THE WALL STREET JOURNAL reports,''world markets are taking what they can from the latest news out of Russia over the crisis in Ukraine. In the absence of any further ratcheting of additional military action beyond the incursion of Russian troops into the Crimea, its threats—including one that it would respond to U.S. sanctions by dumping U.S. dollar assets – are being seen as rather hollow. Investors are less afraid of full-blown war''.
When it comes to using its monopoly power of gas supplies to keep its neighbors in check, Russia has great power. But if it were to take on the U.S. and the rest of the world – either by launching war against the Ukraine or by living out a threat to withdraw its reserves from U.S. Treasurys, it would do more harm to itself than anyone else. The Russian ruble had already been one of the weakest performing currencies in the world this year. Russian citizens are notoriously prone to capital flight into dollars, which would offset the Russian central bank’s exit Treasurys – holdings that rank behind those of the U.K. and are a tenth of China’s. The country’s own economic fragility ties President Putin’s hands. He’s no Kim Jong-un. He‘s surely not willing to sacrifice Russia’s economic health and international influence to make this point. At least we hope not. (MC)
RUSSIA: Russia ordered soldiers involved in massive military drills planned last week to return to their bases. President Vladimir Putin also held a press conference in which he declared the government in the Ukraine to be illegitimate, denounced plans for foreign sanctions against Russia and explained his country’s military incursions in the Crimea region as an act of defense solely to protect Russian assets, but refrained from making any fresh threats of military action. Meanwhile, in a twist, a senior Kremlin adviser said Russia could respond to any U.S. sanctions by abandoning the U.S. dollar as a reserve currency and not repaying U.S. bank. Despite all the tough talk, markets warmed to the idea that an escalation in conflict could be avoided. They rallied globally in a rebound from Monday’s sharp losses.
The way things played out Tuesday, and despite the continued presence of Russian troops in the Crimea, there’s a sense that Russia own options are limited … And the unexpected move to cancel a military drill that would have involved 150,000 troops was read as a welcome bid to dial down the tension. The situation is far from resolved but the sense that events were rapidly being driven towards regional war has lifted somewhat.
