Financial Comment - Crimea and global markets

Crimea and global markets

Americans protest Lukoil station in Jersey City

The Russian invasion and successive annexation of Crimea have been in the global focus since late February. The investment and commodity markets have all felt the impact. Russian stock indices have suffered the most: the RTS index dropped 19% between February 24 and March 14 to 1,062 points. Since then, the index recovered by 9% to 1,156 points. Some analysts connect this recovery to the perceived weakness of the response from the United States and Europe to the Russian actions. At the same time, others expect new rounds of sanctions from the West and note that foreign investors are still shunning Russian equities. Like the White House spokesman Jay Carney put it on Tuesday: “I wouldn’t … invest in Russian equities right now – unless you’re going short”. 

The oil market has been in focus as Russia is the biggest oil producing country with a 13.3% estimated share of global production (2013). Because Russia gets 70% of its exports from energy sales, western sanctions against its oil and gas exports would potentially be devastating for the country. However, Europe does not seem to be ready to impose such sanctions because 30% of its oil and natural gas supply comes from Russia. European leaders have promised to work towards greater energy independence from Russia in the future. The situation with the western economic sanctions against Russia may clear up next week when the G7 countries gather in The Hague. The price of oil has been fluctuating: in the first two weeks of March, the price of WTI oil fell from US$105/barrel to US$98/barrel and some analysts attributed it to the West’s efforts to warn Russia about possible threats for its oil exports. By now, the price has recovered to around US$100 a barrel.

By: Ukrainian Credit Union Limited