Welcome to Russia, Comrade: Crimea to Vote on Secession

Crimea remains in Russian hands. Last night, the regional parliament unanimously voted to secede from Ukraine and join the Russian Federation. They scheduled a popular vote for Mar. 16 — though it is unclear how many options will be on the ballot.

Ukraine’s acting president, Oleksandr Turchynov, said such a referendum would be unconstitutional and meaningless. However, according to Bloomberg, he also said “changing the country’s borders must be decided in a national referendum rather than region-by-region.”

I have not seen a full quote, but it sounds like Turchynov didn’t flatly rule out Crimean secession. He just said the rest of Ukraine would have to agree. If so, this could be a seed for compromise. We’ll see.

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I had to show you this cover photo from one of my favorite publications, The Economist. Their artists are always clever. I highly recommend subscribing if you’re interested in global affairs and international business.

Economist-Putin

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I’m a little surprised the financial markets are not taking this crisis more seriously. We haven’t seen this kind of U.S. — Russia tension since the Cold War, yet Wall Street is conducting business as usual.

Consider these excerpts from the Bloomberg story linked above.

  • The Russian navy sank its decommissioned cruiser Ochakov at the mouth of Donuzlav Lake on the Black Sea, trapping Ukrainian naval vessels there, Ukraine’s Defense Ministry said in a statement on its website. Russian forces also surrounded Ukrainian border troops at 10 crossings and urged them to take the side of the self-proclaimed Crimean government, Ukraine’s border service said in a statement on its website.
  • The U.S. sent six fighter jets to Lithuania and will dispatch 12 more to Poland, the two countries’ defense ministries said today. The U.S. Navy sent the guided-missile destroyer USS Truxtun to the Black Sea in what it called a routine visit unrelated to events in Ukraine.
  • The North Atlantic Treaty Organization yesterday kicked Russia out of a naval mission to escort a U.S. warship that will defuse Syria’s chemical weapons and halted day-to-day civilian and military contacts.
  • [T]he European Commission is drawing up plans for travel bans and asset freezes against Russia if it doesn’t engage in talks, British Prime Minister David Cameron told reporters in Brussels today after the emergency EU summit. “It can’t be business as usual for Russia,” Cameron said. “We depend on a world where countries obey the rules.”

On that last point, Mr. Cameron’s insistence that Russia “obey the rules” is funny, given how often the U.K. and U.S. ignore rules they find inconvenient.

I don’t believe overt hostilities are coming, but this seems like more than a quick dust-up that will settle down quickly. At the very least, it will drag on through March as Russia tries to legitimize its new Crimea annexation.

Both sides will likely implement economic sanctions in the coming weeks. Market reaction will depend on the details, but we can make some guesses.

Western energy companies doing business in Russia could lose lucrative exploration and service contracts. ExxonMobil (XOM) and British Petroleum (BP) both have large Russian operations. In a worst case, Russia could seize some expensive fixed assets like drilling rigs.

Crude oil and natural gas prices could shoot much higher if Vladimir Putin cuts off or reduces exports. I don’t think he will do so — but he’ll no doubt try to keep tensions high so prices stay elevated.

Even if Russia keeps the pipelines flowing, events elsewhere could add to the energy risk premium.

  • The protests in Venezuela haven’t stopped.
  • Iran’s return to the oil trade is now very questionable.
  • If the tension drags into summer, a hurricane could affect Gulf Coast oil production.

Even Vladimir Putin can’t control the weather, but you can bet he will use any opportunity to squeeze more cash from his export buyers.

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I received many interesting responses to Wednesday’s European shale discussion.

Several people observed it was a great idea, but doesn’t solve the immediate problem. I was posing the possibility as more of a long-term treatment. For now, we still have a big problem.

This reader said it well:

Reader Ron J. says: “European shale and U.S. gas are long-term solutions. It is still winter. Europe needs the fuel now, which Putin can cut off today if he so chooses. Putin has no intent on backing down. Russia needs a warm-water port.

“There is a graceful way for Obama to save face. It looks like the Crimean people will have the opportunity to vote to determine their fate. While I am sure Putin already knows the outcome of that election, all Obama needs to say is we believe in the right of the people to determine their own outcome in free elections and the U.S. will abide by the vote.”

Brad: Thanks for writing, Ron. What you describe sounds like the best option for now. It would end the immediate crisis and let everyone cool down.

However, as I noted above, the Ukrainian authorities may not let go so easily, and Russia considers the new Kiev government illegitimate anyway.

Not being an expert in Ukrainian constitutional law, I can’t pretend to know who is right — nor does it matter.

One way or the other, Crimea will stay in Russian hands.

Does anyone see a better immediate solution? Will Putin close Europe’s gas faucet before spring arrives? Are higher oil prices here to stay? Click here to tell me what you think.

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Here are the last headlines ahead of tomorrow’s employment report…

  • U.S. stocks rose, sending the S&P 500 to yet another new all-time high. The Dow was up, too, but the Nasdaq fell a few ticks.
  • Weekly unemployment claims came out lower than expected. Tomorrow’s monthly jobs report will tell us more about the jobs picture.
  • As expected, the European Central Bank kept its key lending rate unchanged at 0.25%.
  • Happy birthday, Mr. Bull Market! Wall Street bottomed out five years ago in March 2009. Rudy Martin will analyze the trends in tomorrow morning’s Uncommon Wisdom Daily. Watch your inbox.

Good luck and happy investing,

Brad Hoppmann

Publisher

Uncommon Wisdom Daily

P.S. While all eyes are focused on famous oil and gas deposits like the Arckaringa Basin, the Bakken, the Eagle Ford Shale, and others … another mega-deposit is set to take the world by storm. Tony Sagami gives you the details about this off-the-radar oil jackpot in a brand-new video that you can view free of charge here.

 

Your thoughts on “Welcome to Russia, Comrade: Crimea to Vote on Secession”

  1. The Looting Of Ukraine Has Begun

    Paul Craig Roberts

    According to a report in Kommersant-Ukraine, the finance ministry of Washington’s stooges in Kiev who are pretending to be a government has prepared an economic austerity plan that will cut Ukrainian pensions from $160 to $80 so that Western bankers who lent money to Ukraine can be repaid at the expense of Ukraine’s poor. http://www.kommersant.ua/doc/2424454 It is Greece all over again.

    Read more:

    http://www.paulcraigroberts.org/2014/03/06/looting-ukraine-begun/

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