No one knows how Vladimir Putin’s invasion of Ukraine will play out (or as people say "what his endgame is") but one thing’s for sure — predicting his next move and any subsequent impact on the global economy is a fool’s errand.
Before I get into that though, and forgive me for being obvious, but aren’t we all sickened by the suffering Putin is bringing to Ukraine? Who knows how many will be uprooted or separated from their parents — never mind wounded or die? And for what? That one person can foist so much horror on the world is frankly depressing. (Note to Xi Jinping: This is your new best friend we’re talking about.)
Returning to the economic state of play, there are at least two levels of ambiguity here. First is what exactly Putin is up to? Second is that markets respond differently to each political crisis or war. Between those two fogs — one of Putin and the other of war — we’re left with little firm ground. Having said that, we can cut through this enough to provide some clarity.
I am no Kremlinologist, armchair or otherwise, but I’ve seen enough of Vlad and his authoritarian ilk to have a feel for his M.O. Putin claims to feel aggrieved regarding Russia’s diminished presence in the world. Madeleine Albright, who went head to head with him as Secretary of State, said as much this week: “Putin is embarrassed by what happened to his country and determined to restore its greatness.” But then she went on to say, and I agree, that mostly he is simply trying to strengthen his hand at home and weaken his rivals abroad. In other words, it’s about maintaining and enhancing his power.
It’s straight out of the dictator’s playbook a la bread and circuses, only this is no Roman metonymy. Putin is bombarding his country and the rest of us with the most sophisticated digital lies, disinformation, trolling and hacks the world has ever seen. It’s "Wag the Dog" in the age of metaverse.
“Is there an end game in which he could declare victory? I would say no, he does not have much of an end game. In fact, I would go even a little bit further, Julie. I would say that he's already lost to the extent that he has now become a pariah in all of Europe. I think that pariah label is going to stick with him for quite some time. I don't know what the offramp is, but what I worry about more than anything else is lots of casualties in the next week or so.”
Russian President Vladimir Putin gestures during a press conference with French President Emmanuel Macron, in Moscow, Russia, February 7, 2022. Thibault Camus/Pool via REUTERS ·POOL New / reuters
Putin has to be careful what he wishes for. Take over Ukraine, sure, but then he has to hold it. That will cost Russia a fortune if not in rubles, in human lives. (See Brezhnev and Afghanistan.) It raises questions about Putin’s mental state, which the ever-erudite Peggy Noonan speaks to in this excellent column. Unsettling to say the least.
Still The Wall Street Journal notes Russia has a stronger hand than it did in the 1950s Cold War. Besides supplying Europe with much of its energy, (40% in the case of Italy), China is a vastly more formidable ally and a much bigger trading partner today than 70 years ago. Here too though Putin is testing the limits. Yesterday in a call between Xi and Putin, the Chinese leader urged his Russian counterpart to negotiate with Ukraine, saying “‘cold war mindsets’ should be abandoned,” according to the South China Morning Post. Who knows how much of this is just for show? In Beijing, the Chinese media are mostly feeding the populace a steady diet of "Ukraine-situation-is-America’s-fault" news.
As for the sanctions we have and will impose on Russia and Putin, they carry an unprecedented risk of cyber retaliation.
To the extent Putin’s madness has any sort of method, and if a tertiary goal is to weaken the U.S. and the West, he’s succeeding — some. The S&P 500 is only down 2.6% since the beginning of the crisis on Feb. 10, but the uncertainty and volatility have been gut-wrenching. The price of oil (WTI) is now $91.59 up 2.2% from Feb. 10. (Russia supplies 10% of the world’s oil and gas.) Also, wheat is up 11.4%. As Yahoo Finance’s Rick Newman writes, all this will worsen inflation and complicate the Federal Reserve’s rate hiking agenda this spring.
It’s worth noting though, the two countries hurt most here are Ukraine and Russia. The Russian stock market has plunged, falling 32% since Feb. 10. Two of Russia’s highest profile stocks, Gazprom which runs the Nord Stream 2 pipeline into Europe and search engine Yandex, are down 40% and 63%, respectively. The ruble has sunk to a record low versus the dollar.
Will economic conditions deteriorate further because of Ukraine and Putin? Who knows. Maybe next week Xi Jinping will be up for a Nobel Peace Prize.
As terrible as this is for Ukraine, Europe and civilization it may not have much of a lasting impact. In many cases even the biggest geopolitical crises don’t have much staying power when it comes to the markets. (Of course if we get a wholesale European conflict or heaven forbid a nuclear event, all bets are off.)
As you can see from this chart below markets tend to be higher 12 months after a big bad event, unless there is a recession. Which makes sense since, as they say, stocks usually go up, especially over time.
Which to me suggests an encouraging point here. Over time we recover and move on. Meaning at some point, Putin will fail. Sadly there will be much pain and suffering before then. But in the end Putin won't win.
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This article was featured in a Saturday edition of the Morning Brief on February 26, 2022. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer
