I have been following the happenings in Ukraine since December 2013 and am a bit amused at the sudden eruption in interest in financial markets on the Russia, Ukraine and other G7 nations standoff. Ordinary citizens like you and me were camping out in bitter cold to fight for a better future and to remove a corrupt president. The people were protesting against the non signing of a trade pact with the EU (European Union) that was promised to them.
Financial markets unfortunately do not care about people but even more unfortunate is when Indian media wakes up to the Ukraine protests only when its interests (read: Rupee and Equity Markets) look to be affected. On whether Indian markets will be affected on Ukraine? Well it will not be affected apart from short term sentiment movements.
The ouster of the president Victor Yanukovych, who is seen as close to Russia, has resulted in Russia approving military action to protect Russian interest in one part of Ukraine. On the other hand, the EU has pledged support to a new government that embraces reforms. The people of Ukraine want ties with the EU and not Russia. There will be a cold war kind of standoff between Russia and US, UK, Germany and other allied nations but it will not hurt economies of any of these countries.
Indian businesses doing business in Ukraine such as Pharmaceutical companies may be affected. For example the large cap pharma company, Dr Reddys derives around 5% to 7% of revenues from Ukraine and the contribution is too low for any major impact on the company.
Ukraine does not pose a big threat to the financial system as its total public debt is around USD 65 billion to USD 70 billion, far below that of Greece public debt of around USD 300 billion. Ukraine can easily be supported by the EU given its size of public debt.
Ukraine does not produce much oil but pipelines run through the country to supply Russian oil and gas to rest of Europe. Given that rising oil production in the US is keeping oil and gas prices down, Russia requires to sell more oil and gas to keep its economy afloat. Hence, Russia cannot afford a large scale disruptions on its sale of oil and gas to Europe. Oil and gas prices are unlikely to rise on the Ukraine standoff.
Ukraine citizens require sympathy and support rather than markets worrying about the country’s impact on asset prices.