This is part two of ‘How the Russia-Ukraine conflict might affect your investments‘.

In this post I will look at the recent developments in this ongoing conflict and specifically what these developments mean for both private and institutional investors.

The first thing to note is that, at the time of writing this, the Ukraine owes Russia (Gazprom) $3.1 billion. This debt results from unpaid gas, supplied by Russia to Ukraine in good faith and is perhaps a primary reason why Russia entered eastern Ukraine and arguably is one of the root of the problems between the two countries and Europe.

Here are some of the recent developments:

– Europe have blocked Russia’s attempt to build a south sea gas pipeline that would reduce reliance on the pipeline that runs through eastern Ukraine.

– Europe nor the IMF will financially guarantee Ukraine’s debt to Russia. On the flip side, the IMF and ECB have loaned Greece, Portugal, Italy and Spain billions in taxpayers money.

– Europe and the UK are enforcing sanctions on Russia and vice versa.

– On a positive note, Gazprom has confirmed receipt of the first tranche of $1.45 billion from Ukraine in settlement of the gas debt for earlier deliveries by Russia reducing the $4.5 billion debt to $3.1 billion.

Questions around these recent developments:

– Will Russia continue to supply arms to Russian speaking eastern Ukrainians, i.e. most of the eastern Ukrainian population, until they receive in full the money that is owed to them?

– Can Ukraine as we know it ever really recover from this and if not what are the economic repercussions for the rest of Europe bearing in mind that a large amount of our gas has been supplied by Russia through eastern Ukraine.

– What will happen, in terms of potential conflict escalation and consequent knock on effect for our economy, if the US start supplying western Ukraine with weapons?

– Will Russia look elsewhere for buyers of their gas and oil reserves as evidenced by the recent deal with China?

– What effect will this have on the UK and European economy in the long term?

–  Will sanctions ultimately hurt Europe and UK more than Russia? For example, Russia are Germany’s biggest goods importer. The negative effect of sanctions is already being seen on Germany’s GDP growth. Germany is the heart of Europe, without a strong Germany, Europe will cease to exist.

– Will we see contagion across the PIIGS countries (Portugal, Italy, (Ireland unlikely), Greece, Spain)  following on from Greece’s anti-austerity party victory.

– What does this mean for Europe as whole and for the UK economy? Will the Eurozone survive as we know it?

– The UK rely on Europe as its largest importer of UK goods and Russia is also one of the UK’s largest importers. If we have a weak Europe the UK will suffer, if there are continued sanctions on Russia then the UK’s economic recovery may be stifled.

The Risks:

The risk to Europe and the UK is that if this conflict escalates and if Europe are not economically strong enough to follow through on the current hard ball stance, there may be serious repercussions for us all.

The thing that is most worrying about recent developments is that Europe have put Russia in a corner and when you put a big-angry-bear in a corner you’d better be a bigger-badder-angrier-bear or inevitably you’re going to get a walloping…

What does this mean for your money?

It means that there is a greater risk of a market collapse and those of us who have money invested in the financial markets by way of our Pensions, ISAs and Investments should now be thinking seriously about how to protect our assets.

Oil Prices

I haven’t touched upon oil and gas price volatility which is putting further deflationary (slowing growth) pressure on Europe and the UK. I will touch on this in the future blog posts.

The eastern Ukrainian people

At time of writing this around 6,000 eastern Ukrainians have been killed in this conflict. My heartfelt condolences go out to families who have lost loved ones in this conflict.