Amid accusations and acrimonious verbal jousting between the United States and Russia, it appears that the Russian commitment to peace with the Ukraine is either not their intention, or not entirely within their control. Either way, the Ukraine has now resumed operations to neutralize the Russian-sponsored terrorists who have killed and tortured two Ukrainians, including a local politician, in cold blood.
It’s remarkable how quickly the situation has evolved from comfortable if uneasy coexistence to fertile seeds of a bloody war. What risk is there that the Ukrainian situation could explode into a full-on confrontation between East and West? Or worse, is it conceivable that Russia could make an allegiance with China that could practically over night change the balance of world power?
While these risks may seem unlikely now, so too, one would have thought, was the idea that Russia would invade the Crimean Penninsula this year.
From a Canadian Investor perspective, what might the risks of an expanding conflict imply?
One might intuitively assume that the beleaguered Canadian mining industry might be a beneficiary, if rising tensions actually engulf both the United States and its its largest creditor, China. Gold failed to rally when the Russian rabble rousers first seized Ukrainian public buildings however, but that might be because it was unexpected and happened to coincide with a US government sponsored precious metals devaluation operation. The forgot to send Putin the memo.
Mind you, the world doesn’t exactly feel threatened by the sloppily-disguised Russian sponsorship (funny how all those ‘separatists’ have matching camouflage-wear identical to the Russian special forces.) of what is obviously an attempt to re-integrate the Ukraine into its larger border. So gold’s lacklustre response could also be somewhat due to the fact that the rest of the world is uncertain as to whether the Ukraine rightfully belongs to Russia or not.
Putin, categorized the transfer of the Crimean Penninsula to Ukraine as a mistake by Soviet leader Nikita Krushchev, and suggested that south and east Ukraine were historically Russian.
“Let me remind everyone, this is New Russia, using the terminology of Czarist Russia,” Putin said, adding that regions including Kharkiv, Luhansk, Donetsk and Odessa weren’t part of Ukraine until last century. “These are the territories that were passed to Ukraine in the 1920s by the Soviet government. God knows why they did that.”
So lets assume, for the sake of argument, that Putin feels justified in annexing all of the Ukraine as the only defence against the growing influence of the west in that country. Would the United States behind the veil of NATO challenge the Russians militarily, if all diplomatic overtures fail?
That is the big risk, and the big unknown.
Europe certainly has no appetite, and little capability, to make war. So under the guise of NATO, it would almost certainly be an American-led force that attempted to thwart the Putin’s ambition.
And the risk that Putin runs, and one that he should be very sensitive to, is that, by destabilizing Ukraine aggressively, he has provided the pretence under which American troops can justify building numbers on the Russian border.
China is the Wild Card
If one were to consider the historical pattern of the Chinese approach to conflict, it would be advisable to read Sun Tzu’s The Art of War. Among the choice strategic attitudes in that classic work is the one where the wise ruler encourages strife between neighbours to weaken them, providing advantage to the rise ruler, who may travel freely among the warring sides as a ‘peace keeper’.
China has vested interests in both a destabilized Russia as it does a weaker America. With the Chinese bottomless craving for natural gas, which it lacks in large developed supplies, it is in an increasingly better position to bargain with a Russia who will indeed need China’s goodwill, in the event that things escalate beyond its control.
Conversely, America would be forced into a position whereby much in the way of concessions would have to be made to obtain, at a minimum, Chinese commitment to non-agression in the event of war among Russia and NATO. And such a pact would of course be subject to change in the event of a better offer from the other side.
Either way, this situation is far more ominous than is widely beheld at this point. China is in the catbird seat for sure.
For now, some investors view the deterioration of Russian asset prices as a buying opportunity. That may be, or, if things continue to deteriorate, they might be buying more (or less) than they bargained for.
