A year ago, Russia launched a full-scale invasion of Ukraine. While Russian President Vladimir Putin’s move sent shockwaves globally, it also divided the world. Many countries chose to stay neutral about their position in the conflict. Other countries, particularly in the Western hemisphere, imposed severe sanctions on Russia.
But why did this war happen? And what were the effects on the stock markets?
In a speech last year, President Putin said that Russia had attacked Ukraine for the good of the Ukrainian people. In his views, the Ukrainian government had been subjecting its citizens to atrocities and genocide for years, and President Putin wanted to put an end to this.
Claims and counter-claims aside, the story behind Russia’s aggression has several layers and it goes back a long way. Let's discuss a few reasons behind the Russian invasion of Ukraine.
Russia and Ukraine: The History of conflict
Ukraine was one of the most powerful republics of the USSR (Union of Soviet Socialist Republics). When the USSR disintegrated in 1991, Ukraine declared its independence. However, decades of struggle followed, marred by corruption and protests.
In 2014, Russia annexed Crimea from Ukraine. The Russian regime defended the move on the pretext of protecting ethnic Russians in Crimea from the Ukrainian government. Soon after, the country’s pro-Kremlin President, Viktor Yanukovych, was impeached.
In 2014 and 2015, the Minsk agreements were brokered by Germany and France. They were signed after Russia’s actions in Crimea in 2014 and aimed to secure a ceasefire and find a lasting peaceful solution between the neighbours.
Events leading up to Russia’s Attack on Ukraine
What prompted Putin to launch an offensive against Ukraine in 2022? Before answering this question, it’s important to know about NATO which stands for the North Atlantic Treaty Organisation. It is an alliance of European and American nations created to protect the freedom and interests of its members.
Over the decades, NATO has extended its reach into Central and Western Europe, making the Russian president uncomfortable. Then, in January 2021, Ukrainian President Vladimir Zelensky requested US President Joe Biden to expedite action on Ukraine’s long-pending request to allow it to become a member of NATO.
Putin was unhappy with Ukraine’s growing closeness to the West. Many believe that Putin saw Ukraine’s NATO bid as an attempt to break away from Russian influence, which could also encircle Russia with hostile governments. Triggered by Zelensky’s renewed attempts, President Putin began deploying more of his troops near the Ukrainian border under the guise of military exercises. This fuelled fears in Kyiv and the West that Russia might start a new war. Despite the criticism, Russia remained defiant and presented its security demands to the US and its allies. Russia’s three main demands were:
- NATO must halt its expansion into Western Europe.
- NATO must agree not to recruit former USSR nations into NATO.
- NATO must pull back its military troops deployed in Central and Western Europe.
When these demands were not met, President Putin announced a ‘special military operation’ to 'demilitarise and de-nazify' Ukraine in February 2022.
Russia-Ukraine war: A Year on
Over the past year, the war in Ukraine has now become a multi-front invasion by Russia. Ukrainian troops pushed the Russians out of the capital, Kyiv, last spring. Since then, Putin has shifted the focus of his military’s fighting to what is now the front line. Meanwhile airstrikes continue across Ukraine. More than 8,000 civilian deaths have been reported in Ukraine, according to the UN, while military casualties are estimated to be even higher. Ukraine has received aid from the West in the form of battle tanks and military equipment coming in from the US, Germany and Britain. However, President Zelensky’s appeals for fighter jets to defend against the Russian air threat have gone unanswered.
Impact on Russia
After Russia’s invasion of Ukraine, Western countries queued up to impose numerous sanctions on Russian banks and companies. This had a significant impact on the Russian economy, but it remained resilient. Much of this is due to the fact that Russia is at the beginning of technological chains as a supplier of natural resources such as oil, palladium, nickel, aluminium etc. Global economies need these commodities to grow, so Russia continues to enjoy their demand. This, to an extent, has acted as a shield for the Russian economy against the onslaught of sanctions.
Impact on the global stock markets
The ongoing conflict between Russia and Ukraine has had significant implications for the global stock market. The crisis, which began in 2014, has escalated over the years, with both sides engaging in military conflict and economic sanctions being imposed by the international community.
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Impact on Energy Stocks:
The first sector to be affected by the crisis was the energy sector. Russia is the world's largest exporter of natural gas and second-largest exporter of oil. The sanctions imposed on Russia by the West have had a direct impact on the energy sector, as they have limited Russia's ability to export oil and gas. This has led to a rise in the price of oil and gas, which has impacted the profits of energy companies around the world.
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Impact on Financial Stocks:
The sanctions imposed on Russia have also impacted the financial sector. The sanctions have limited Russia's ability to access international capital markets, which has impacted Russian banks and companies. This has led to a decline in the value of Russian stocks and bonds, which has had a knock-on effect on the global financial sector. Banks and financial institutions that have invested in Russian stocks and bonds have seen their investments decline in value, which has impacted their profitability and share prices.
Impact on the Indian stock market
The Russia-Ukraine crisis has had a ripple effect on the global stock market, and the Indian stock market has not been immune to its impact. India, being an emerging economy and a significant importer of oil and gas, has been particularly affected by the crisis.
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Impact on IT Stocks:
The IT sector in India has also been impacted by the crisis. India is a major exporter of IT services to Russia and Ukraine, and the crisis has led to a decline in the demand for these services. This has directly impacted the profits of IT companies in India.
Impact on Geopolitical Risk:
The crisis has also increased geopolitical risk, which has had a knock-on effect on the Indian stock market. The uncertainty surrounding the crisis has led to a decline in investor confidence, with investors becoming more risk-averse.
Impact on Rupee:
The crisis has also impacted the value of the Indian rupee. The rise in oil prices and the decline in investor confidence have led to a decline in the value of the rupee. This has made imports more expensive, which has impacted the profitability of companies that rely on imports.
Conclusion
How and when will this war end? Probably nobody knows. However, the repercussions, both political and economic, will be felt for years to come. What do you think about this war? What do you think will be the outcome? Share your views with us.
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