Markets around the world held their breath Sunday waiting to see how a Moscow-back referendum would turn out for the people of Ukraine and the future of the Crimean Peninsula. The result; Crimean citizens voted at an overwhelming 97% to once again become part of the Russian Federation and succeed from the independent Ukrainian state.
The landslide vote was taken as a positive sign Monday, as the majority of the nine world markets ended trading on the plus side. Investors may see this as a temporary sign of stability that the region may not break out into civil war.
Ever since November there have been protest from Ukraine’s citizens and their reluctance to turn to Russia for economic aid. Like many countries today the Ukrainian economy is suffering and the government needs approximately $36 billion bailout. Protests began when the government hinted at turning to the Russian Federation instead of the European Union for the money.
Ukraine is separated culturally by the east and west. As reflected in this recent vote, the majority of Crimean’s recognize themselves as Russian. Most of the population west of the Crimean Peninsula recognized themselves as Ukrainian and want to integrate themselves with the west. Specifically when it comes to financial dealings, Ukraine’s do not want to be under the thumb of Moscow, and would rather deal with the E.U. when borrowing money.
As the protests in the capital of Kiev were turning increasingly more violent, the threat of civil war was becoming more of a reality. Due to their geographic location and the role that energy transportation has in the region, the worlds markets were becoming more and more weary of making bold investments.
Now the concern turns to issues concerning the west’s reaction and the steps that will be taken. The main one is how Russia will react to sanctions being imposed by the Obama Administration. These sanctions involve cutting off credit of prominent Russian officials both in the government and private businessmen.
One consequence of these sanctions may highlight how the oligarchy that exists in Russia can/or cannot withstand these measures.
Since the collapse of the Soviet Union, Russia has embraced capitalism with the same iron fist that fueled communism. The result is a group of prominent businessmen with close ties to Moscow. One of the main upper hands the U.S. still has is their control on the world banking system. If they choose so they can freeze assets of many of the billionaires that make up the oligarchy that runs Russia. This could give the U.S. and upper hand because none of these billionaires are politically tied to the Russian government, they may have as many assets outside of the country as they do within it. Without any political obligation to adhere to, the U.S. can force descent by anyone of these Russian Oligarchs and weaken the political strong hold that Russia has obtained with this vote.