Russian troops are massing near the Ukrainian border a week after the Eurasian power annexed the Crimean Peninsula. Despite recent overtures from Vladimir Putin, the posturing raises concerns that Russia has the remainder of Ukraine in its sights -- or, at least, the eastern portions of the country.
Although the geopolitical implications appear to be uniformly negative -- if you live in the West, that is -- the potential impact on world equity markets of a broader incursion is less certain. In the middle of 2008, for instance, Russia invaded neighboring Georgia following a similar set of facts, and, looking back, the effect on the S&P 500 (SNPINDEX:^GSPC) is virtually imperceptible (particularly when you consider the Lehman Brothers failed a month later).
To be clear, this isn't to say that there won't be any economic consequences of such a decision. In the first place, Ukraine straddles the wide expanse between Europe and Russia. As such, it's a vital thoroughfare for natural gas, over which roughly a third of Europe's energy needs flow.
Additionally, Ukraine has a rich and developed agricultural base. In Soviet times, according to the CIA World Factbook, it produced a quarter of the nation's agricultural output. And today, according to geopolitical blog registan, Russia and the European Union together purchase almost 40% of Ukraine's agricultural exports.
On top of this, there are multiple American companies that stand to both gain and lose from an escalation. On the potential losing side are American oil and natural companies with interests in the region and relationships with the Russian government.
ExxonMobil (NYSE:XOM) comes to mind. As I discussed last weekend, in 2011, the company entered into a $500 billion partnership with Roseneft, an integrated oil company owned by the Russian government, to drill for oil in the Arctic. Additionally, Exxon had been exploring a deal with Ukraine's former government to tap into natural gas reserves in the Black Sea.
By contrast, companies in the defense industry could prosper from an escalation of tensions between the West and Russia. Take Lockheed Martin and Boeing, both of which rely to a large extent on defense sales to fuel their bottom lines. Though, as my colleague John Reeves has pointed out, even the impact on these companies is slightly more nuanced, as they too have public and private customers in the region.
The net result is that we simply don't know what will happen to global stocks if Russia were in fact to invade the remainder of Ukraine. It's for this reason, in turn, that investors would do themselves a favor by not worrying about issues like these and focusing their attention instead on identifying great companies that will be around for years, with or without an ostensibly independent Ukraine.
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