The frozen conflict between Ukraine and Russia in the Donbas, eastern Ukraine, is heating up. The fragile agreements signed in another ex-Soviet country, Belarus, are beginning to unravel. The
The Ukranian army says that July 2016 was the most violent month since July of last year. What is going on?
- The Organisation for Security and Co-operation in Europe (OSCE) has warned of an ongoing deterioration in the situation for many months, with violations of the “buffer zone”.
- On Saturday, there seemed to be an attempt to assassinate Igor Plotnitsky, a leader of the pro-Russian separatists in Luhansk, which is the capital of the unrecognized Luhansk People’s Republic. Plotnitsky has been injured.
- Ukraine denied any wrongdoing and said that Plotnitsky had many local enemies.
- Russia said it is seriously concerned about the situation.
- Russia stopped traffic between Crimea, the territory it conquered in 2014 and the rest of Ukraine.
- According to Ukranian sources, Russia has amassed forces in Crimea, and an attack on Ukraine could happen “at any minute”.
It is important to note that the 2008 war between Georgia and Russia erupted on the day the Olympic Games began in Beijing, while the world was focused on another event. We are now amidst the Games in Rio and also in the middle of summer holidays for many in the West.
Ukraine-Russia flare-up implications
In case we do see an unfortunate escalation in the frozen conflict, this could have several market effects:
- Safe-haven flows first and foremost to the Japanese yen. Ukraine had an impact on markets in previous rounds.
- A strengthening of gold prices, perceived as a haven
- Flows also into the Swiss franc, the US dollar, and even the euro, as an additional safe haven currency. The euro enjoyed safe haven flows last year.
- Impact on the US presidential elections. On one hand, Donald Trump vows to make better deals with all the world and issues with Russia could strengthen his stance. On the contrary, Trump has admiration for Putin and his campaign manager has some ties to the country. Hillary Clinton is seen as more hawkish than Trump. A flare-up will take over the news, but the impact is unclear. Clinton is currently well ahead in the polls.
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