“Russia’s bet with Ukraine”


Russian President Vladimir Putin threatening Ukraine offers highly uncertain rewards but potentially fatal inconvenience to him and his entourage, writes Beat Wittmann in an essay on finews.first.


This article is published on finews.first, a forum for authors specializing in economic and financial matters.


Russia is moving ahead, seemingly emboldened by the illegal and modestly sanctioned seizure of Crimea. The blame, however, lies in large part on the fact that Western leaders themselves have accommodated Russia too often for various reasons and vested interests. Any divergence in the interests and policies of the Western powers has often been skillfully and ruthlessly exploited by the Russian leadership.

The US, EU and NATO would be well advised to stay calm, ignore the Russian President’s red lines and ultimatums by simply calling his bluff. At the same time, however, it is important and wise that the West engages in well-coordinated and constructive negotiations, first and foremost in the appropriate multilateral framework, as has for example been the case within the OSCE.

“No doubt, the Russian president aspires to respect in a new world order”

Obviously, the two main motivations of the Russian president are to secure his personal power and to restore Russia’s historical borders and spheres of influence as well as its geopolitical relevance. Undoubtedly, the Russian president longs for respect in a new world order, having lost many old territories, as well as economic clout and political influence against the dominant world superpowers of the United States, the EU and the United States. China.

The central Russian argument that Russia and Ukraine should be one is a long shared history and people with a common identity. Needless to say, with these arguments many national lines could be redrawn around the world and that is exactly what Europe has overcome after centuries of war, power politics, ever-changing alliances. with reconciliation after WWII and the creation of the EU.

In theory, even as Russia attacks Ukraine, significant losses would be suffered on both sides. The concerted and multifaceted international counter-reaction in the form of sanctions and isolation would be triggered on the spot.

“Putin’s threat to break with Western relations in the event of new sanctions is entirely empty”

Russia can be a superpower in military terms and in terms of conventional energy (oil / gas). However, for income reasons, Russia cannot play the energy card because the economic and financial damage it would suffer would far outweigh the damage caused to the rest of Europe. Any restriction on its energy exports to Europe would further accelerate Europe’s diversification towards alternative energy suppliers such as the Middle East and Africa and, simultaneously, stimulate the transition to non-traditional energies and renewable.

Putin’s threat to break with Western relations in the event of new sanctions is completely empty! Nothing would accelerate the political and security cohesion of the populations of Western and Eastern Europe, of the transatlantic alliance and within the EU and NATO faster than the invasion of Ukraine by Russia.

“Russia’s strategic options are to defuse, to attack or to fend for itself”

The US and the EU have a vast and deadly arsenal of direct and indirect sanctions. These include the foreclosure of property and the freezing of real and financial assets in Western jurisdictions, the closure of international capital markets, the abolition of the SWIFT international payment system and foreign direct investment (FDI), the ban or the restriction on Western companies to operate and trade with Russia, the imposition of travel restrictions placed on the Russian elite and complicating the lives of Russian nationals abroad.

Russia’s strategic options are to defuse, to attack, or to fend for themselves. Our basic scenario is that Russia sticks to its known confusing habits and will not start unilateral military aggression against a neighboring country. Old habits prevail. In such a scenario, Russian financial assets are attractively valued and in which to invest in a timely manner.

“Such a scenario would collapse the Russian capital markets and economy, inducing heavy losses”

The obvious risk lies in an unexpected Russian attack on a neighboring country, such as Ukraine, with significant military action. Such a scenario would collapse the Russian capital markets and economy, leading to large losses, market discontinuity, defaults and sanctions. As a result, multinationals and foreign companies exposed in any way to Russia will suffer.

Yet even in the case of Russian military actions, global markets, including Europe, would simply respond with a spike in volatility, otherwise any weakness due to such a conflict should be seen as a significant buying opportunity. Why? Russia, in terms of size and interdependence with the global economy and global equity, debt and currency markets, is a marginal player.

“The potential military conflict in question will lead to increased spending”

Two sectors stand out as beneficiaries of any protracted and armed conflict. In the short term, conventional energy sources will benefit from temporary cutbacks in supply and in the medium to long term, alternative energies will benefit from spectacular investments and accelerated growth due to the need to diversify far Russian energy suppliers.

The global aerospace and defense sector is also expected to benefit, as not only will the potential military conflict in question lead to increased spending, but also the resulting upheaval will lead to increased defense spending by all international actors. .


Defeat Wittmann has been chairman and partner of Zurich-based financial advisory firm Porta Advisors for over six years now. His career spanning more than 30 years in the Swiss banking industry includes stints at UBS and Credit Suisse as well as Clariden Leu and Julius Baer. He ran his own company from 2009 to 2015, first independently and more recently within the Raiffeisen Group.


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