The conflict between Russia and Ukraine escalated on Thursday, February 24, after the Russian President, Putin, announced in his speech to the nation, that a special military operation would begin in Ukraine.

After Russia has built up tens of thousands of troops along the Ukrainian border, with estimates from the US President Biden of around 150,000 soldiers, large-scale military operations across the country started early Thursday, ending hopes that the conflict could be solved peacefully.

Preceding the conflict was the Russian decision to recognize the sovereignty of Luhansk and Donetsk, known as the Donbass region, with Moscow's Foreign Ministry being instructed to establish formal diplomatic relations with the two areas held by pro-Russia rebels on the east of Ukraine.

Two sides, Russia and Ukraine, backed by NATO and the Western world, have conflicting views of the whole problem and opposite reasons for the start of the military conflict.

While Russia blames NATO for attempts to further expand to the east on bringing Ukraine into its membership that would bring the alliance to the border of Russia, for which it will be crossing the red line, the Western world sees Ukraine as a larger stage for Russia to try to reassert its influence in Europe and the rest of the world.

The US and Russia have drawn firm red lines that help explain what’s at stake.

Russia presented the US with a list of demands, some of which were nonstarters for the United States and its allies in NATO. Putin demanded that NATO stop its eastward expansion and deny membership to Ukraine, and that NATO roll back troop deployment in countries that had joined after 1997, which would turn back the clock decades on Europe’s security and geopolitical alignment.

As expected, the US and NATO rejected those demands.

Some prominent American foreign policy experts argued at the end of the Cold War that NATO never should have moved close to Russia’s borders in the first place. But NATO’s open-door policy says sovereign countries can choose their own security alliances. Giving in to Putin’s demands would hand the Kremlin veto power over NATO’s decision-making, and through it, the continent’s security.

Russia wants Ukraine to be demilitarized zone between the eastern borders of NATO alliance and western borders of Russia, with the latest comments that Ukraine isn’t joining NATO in the near future, confirmed by the US President Biden, but 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 — meaning any Russian military engagement of a hypothetical NATO-member Ukraine would theoretically bring Moscow into conflict with the US and other NATO members.

Ukraine is the fourth largest recipient of military funding from the US, and the intelligence cooperation between the two countries has deepened in response to threats from Russia, implying that Ukraine became an informal member of NATO without a formal decision, despite that no country can join the alliance without the unanimous vote of all 30 member countries, and many have opposed Ukraine’s membership, in part because it doesn’t meet the conditions on democracy and rule of law.

After five days of heavy fighting, the Russian army, which attacked from three sides, took control of a large part of Ukraine and reached the suburbs of Ukrainian capital Kyiv, but faced much stronger than expected resistance.


With many casualties, a number of Ukrainian military installations being destroyed and thousands of people leaving the areas of conflict or the country, the western world strongly increased pressure on Russia through the media and imposed severe sanctions, which have never been seen before in history.

The United States, United Kingdom and European Union have adopted sanctions aimed at freezing the assets of President Vladimir Putin and his foreign minister, Sergei Lavrov, in response to the war in Ukraine. They also placed sanctions on the Russian central bank and removed the country's lenders from the Swift global payments system, in addition to other economic sanctions.

A number of European countries have closed their skies to the Russian airlines, blocked a number of Russian banks, financial services and companies, especially those critical to the country's economy, as well as restricted access of wealthy Russians to the western banks.

The US administration announced additional sanctions against Russia’s central bank, in order to effectively prohibit Americans from doing any business with the bank and froze its assets within the US, also targeting the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian Federation.

On the other hand, the negative impact from sanctions could be expected in the western world, with the vulnerable European Union, whose economy is heavily dependent on a number of goods from Russia and is less prepared for the situation than Moscow, likely to take the hardest hit from Russian countermeasures.

In this scenario, energy sector is expected to be hit strongly as Russia is the EU’s largest energy supplier, with around 40% of the bloc’s natural gas imports and nearly one third of oil imports coming from

The European Union’s gas reserves are below historical levels and prices have soared in recent months, giving Russia increased leverage and in case of further escalation of a conflict, natural gas prices could skyrocket that would likely cause electricity rationing and probably push the economy into a recession.

Draconian sanctions on Russia and its possible response, as the Russian oil and gas still flow through Ukraine to Europe, mark economic dimension of the war, in addition to do-called hybrid war, which includes a range of a cyber-attacks and media propaganda, completing the dark outlook, as the world fears of the worst scenario.

After the first round of negotiations between delegations of Russia and Ukraine gave no significant results, media reports say that the second round will start these days, with hopes for a breakthrough that could end fighting.

Market reaction

Global markets reacted strongly when Russia attacked Ukraine, with expected action on strong risk aversion and migration to safety, seen on the first day of the conflict.

Global stocks fell, along with riskier currencies, while the safe-haven dollar benefited from the situation and rose against its major counterparts.

Another key safe-haven instrument, Gold, surged to the highest levels since August 2020, approaching a psychological level of $2000 per ounce, while both crude oil contracts, WTI and Brent rose above $100 per barrel, for the first time since 2014.

Financial markets temporarily regained confidence on hopes for success of ceasefire talks, but overall bias remained negative, and the yellow metal continued to rise after a brief pullback, on renewed demand for safe assets.

Crude oil returned above $100, and natural gas prices surged 17%, as market participants fear that disruption on air and sea transport would strongly hurt global supply.

Wheat prices also rose significantly, as Russia and Ukraine are top world suppliers, holding a third low world export of wheat.

Financial markets are expected to remain highly volatile, with no sign of de-escalation of the conflict so far.