The following is a guest post about the Crimea referendum. If interested in submitting a guest post please read my guest post policy and then contact me.
The meeting between US Secretary of State John Kerry and the Russian Foreign Minister Sergei Lavrov did not go well. After 5 hours of intense discussions, Kerry emerged browbeaten and despondent. In spite of all the hype, and tough talking, John Kerry was unable to effect change with respect to Russia’s imminent annexation of Crimea. At the heart of the issue is the West’s refusal to acknowledge that any referendum in the independent state of Ukraine is legitimate.
This despite the fact that 60% of Crimea is pro-Russian and its citizens overwhelmingly support reunification with Russia. The Obama administration and many in the European Union believes that any such secession is unconstitutional, illegal according to international law, and a direct violation of the territorial sovereignty of the Ukraine. Other geopolitical factors to consider in this scenario include the ratcheting up of East/West tensions, the supply of oil and natural gas from Russia to European Union countries, and the diminishing role and importance of the United States in global affairs. Viewed holistically, the Crimean crisis is the proverbial elephant in the room in the Obama administration.
Obama was able to deflect criticism from the catastrophe in Benghazi, the failure to act in Syria after the international community confirmed that chemical weapons had been used by Bashar Assad on his own people, and now this latest fiasco with Russia’s strongman – Vladimir Putin. But blame for this latest debacle cannot rest squarely on the shoulders of US Pres. Barack Obama, or can it? When the US administration did a complete about turn with respect to its policy to reign in Iran’s policy of nuclear weapons development, the world was dumbstruck. Instead of ratcheting up the pressure to force compliance – by way of sanctions – the US spearheaded efforts to relieve the pressure and reward Iran for having done nothing. The administration’s clear policy of appeasement and diplomatic engagement over carrot & stick politics has been viewed by the world’s aggressors as weakness.
It is likely that Russia is aware that international condemnation of its own actions will not move beyond lip service. The European Union is desperately in need of Russian raw materials, and Russia and China are powerful global allies. Viewed in perspective, it is clear that the rise of the East and the decline of the West is on the horizon.
How are the Markets Reacting?
Markets don’t like uncertainty and there is plenty of that going on in the Crimean peninsula at this present time. Most everyone in the West concurs that the referendum is illegal. However it is unlikely that a protracted period of market uncertainty will prevail in respect of this latest geopolitical crisis. Markets are typically resilient to shocks like this, but the real question is whether it will lead to anything else. In the event that violence and tensions escalate between the West and Russia, the markets will be dragged back into a deep and dark recession.
The inability to provide objective, unbiased international observers to oversee any election process is in itself worrying. Limited economic sanctions are already being drafted against Russia and the agitators in Ukraine. The US State Department has issued travel bans on such people and their accounts are being frozen around the world. The Russians, in response to US threats of sanctions, have warned of a boomerang effect. Already by Friday 14th March, the S&P 500 index dropped .28% while the Dow Jones industrial index dropped .27%. These were confirmed as the largest weekly declines since January 2014. But it’s not only the Ukraine that is worrying investors; it’s China too.
The once unstoppable Chinese economy has begun to show signs of a slowdown, and this has global markets on edge. By the close of trade on Friday, 14 March 2014, the price of copper had already reached lows it had not seen for years. China stockpiles huge quantities of copper and since the performance of its economy is declining, the price of copper is being dragged down with it.
Investors have seen the value of their copper holdings tank in recent days, and this trend is set to continue as base metals lose to precious metals in the global markets. In tandem with what we expect to see in this type of scenario, the price of gold, silver and platinum has been rising as investors seek to bolster their financial portfolios with safe haven investments. By the close of trade on Friday, gold had risen $6.60 and settled at $1379 an ounce.
Moderation is Key to Global Stability
Investors are used to dealing with geopolitical uncertainty, especially regarding Russia. Back in 2008, Russia sent huge amounts of troops into Georgia in a similar operation. Provided the regional tensions can be kept to an absolute minimum, and further land grabs do not take place, it is likely that tensions will continue to simmer but market stability will remain intact. If the West’s response to Russia’s expansionary measures is harsh, the markets will react. This tit-for-tat policy between the US and Russia has been going on for decades, with flare-ups taking place every so often. In the absence of military action between Russian forces and NATO forces, the markets will rapidly settle, as evidenced by precisely what happened in this crisis.
The crucial factor in the Ukraine crisis is not whether Crimea will be annexed or not, it is what will happen to energy supply in Europe and how that will impact on global economics. If Russia threatens to cut off supplies or if Europe imposes heavy sanctions against Russia, global markets will feel the pinch.
The US is carefully monitoring global energy resources, especially oil. The government recently announced it would conduct a test sale from the Strategic Petroleum Reserve. The real test however would come in the form of increased oil exports to the European Union to dramatically reduce their reliance on Russia. Thus, the real markets to watch in the days and weeks following the referendum in Crimea are the oil markets.
Author Bio: Orit Nathan Mahalal is Banc De Binary’s Head of Content, an accomplished writer and social media expert. Orit heads a team of copywriters who, under her direction, create content for all aspects of the business, internal and external. Orit’s key role is to ensure that only top quality, superior copy enters the channels and that Banc De Binary stays at the forefront of the binary options industry.