With tensions flaring in Eastern Europe, troops massing at the border between Russia and Ukraine and threats of further sanctions on Russian businesses and individuals, you might be wondering how things have escalated to where we are today…
Up until August 1991 Ukraine was part of the Soviet Union and closely connected with Russia, however since the country’s independence there has been increasing conflict between the two.
Since their independence, Ukraine has seen internal divisions as the country has looked to move away from the Soviet Union and more towards Western institutions such as the European Union and NATO. In the last 3 decades we have seen Ukrainian speaking nationals supporting more Western ties and Russian speaking community in the East supporting the previous ties with Russia.
In 2014 conflict broke out between Russia and Ukraine as Russia annexed Crimea, a Ukrainian territory, as well as arming the more Russian supporting separatists in the East. In the 8 years since war broke out, tensions between the two countries have remained and in late 2021 a build-up of Russian military forces along the Ukrainian border has sparked fears of a large-scale invasion.
It can be argued that Russia are looking to take back control of Ukraine to stop the close ties the country has with the EU and NATO, which they feel has restricted them.
Up until this point, talks continue in order for all parties involved to avoid an all-out war, NATO has threatened Russia with further sanctions that could cripple their economy to deter them from an invasion however each day we are seeing more Russian troops surround the Ukrainian border.
The tension remains high as Russia only has a short window where it is possible to invade, between Feb and March. During this time the ground is frozen and will allow the Russian troops to cross the border and invade, after this time the ground becomes muddy and will make an invasion significantly more difficult.
What effect has this had on the markets?
As is to be expected, times of uncertainty and threats of war have a significant impact on all markets. We’ve seen equity markets drop significantly; commodities, such as oil and Natural gas, have seen their prices rise sharply for fear of supply issues. The FX markets are no different, the GBP/USD market has dropped, from it’s recent peak in the 1.37 area, down to the 1.33/34 area with the USD maintaining its status as a safe-haven instrument while sterling is seen as an increasingly risky asset.
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