Last Thursday, the global equity markets decreased and German and US bonds increased in value over concerns about the situation in Ukraine and Russia. While it is also important to note that European and US numbers regarding the economy were not impressive, the markets mainly moved in this manner as Vladimir Putin of Russia told various European governments that Russia will no longer supply natural gas to Europe as of June 1st, 2014 if Ukraine does not pay its debts. More specifically, Vladimir Putin stated that the gas exporter Gazprom was forced to require that Ukraine pay for gas in advance starting in June of 2014 as Ukraine already owed $3.5 billion for gas. Putin also encouraged other leaders in Europe to help Ukraine with its economic woes and help resolve this gas conflict. In response, the US stock market lost 1 percent, stocks in Europe lost 0.8 percent, and the MSCI world equity index fell 0.75 percent.
Further, as the EU, the US and other countries threaten Russia with additional sanctions, the Russian government is also trying to reduce the influence of the US dollar in global trade transactions. The Russian government plans to accomplish this by choosing not to trade oil and natural gas in US dollars. If a significant amount of oil and natural gas transactions occur in currencies other than the US dollar, it would significantly change the international trading environment and impact the US dollar directly.
In addition, Ukraine’s national elections are coming up and many hopeful politicians are vying for the top position. While the current acting Ukraine prime minister, Arseniy Yaceniuk, has been trying to implement reforms to help the country, many citizens still fear that yet another corrupt prime minister will be elected. Moreover, Putin’s build-up of military on the border is also disconcerting. While Putin has promised to withdraw the troops three times, as of writing this piece, no concrete proof regarding the removal of Russian military at the border has been given to governments or the media. All in all then, the situation in Ukraine continues to impact international markets and any large escalation in this conflict will impact the markets considerably.
