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Echoes of Cold War

March 4, 2014

The building crisis in Ukraine has finally put markets on edge, with reports that Russia has massed troops along the border and has taken operational control of the province of Crimea. The Russia-friendly Prime Minister has fled the country, and the jostling between Western and Russian interests has intensified. After reaching new highs last week, U.S. markets have been falling this morning on news of the intensifying conflict.

So, what’s going on? The primary disagreement is on the future of Ukraine. One group, the one that ousted the Prime Minister, wants a Ukraine that increasingly partners with Europe on trade, politics and energy. The “old guard” was a much stauncher ally of Russia, and Russia does not want that partnership to end. After weeks of riots and street protests, the major powers are now getting involved.

What does Ukraine mean to markets? For Russian markets, Ukraine is important. It is one of the largest agricultural regions in the former U.S.S.R., and it has important energy infrastructure. This also makes Ukraine important to Europe. It is less important to the U.S., but from a geopolitical standpoint, the U.S. government would certainly prefer it lean toward Europe. (more…)