A vote to rejoin Russia followed by a round of anti-Moscow sanctions are viewed as a foregone conclusion. The bigger fear for now is that Russia could move militarily to take control of areas of eastern Ukraine under the pretext of protecting Russian-speaking citizens. Those fears were underlined Friday when Russia’s foreign ministry said the country “recognizes its responsibility for the lives of countrymen and fellow citizens in Ukraine and reserves the right to take people under its protection”. The statement came after battle between protesters in the eastern Ukraine city of Donetsk on Friday.
U.S. equities and global markets were rattled a bit in the run-up to the vote, but investors appear to have largely factored in a scenario in which Crimea is reabsorbed into Russia with Moscow willing to pay the price of sanctions.
The wild cards remain whether Russian President Vladimir Putin attempts to make a broader grab for Russian-speaking areas or if the West responds with broader sanctions than are currently ancticipated.
Alastair Newton, Nomura’s senior political analyst, told MarketWatch via email he expects sanctions to be relatively mild, particularly since Germany still appears to see dialogue with Moscow as the best way of deterring Putin from taking bigger steps and due to the fact “firing all the shots in one’s locker now” could encourage Putin to judge he has nothing to lose by attempting to seize eastern Ukraine.
The worst-case scenario would indeed be a grab for eastern Ukraine. “In that event, I see a non-negligible probability that the West would impose banking-sector sanctions, the prospect of which is likely to have a significant impact on market sentiment,” including pushing Brent crude oil north again, Newton said.