31.12.2021 – The Russian bear is extending its claws – and that could send the financial market into a panic. For us, an invasion of Ukraine by Russia is the biggest geopolitical risk in the coming year.
Russian saber rattling
In the days leading up to Christmas, NATO warnings that Russia had massed some 100,000 troops on its border with Ukraine increased. Russian President Vladimir Putin rattled his saber. True, Moscow now symbolically withdrew 10,000 troops. But the Russian Federation still has a score to settle: Russians see the Ukrainian brother nation’s departure as a betrayal. Moscow rages that the West has broken its word and always extended NATO westward. True. But small states in Eastern Europe sought protection from a Russia that has never apologized for its Stalinist atrocities.
Appeasement in the West
No, an invasion of Ukraine would probably not trigger a major war. Because the oh so prudent elites in Germany and the rest of the West would first convene crisis teams, then differentiate and weigh things up, and finally declare themselves not responsible. And Russian natural gas is also an argument. U.S. President Joe Biden has already waved off the subject of war, and Italy’s head of government Mario Draghi has also publicly mused about the futility of armed intervention. Appeasement everywhere.
The shadow of famine genocide
Yes, the matter would nevertheless have significant consequences. England and America would probably reinforce troops in the Baltics and Poland and supply the Ukrainian army with weapons. Presumably, at first the ruble and also the stock exchange in Moscow would go down in a shock reaction.
But ultimately Moscow would cut off the Donetsk Basin from Ukraine, where an ethnic Russian majority lives. This would sow the seeds of the settlement policy from the 1930s, when the USSR kept its workers in the coal and ore regions well supplied with grain in exchange for plundering and starving millions of people in the agrarian part of Ukraine. The genocide called Holodomor was also intended to suppress Ukraine’s independence aspirations, which therefore fought with the Wehrmacht in World War II.
When, if not now?
We share the assessment of the Capitalist Exploits blog that the risk of invasion is underestimated in the market. We think: When, if not now, with a senile president in the U.S., should Moscow strike? The West’s likely response: an exclusion of Russia from the SWIFT payment system for Russian banks. “Capitalist Exploits” quoted New Jersey Democrat Bob Menendez, Senate Foreign Relations Chairman: “The Russian banking sector would be wiped out. (….) Sovereign debt would be blocked. Russia would be removed from the SWIFT payment system … What is being discussed is at the maximum end of that spectrum, or as I have called it, the mother of all sanctions.” In addition, there could be sanctions against the Nordstream gas pipeline.
SWIFT and Cyber War
But would SWIFT really be a real sanction? Russia has no debt at all. And besides, the country has developed an alternative payment system: True, only 400 Russian banks and companies and eight foreign banks are involved in the System for Transfer of Financial Messages (SPFS). But there could quickly be more. Especially as ties with China grow closer and India has signaled interest.
Ultimately, SWIFT sanctions could become an unpleasant boomerang for the West. Presumably, Russia would unleash a cyber war. We add: China and North Korea would happily participate in this – and ultimately hit the entire Western economy hard. Here’s how the World Economic Forum named the possible fallout of a coordinated hacker attack on the West: closure of banks for several days, crash of online banking. Debt moratoriums, i.e., cessation of loan repayments. Disconnection of the world from major currencies such as the dollar, pound and euro. Imagine the crash the stock markets would take.
These are the antidotes
“Capitalist Exploits” went on to say that people could become restless, martial law threatened. Add to that the rationing of food. The antidotes: building up reserves of food and energy. Banking in Russia. Buying hard assets. Copper, for example. Base metals. Offshore oil and gas, especially from Russia. Rare earths. Gold. Coal. Also logistics. Eastern Europe: capital is likely to flee to the Polish and Russian stock markets. The U.S. dollar will become a safe haven in the long run, despite everything. We are curious to see how this will develop. Bernstein Bank advises all traders to keep an eye on the topic in the real-time news.
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