The Dow Jones Industrial Average (^DJI -0.12%) is up and down in trading today, dropping seven points, to 16,101, at 1:30 p.m. EDT as the markets await Crimea's referendum Sunday on seceding from Ukraine and the ramifications of the decision. The S&P 500 (^GSPC -0.16%)was at breakeven
Western nations assert that the vote violates Ukraine's constitution and international law, and would be tainted as Russian troops occupy the country. While secession wouldn't have any real effect on the world economy itself, an escalation of tensions to a trade war or a real war would both obviously be terrible for the world and bad for markets.
The damage from a trade war would mainly be to the Russian economy and secondarily to the rest of Europe. Russia is heavily dependent on exports of oil and natural gas and on the flip side is dependent on imports for nearly 40% of its consumer goods. Europe, meanwhile, would take a hit if the key flow of natural gas from Russia slowed or stopped. Many in the U.S. are calling for natural gas exports to Europe to stave off allies' dependence on Russia, but this is three to five years away from happening at any real scale.
ExxonMobil (XOM 1.25%) could be the hardest hit among Dow stocks from any trade war with Russia, as it has the largest amount of assets in the country. The U.S. economy would also be hurt if Russia moved to limit its oil exports. Moscow seems unlikely to punish itself by cutting off a key source of revenue; Saudi Arabia could also fill some of the gap, mitigating the effect on the U.S.. Brent crude is up 0.9% today to $108.37 while West Texas Intermediate crude is up 0.33% to $98.52.
What does this mean for you?
As tensions continue expect oil prices to rise. We will have to wait and see how the West responds to Russia's actions and how the situation unfolds. I could speculate for hours as to what might happen, but the question to ask yourself is, "Does this change my investing strategy?" The answer should be no.
I hope that cooler minds will prevail and that the tensions in Ukraine will drop. Until then, who knows where the stock market will go. The stock market has looked overvalued for some time, leading me to suggest it's a good time to build up some cash so you are able to invest when opportunities arise.
The Motley Fool has always taught that Foolish (capital "F") investors don't invest in the broad market. We invest in great companies at good prices, continue to educate ourselves, and hold on to our great companies over the long term. The market will fluctuate (sometimes massively), but great companies will win out over the long run.