Russia Ukraine conflict keeps stock markets on edge: All you need to know

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Russia Ukraine

Russia Ukraine news: The tension between Ukraine and Russia has kept investors on edge. The stock market fell more than 3% on Monday in India. However, the markets rebounded on Tuesday, after comments from the Russian foreign minister suggested easing of the conflict. We try to decode the conflict and what investors should do now. 

Russia Ukraine issue: The start of the conflict

  • The Soviet Union broke up in early 1990, and Ukraine which was part of the Soviet Republic became independent. At that time, Ukraine was the third-largest atomic arsenal in the world.
  • In the years to follow, the US and Russia, together have worked with Ukraine to denuclearize the country. There have been a series of diplomatic agreements where Ukraine gave back nuclear warheads to Russia.
  • In exchange, Russia has given security assurance to Ukraine that it will protect it from a potential attack.
  • These assurances were questioned in 2014 when Russia invaded Ukraine. Russia annexed the Crimean Peninsula and backed a rebellion led by pro-Russia separatists in the eastern Donbas region.
  • Post the invasion, a mass protest grew in Ukraine and toppled the country's pro-Russian President - Viktor Yanukovych.
  • Today Russian President Putin is having different views which are causing the current conflict. He wants to bring back the land that was lost with the fall of the Soviet Union. Ukraine is central to that list.
  • Putin has said Ukrainians and Russians “were one people — a single whole,” or at least would be if not for the meddling from outside forces (as in, the West) that has created a “wall” between the two.

Russia Ukraine conflict: Role of NATO

  • The North Atlantic Treaty Organization (NATO) is an intergovernmental military alliance between 27 European countries, 2 North American countries, and 1 Eurasian country. Its purpose is to guarantee the freedom and security of its members through political and military means.
  • There is news going around that Ukraine is going to join NATO. What will happen if that happens? The core of the NATO treaty is Article 5 - a commitment that an attack on any NATO country is treated as an attack on the entire alliance.
  • It means that any Russian military engagement in Ukraine, assuming it becomes part of NATO, would theoretically bring Moscow into conflict with all the NATO members, including the US and the UK.

Russia Ukraine crisis: Push from Russia

As mentioned above, the conflict between the nations has been around since 2014. Let us look at what triggered the push from Russia now.

  1. 2019 Ukraine President election - Volodymyr Zelensky became President in 2019. It is a story in itself. He was a comedian who played a president on TV and then became the actual President. Russia saw Zelensky, a political novice, as someone who might be more open to Russia’s point of view.
  2. Public opinion in Ukraine - Public opinion in Ukraine has strongly swayed to support for ascension into Western bodies like the EU and NATO. That may have left Russia feeling as though it has exhausted all of its political and diplomatic tools to bring Ukraine back into the fold.

Current situation

  • According to American officials cited anonymously in US media, Russia has established 70% of the military buildup it needs to launch a full-scale invasion of Ukraine.
  • Russia has more than 100,000 troops on its border with Ukraine, sparking Western warnings of an imminent invasion.
  • On 11 February, Biden’s national security adviser, Jake Sullivan said that US intelligence shows a Russian invasion could begin within days. It triggered the market sentiments on Monday.
  • On 12 February, Biden and Putin met via video conference. The meeting ended without reaching any conclusion. Biden said that the Russian invasion of Ukraine would cause “widespread human suffering” and that the West was committed to diplomacy to end the crisis but “equally prepared for other scenarios”. Putin complained that the US and NATO have not responded satisfactorily to Russian demands that Ukraine is prohibited from joining the military alliance and that NATO pulls back forces from Eastern Europe.

What should investors do in case war happens?

We need to look at the history of geopolitical events to understand the current situation. Looking in history, when geopolitical events happen, they tend to have a short-term impact on the markets. If they don’t drive you into recession, the markets tend to rebound.  However, specific sectors are impacted in the long run. In the current situation, Russia's invasion of Ukraine is expected to drive up energy prices, while the prices of other commodities also could surge. 

For the Indian market, Ukraine's geopolitical tension is leading to a sharp rise in crude oil prices which is never good news for the Indian equity market. For now, investors should not overreact to this situation and sell their holdings in losses. The best strategy would be to wait and watch. If the clouds of war go away, the market will surely rejoice at the news and rebound from the current lows. Investors should also keep a close eye on the Federal Reserve's interest rate hike. Check our article on the same.