Investors Shrug As Ukraine-Russia Tensions Rise

Investors seem to have offered little but a shrug to the threat of military conflict in eastern Ukraine. That’s surprising given the growing rhetoric out of the Kremlin.

Thursday Russian troops began a series of military drills near Ukraine’s border less than a day after Russian president Vladimir Putin said NATO (the North Atlantic Treaty Organization) should “go to hell,” press reports say.

The comment comes at the same time as the U.S. and Russia have agreed to talks in the hopes that all parties can avoid conflict.

Meanwhile, other reports also indicate increasing numbers of Russian troops stationed in Western Russia have begun creating grave sites, raising concerns that a russian invasion is imminent.

If such an invasion does occur investors should expect stocks to drop, bonds to rally, and oil prices to jump as investors take a risk-off stance, as reported earlier this month.

The FTSE 100 index, which tracks the UK’s largest public companies, rallied Friday to its highest level in the COVID-19 pandemic, indicating that investors weren’t too worried about a military conflict on the edge of Europe.

Likewise, oil markets dipped in Asian trade, indicating that there are few worries about disruptions to energy supplies. Russia is the world’s third largest producer of oil, behind the U.S. and Saudi Arabia. An invasion by Russia would almost certainly prompt sanctions on U.S. and European Russia including the country’s energy companies. That’s particularly important because Russia is the largest supplier of Europe’s energy, providing more than one-in-four barrels of oil. Again, the lack of reaction suggests little worry on this front so far.

The absence of concern may be related to the holiday season with investors in Europe and the U.S. departing for a long weekend in the hopes of a relaxing time as another stressful year comes to a close.

Such a position may make sense on an individual basis — we all need our mental health — but it may also leave investors exposed to an increasingly risky situation.