It has been confirmed that equity markets are suffering their second Ukraine-related sell off within three trading days, as the western powers react to Russia's occupation of the Crimean peninsula. Also as a result, European stock-markets have fallen by 2%. There also has been a rise in traditional purchases of safe haven assets such as gold and treasury binds, indicating that consumer confidence is falling.
It appears that Russia is using the threat to minority populations as an excuse for military intervention in its surrounding smaller neighboring countries. As of this point, it seems highly unlikely that the west will respond to Russia's military action with force. Rather than a military based response, the west may pose economic sanctions as an alternative response to Russia's actions. This may be why the Russia stock market went down by more than 11% at the time that this article was published.
The Russians also have the potential to economically retaliate by hitting the value of western investments. This could include BP's holding in Rosneft, which has reported to have dropped in value by 1 billion overnight.
Investors have learned over the past 20 years that geopolitical storms tend to blow over quickly. There however are two speculative reasons as to why this case involving Russia may be different than others in the past. The first is that, western powers may have accepted that there is not much they can do to evict Russia from Crimea, however their attitude toward the Putin regime has indeed changed. Putin can be persuaded to co-operate with the west. Relations may be hostile for some time, similar to how they were in 1989. There still is a strong possibility for relations with Russia to improve, nothing is set in stone. Secondly, there are many other nations neighboring Russia that have a Russian minority as a result of previous Soviet occupation. This is the second Russian occupation in recent years (Georgia in 2008 being the first). This will bring nervousness to Baltic countries regarding the extension of Putin's doctrine, which will inevitability bring economic consequences.
http://www.economist.com/blogs/buttonwood/2014/03/markets
A potential solution to this problem would be to have an election in Crimea to determine if they want to join Russia or stay with Ukraine. If they join Russia, let it be done democratically and not through this thuggish brinkmanship.
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