrastructure necessary to export LNG to Europe would take a while.

Russia Hurt By Ukraine Crisis

The crisis in Ukraine is far from over, even though the major protests have ended and former president, Viktor F. Yanukovych, has fled the country. Yanukovych still claims to be President, but is essentially out of the picture for now. But the troubles in Ukraine, and particularly the possible (and likely) succession of Crimea, are putting a damper on the Russian economy. For those not familiar with the situation, Crimea is a peninsular, autonomous parliamentary region in southern Ukraine which consists of predominantly-Russian peoples. It became a part of Ukraine when it gained independence with the breakup of the Soviet Union in 1991. Crimea mostly sympathizes with Russia, and the elections on Sunday will decide whether they will join Russia. They are expected to decide in favor of this.

So what if Crimea wants to join Russia, why should the world care? Well for one thing, Ukraine does not want to lose Crimea. And since the EU and the United States are sympathetic to the new Ukraine (planning to give $15 billion in loans, grants, and investments), these countries are condemning Russia’s push towards the acquisition of Crimea. The economic implications imply that trade with- and investment in- Russia will be reduced, and the effects will be felt in the Ukraine, the EU, the US, but mostly in Russia.

According to an article from the Financial Times, Russian companies are pulling billions out of western banks, in fear that the US will place sanctions over the Crimean crisis and that this could lead to an asset freeze. The fear alone, something we are well aware of in economic expectations, has had significant impacts on the Russian economy. The yield on Russia’s 10-year government bonds increased from 8% in January, to 9.7% on Friday. Also, the rouble is trading for 36.7 for a dollar (almost at its weakest rate in history). Russia’s top 10 billionaires are suspected to have lost $6.6 billion in their combined net worth, over this past week alone. “Strobe Talbott, president of the Brookings Institution, who served in the State Department under Bill Clinton, said: “The irony is that the Russian banking sector has made quite a lot of progress in plugging into the global system. That means it is vulnerable, and a good lever for applying pressure.”” Evidently, the Russian banking sector is going to suffer deeply – not only from possible sanctions, but from the expectations surrounding them.

Europe and the US are expected to impose travel bans and asset freezes on certain individuals close to Russian President Vladimir Putin, at first. And Russia is thus expected to respond with the same restrictions. Investors have already pulled $33 billion out of Russia in January and February, and that figure is expected to near $55 billion by the end of March, according to Russian investment bank Renaissance Capital. On top of this, Russia will face costs to maintain Crimea: estimates are that it will have to commit to roughly $10 billion per year over the next five years in order to build infrastructure, support pensions and pay social benefits to the region’s 2 million citizens.

Russia will experience a significant effect from all of this, as well as the EU and US. But effects on western countries will be miniscule compared to those in Russia. The EU’s exports to Russia account for 1% of EU GDP, while Russian exports to the EU are worth nearly 15% of Russian GDP. Germany has significant investments in Russia, and its impact is expected to be at most 0.1% to 0.2% on economic growth, over the next 12 months. This would be rather insignificant for the European recovery. The US is expected to see similar effects.

Thus, it is important to consider the vast implications of the crisis in Ukraine. Mostly, we should expect to see the Russian economy suffer after the Crimean decision to join Russia. However, the long-term effects are unclear. I suspect tensions will ease within a year, and sanctions will be reduced, allowing trade and investment to increase close to current levels. This is assuming that Crimea does in fact vote to join Russia, and that the European and American recoveries are not significantly interrupted.

Whose a Greater Concern?

It seems there are a lot of major issues in the world today, from the Venezuelan protests, to the continued problems in the Middle East, and the significant issue of Russia planning to annex part of Ukraine. The last issue comes with a threat of weakened US Russia trade, as the two major countries are at odds about Russia’s actions in Ukraine. However, when asked about what issues threaten US economic growth most, many economist agree that the major threat comes from China’s slow growth.

There are a few reasons Chinas slowed growth is seen as the biggest threat. For starters it has already occurred for the past two months, with both shrinking industrial production and slowing retail sales. On top of the internal issues, China currently has the worlds second largest economy. Such a large economy means that they have a significant impact on international trade flows.

Economist view Russia’s possible annexation of Crimea as an issue that will not likely directly affect the US. Instead they predict the annexation to negatively impact both Russia and Ukraine stock prices while only slightly spilling over into the US through energy markets. I understand the prediction of the energy market spillover, as Russia is a huge producer of crude oil and natural gases. However I don’t think that the consequences will stay in the Russia and Ukraine.

Taking a look at some of the political factors and some may see that Russia annexing any part of Ukraine will have much greater global impact. First, the US has always been considered the most powerful countries in the world, but through recent events countries have been undermining the authority of the US. Russia ignoring the threats from the US of consequences if they annex part of Ukraine is just another example of a foreign country ignoring the impact the US has. The other factor is the a nuclear free world. Back in the 1990s Ukraine agreed to give up its Soviet Union nuclear stockpile in agreement for the promise to remain a sovereign state with protection from other major world powers. Russia annexing part of Ukraine shows that the treaty was not upheld and will make it extremely difficult to convince other countries to give up their nuclear programs in the future.

So in the short run I’d agree that the Chinese economy is a greater threat to the US economy, but in the long run I could see Russia annexing Ukraine as a much greater issue.