Does Russia in Crimea Affect Your Investing?

No doubt you have been watching the activities in Ukraine as Russia inserts itself into the region of Crimea, and it is tempting to say – who cares? Our culture has so much war fatigue that many Americans would just prefer we leave these global battles alone. We’re not here to make a case for (or against) American involvement, but we should point out the financial implications for our audience of investors. The fact is,there’s a lot going on over in eastern Europe, but this activity in Ukraine is all about power. Just follow the money.

As many of you are aware, Russia supplies Europe with natural gas that gets piped through the Ukraine. That means the players with real interests at stake here are Russia, Ukraine, and Europe. What you may not know is that Ukraine is also the most fertile land in the area (sort of the “breadbasket” of the region). For that reason it will always be an area that Asians & Europeans have a lot of interest in. But not America. So why is there so much focus on this dangerous game of Russian chess?

At face value, this is a situation where Putin thinks Russia can operate without the United States pushing back on this power play in Ukraine. He knows it’s not worth it for the Obama Administration to take any kind of military action to save Crimea because we have no dog in this fight. This gives Putin an ideal test case where he can take some action knowing the United States will back off and stay out of it. Of course, if the U.S. backs off all the spectators (other global powers) will say, “where else can we push where America won’t try to push back?”

As for financial implications, just carry that one step further… If this leads the world to look at the United States and come to the conclusion that we really can’t exercise our power and enforce our will the way we used to, that will lead to a weaker USD. Ultimately that weaker dollar means that the U.S. loses more and more economic leverage and the cost of everything coming in to this country goes up. That’s against the backdrop of weak job growth, rising prices, etc…

At what speed will this train leave the station? That is a question we will all concern ourselves with, even if we’d prefer America to stay out of it. How soon will this impact us? There is no way to know for sure, but if Putin’s power play plays out, we will all be investing in a radically different world where the dollar is no longer the standard. As investors, we all should be concerned with that.

Categorized in: Blog

This post was written by Conscient Capital