10 Reasons Why Russia-West Trade Continues As Usual & How To Profit

An update on why it’s unlikely there will be long term economic impact from the Ukraine crisis and what to do about it

The following is a partial summary of the conclusions from the fxempire.com  fxempire.com ’ meeting in which we share thoughts about key developments worth a special report

There will blood. There will be drama, headlines and some sanctions, mostly diplomatic and symbolic. Business however, will continue as usual for the most part. Here’s why, and some guidelines on profit.

SUMMARY

Asymmetry of Will: Ukraine matters more to Russia than it does to the West, and Putin has more support from the elite, and the street

Even though Russia wants it more, economic costs are unaffordable for both sides

Russia need not invade to win, can avoid provoking serious sanctions that the West doesn’t want to impose anyway

Guidelines for profiting from excessive market fear

1.     ASYMMETRY OF POLITICAL WILL AND INTERESTS: Ukraine More Important To Russia Than To West

Putin’s goal of a “Eurasian Union,” that combines ethnic nationalism and the restoration of the FSU’s former territorial hegemony, is both a deeply held ideology and practical political move. Putin has the support of both elites and the street. A late April survey by the independent Levada pollster put his support at 82%, its highest since late 2010. As of May 7^th another survey showed similar results, with Putin’s confidence rating at 78.3%. The crisis has reversed his regime’s decline in popularity and sent it surging on hopes of new “Eurasian Union” to restore former Russian power, despite the political and economic risks.

As one of, if not the most important FSU breakaway republics now on Russia’s border, Ukraine is a key strategic asset for Russia. A pro-Western Ukraine represents a tangible potential military threat for Russia, as was a pro-Russian Cuba was for the US.

Putin suspects that the West is behind the protests that toppled former pro-Russian President Yanukovich, and apparently so do his supporters and much of the Russian polity. If so, that belief would justify Russia’s own “counter-meddling.”

In contrast, the West is far less committed to Ukraine.

Politically, the West has no strong ideological commitment to Ukraine to match Putin’s drive to control and expand his borders. Ukraine is not a key strategic asset for the West, as it clearly is for Russia.

Militarily, neither the US nor Europe is willing to go to war over Ukraine, and Ukraine alone cannot win a conventional war against a committed Russian invasion.

Economically, although a sanctions war would be mutually damaging, Europe has shown no serious willingness, to bear the potential pain of such a confrontation.

As we discussed in our first post Fools Russian: 1 Chart Shows How To Play Russia Tension-Related Selloffs, none of Europe’s political or business elites have expressed any appetite for material economic sanctions that would disrupt business as usual.

There are compelling arguments that the West could cripple Russia’s economy, but they’re irrelevant the West’s far lower economic pain threshold.

2.     EUROPE GAS PAINS: HOOKED ON RUSSIAN ENERGY

10 REASONS WHY RUSSIA-WEST TRADE CONTINUES AS USUAL & HOW TO PROFIT

Via: Business Insider/Matthew Boesler

06 Apr. 20 04.37

Given the facts in just this one graphic, Europe has every motivation to avoid a sanctions war with Russia.

Lack of Near Term Substitute

Meanwhile, as reported by ft.com here, at least one potential US gas exporter CEO has dismissed America’s capacity to replace Russian energy was “nonsense” and that no more than eight out of over 20 proposed rival export projects were “real”.

Note how the above graphic shows Germany and France relatively less vulnerable to Russian energy cutoffs. That hasn’t made them any less ambivalent about imposing sanctions. Note the following.

3.     EUROPE’S BUSINESS LEADERS RESISTING SANCTIONS

The most recent round of sanctions show that EU leaders business and political leaders remain opposed to imposing any material sanctions that would materially interfere with business as usual.

For example, the Wall Street Journal reported last week that large German firms like Siemens and BASF are resisting further economic sanctions. “As the Ukraine crisis has worsened, German officials have faced a barrage of telephone calls from senior corporate executives, urging them not to take steps that would damage business interests in Russia, people familiar with the matter say.” (Via businessinider.com here).

Of course they’re far from alone. Energy firms such BP and Eni are reminding a variety of government officials that Europe can’t replace Russian energy. BP owns 20% in Russian oil giant Rosneft.

Britain and Cyprus both have opposed sanctions that might limit their financial sectors’ considerable dealings with Russia.

US business lobbies are working to discourage Washington from introducing sanctions that might lead to retaliation against US interests. The US has expressed caution about getting too far ahead of the EU in its sanctions. Given the EU’s foot-dragging, that means no serious sanctions are likely.