UKRAINE: Shall we concern ?

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03/06/2014 | 06:09 pm
While Russian troops remain in effective control of Crimea region, Russian lawmakers are working on a draft law to allow the confiscation of assets belonging to European or U.S. companies established in Russia if sanctions are imposed.
What really happens?

After months of resistance originate by the abandon of the free-trade and cooperation agreement with the European Union, Mr. Yanukovych was forced to leave the capital and protesters took the control of the city. After its ouster, the parliament voted against Yanukovych and designed a new interim president while the new presidential elections take place for May 25.

Russia former president, Vladimir Putin, clarified his intentions on an earlier communicate: "We reserve the right to use all means at our disposal to protect" people in the region, and also reserves his right about a possible further troop’s reinforcement.

Ukraine has been an important target for the EU in order to encourage democratic change in the region in return for free-trade agreements.

Tensions on Oil and Gas markets

Russia is a great supplier of gas to Europe. Indeed, major American companies as Royal Dutch Shell (NYSE: RDSA) and Chevron Corp. (NYSE: CVX) have signed agreements to conduct exploration in the country while Bloomberg estimates of these agreements are close to $10 billion, which are all actually at risk due to the conflict.

Part of the significance of Ukraine on the world stage is its key location. Nowadays, Europe depends on Russia for about 40% of its natural gas imports. Foremost, one of the terms of Russia's controversial deal with Kiev included deep discounts on natural gas. In 2010, for example, 34.5% of oil imported to the European Union and 31.8% of their natural gas imports had been originated in Russia and half of that is pumped via pipelines running through Ukraine. In addition, 84% of Russia’s oil exports and nearly 80% of their natural gas exports went to the European Union in 2012.

Not only the Oil and Gas market are concerned by the political situation in Ukraine, but also steelmakers as ArcelorMittal (NYSE: MT) that has operations reporting 8 million tons of annual production capacity and airplane makers as Boeing (NYSE: BA).

Market Impact

Russia is threatening to hit back with measures of its own against any steps the United States and its European allies thinks to impose sanctions concerning the crisis in Ukraine. If it comes to pass, Western companies and investors could find themselves in the firing line, of whom Europe would stand to suffer most. In current data, Russia is the European Union's third-biggest trading partner after the United States and China, with goods and services that represented more than $500 billion, exchanged in 2012.

As consequence of recent escalation of military tensions and the Ukrainian political turmoil, the Russian ruble sank to its lowest level against the dollar in nearly five years to around 36 RUB for a dollar on last Monday. After that, an emergency currency policy of Dollars and Euros sells by the Russian central bank took place. It aims to “reduce risks” to overall financial stability from heightened ruble volatility, including concern that households and firms facing an increase in the value of their debts relative to the value of their assets may switch deposits into foreign currency. This devaluation of ruble exposed a large number of Russia-based companies in default.

At present time, foreign ministers from all over the world didn’t strike to encompass a deal with Russia in order to stop the invasion. On Wednesday, the North Atlantic Treaty Organization (NATO) externalized its intentions to intensify its partnership with Ukraine and to put under review its cooperation in behalf of Russia. Their targets are to increase joint training and exercises and doing more to include Ukraine in multinational projects, letting them this way less exposed to Russia’s political decisions.

Topping the agenda is finalizing a $15 billion package of financial aids from the Europe Union to Ukraine.

Other European companies concerned by this geopolitical situation:
  • Société Générale (GLE), due to its subsidiaries in Russia.
  • BP Plc (BP), the British oil leading group, the second largest shareholder in Rosneft oil producer.
  • The giant Gazprom (GZPFY), as Finland, Germany, Netherlands and France are invested in.
  • Renault-Nissan (RNSDF) tied to AvtoVAS auto manufacturer.
  • Metro AG (MTTRY), of whom 8.8% shares corresponds to Russia and 1.3% to Ukraine.

Ukraine is not only an important geopolitical location in Europe but also symbolize the key to Putin’s Eurasian Union aspiration. Ukrainians on their side are fighting for the right to be European but however they withstand, they are highly dependents on Russian economy. Even if, Russian stocks have bounced a little bit since their last Monday lows, the crisis is still not over and the most damaged will probably be the European energy related companies.

The USA and European commissions are paying close attention to further actions in both countries and are in the disposition to propose several strategies in order to find solutions to this critical situation.

Rosanna Santana
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