The prospect of Russia invading the Ukraine is causing concerns across the world. It would likely lead to a military response from the US, Europe, and their allies. These situations can escalate quickly and for obvious reasons no one wants a conflict between nuclear powers. The West does not want a war and will negotiate to avoid a conflict with Russia. However, if Putin has decided to invade and take control of Ukraine, then no amount of diplomacy or negotiation will change his mind or nullify the threat.
While it is possible Putin is using the threat of war as a negotiation tactic to leverage a particular outcome, I do not think this is the case. If there is a diplomatic solution reached, I believe it is more likely a tactic from Putin to gain concessions and buy time as he continues to advance. Putin is approaching 70 and, in my view, is more concerned with solidifying his power, restoring Russia to its former glory, and cementing his place in history.
I think it is possible Russia escalate then de-escalate several times in the weeks ahead. It will provide Putin with intelligence around the response they can expect and applies maximum pressure and sustained anxiety in both the military sense and on the general public. One of Putin’s key weapons in that sense is certainly the Western media, both mainstream and social media. Perhaps though it will galvanise the USA against a common enemy and alleviate the polarised political environment at home.
No doubt Putin sees an opportunity. The US opened the door following their shambolic exit from Afghanistan last year. He knows the US are preoccupied with matters at home and with China. But it would be a mistake if the US were to prioritise their disputes with China over the risk of an aggressive Russia. While China may present more of a threat to the US as the worlds undisputed economic power, I believe Putin and Russia present a far greater threat to world peace.
There are parallels with China and their stance on Taiwan, but I think there is a significant difference between the two nations and their leaders. Putin is a megalomanic and will take Ukraine and then work his way across Europe. He is a genuine threat to world peace. China is more insular and though there are disputed territories that are strategically and historically important I don’t believe they are the same type of global threat. Putin will continue to forge an alliance with China to pressure the US and its allies to deal with two potential conflicts at the same time.
If Russia does invade the Ukraine, share markets will fall, at least initially. Given the uncertainty and fear, there will be a flight away from risk assets to defensive assets. Commodities and energy prices will spike much higher. But thereafter I’d expect stock markets generally to settle and business and consumers to carry on as normal. The biggest economic risk would likely be the inflationary impact of commodities and higher energy prices given the level of control Russia has over Europe’s energy market.
War is obviously horrific, but from a consumer’s perspective, how will it change your spending habits? What will you change in your daily life? It won’t change my daily routine. I will still go to the gym, work out and buy my coffee each morning. At work, I will still subscribe to Microsoft office and use my iPhone and all the other services we use in business. In the afternoon the shopping my family orders from Amazon will arrive too. There is a fear factor attached to the current situation. If Russia do invade the Ukraine, we can expect a significant response from the US, Europe, and their allies. But, after an initial shock, the majority of consumers and companies will quickly return to business as usual. I expect share markets will likely do the same.