Understanding recent tensions between Russia and Ukraine, as well as the implications on the economy and potential geopolitical and investment consequences.
Geopolitical dimension of the crisis: tensions stand at their highest point in years, after Moscow deployed 100,000 troops to its border with the Ukraine’s Donbas region. The geopolitical risk between Russia and the West remains deadlocked since Russia’s 2014 annexation of Ukraine’s Crimea peninsula and the consequent Western sanctions to Russia. Recent talks with NATO and the US have not yet produced any tangible results, with the Biden administration rejecting Russian demands to halt NATO’s expansion to the east. While these talks may continue and produce some results in the coming months, geopolitical risk may remain high in the short term, although a full-blown conflict is unlikely in our view. Moreover, possible sanctions for Russia are likely to remain, although we do not expect any major measures or escalation at this point. The Russian economy has increased its resilience since 2014, with a strong current account and its financial buffer has been built-up through international reserves. As a result, the country is better positioned – although not immune – to face new sanctions.