Schroders: Dominoeffekt durch Spannungnen in der Ukraine?

Craig Botham, Emerging Markets Economist at Schroders, comments on recent events in Ukraine and the impact this could have for the global economy:

The impact of rising commodity prices, as a result of events in Ukraine, could have a knock-on effect on market sentiment and economic growth.

There are echoes of the Georgia-Russia crisis of 2008 in current events in Ukraine, with the difference being that Ukraine has greater political significance.

Ukraine and Russia are closely linked by history; after all, Kievan Rus – a federation of East Slavic tribes from the 9th to 13th century – was in many ways the birthplace of the Russian state. Vladimir Putin has the support of the populace in Crimea and parts of Eastern Ukraine, and could be hoping to force a separation as he did with South Ossetia and Abkhazia in Georgia. For a long time Putin has been trying to forge a Eurasian Customs Union, drawing in the former Soviets, and it may be that what he cannot achieve through soft power, he will be happy to take through force. Given the costs involved to Russia in doing this, it may be that the show of force is intended to wring more compromises from Kiev and the West, perhaps in the form of self-rule for Crimea and other Russian speaking regions.

However, on a rational level, it seems unlikely that Russia would want to take on the economic liability of Ukraine, trade and political sanctions, and invite claims on its own territory. Geopolitically it doesn’t appear to make sense. The show of strength could be intended, ultimately, simply to burnish Putin’s reputation within Russia as a strongman and defender of Russian values.

Some form of sanctions seems likely. It is difficult to speculate on how far the West is willing to go, but a ban on travel to the West for the Russian elite would seem likely, alongside possible trade embargoes and diplomatic expulsions. There is a slight chance we see attempts to isolate Russia in much the same way as Iran was isolated, but this seems likely to escalate the situation. If Russia presses its incursion deeper into Ukraine (i.e. beyond Crimea) however, this seems increasingly likely.

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