Business week: 'What would Putin do?'
Despite the conflict in the Ukraine, markets should be hoping for nothing worse than the 2008 Russia-Georgia confrontation, but that depends on how rational Putin is feeling.PT4M21S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-33vwd 620 349 March 3, 2014
Suddenly the question "What would Putin do?" is no longer the start of a television skit.
The shadow of potential Ukrainian war crept over most of us when cricket, rugby and mardi gras were holding the weekend's attention and after US markets closed on early Saturday morning, leaving Australia as the first reasonably serious bourse to have to offer a cautious reaction. Giving the multiple uncertainties, odds are local players will head to the sidelines and await further instructions.
We have been here before though, sort of. The somewhat similar scenario of the Georgia-Russia war in August 2008 came and went with little impact. The Dow Jones Index bumbled along that month while Wall Street was building towards its own much greater crisis – Lehman Brothers collapsed the next month.
Unidentified armed men patrol outside of the Simferopol airport. Ukraine's interim government has accused Russia of staging an "armed invasion" of Crimea. Photo: AFP
Despite some naïve suggestions of the US needing to act tough or make demands about what Russia can or can't do, the reality is that the west is less likely to become militarily involved in Ukraine's woes than it was in Georgia's.
Besides, it might sound an insensitive thing to say, but Ukraine is not worth fighting over – unless, of course, you are Ukrainian. The country is important for a number of reasons and to a number of parties, but it's not so important to any one player as to risk greater conflict and everyone is better off if is more or less left to itself. A Businessweek feature on "the New Great Game" summed it up neatly:
"Ukraine doesn't seem like the kind of place that world powers would want to tussle over. It's as poor as Paraguay and as corrupt as Iran. During the 20th century it was home to a deadly famine under Stalin (the Holomodor, 1933), a historic massacre of Jews (Babi Yar, 1941), and one of the world's worst nuclear disasters (Chernobyl, 1986). Now, with former President Viktor Yanukovych in hiding, it's struggling to form a government, its credit rating is down to CCC, a recession looms, and foreign reserves are running low. Arseniy Yatsenyuk, head of the opposition party affiliated with former Prime Minister Yulia Tymoshenko, said on Feb. 24 in Parliament, "Ukraine has never faced such a terrible financial catastrophe in all its years of independence."
"But Ukraine is also a breadbasket, a natural gas chokepoint, and a nation of 45 million people in a pivotal spot north of the Black Sea. Ukraine matters—to Russia, Europe, the US, and even China. President Obama denied on Feb. 19 that it's a piece on "some Cold War chessboard." But the best hope for Ukraine is that it will get special treatment precisely because it is a valued pawn in a new version of the Great Game, the 19th century struggle for influence between Russia and Britain."
In a rational world, one might expect Russia to flex enough to preserve its immediate sphere of influence and bases, as the US and China do in their backyards, and to refrain from anything monumentally silly. Markets should be hoping for nothing worse than the Russia-Georgia war, but that depends on how rational Putin is feeling.
The Ukrainian crisis arguably is a bigger problem for Russia than any other player. There is a great deal of very real pressure on Putin to protect the interests of Ukraine's pro-Russian citizens, but Putin has plenty to lose by over-playing his hand and not much to gain. Ukraine would be an economic drag of a dependency and it could seriously damage Russia's relations with the rest of the world after all that expensive winter Olympics PR. Having secured the Crimean base, you might think Putin would prefer to let it go at that and get back to wrestling tigers and skinning bears, while offering support and protection for those pro-Russian elements.
Assuming that Ukraine becomes no more than a civil war – as terrible and tragic as that is – the rest of the world should get on with its business. After all, Syria has been tearing itself apart in the Middle East tinderbox and markets simply don't care.
Hopefully for the suffering and worried people of Ukraine, it won't come to that. Compromise and peace offer the country by far its best chance of finally reaping the wealth of its resources. But the uncertainty remains from never being quite able to trust the world to be rational. There's no way shooting a single Archduke should have started a war either.
Michael Pascoe is a BusinessDay contributing editor.