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The Economic Impact of Russia Invading Ukraine

3/20/2014

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Well, it worked so well when Hitler rolled over the Sudetenland, Putin has tried that strategy with the Crimean region of Ukraine. In addition to obvious social and political impacts, what will the economic impacts be?

What will the impact of sanctions be from both sides?

Will Russia's Oil based economy suffer?

Will Europe see any trading lag due to this?

The first round of economic sanctions rolled out by President Obama and agreed to by western Europe were weak and affected only low level diplomats here and there.  Putin responded by restricting travel and freezing assets to our diplomats as well.

While no one seems to be striding towards a hot war the question lingers, is this the beginning of a new Cold War? If both sides back down no, but if either side escalates the economic slap fight which is currently transpiring, it could have dire effects on our economy.
As of yet no major economic Impact has been felt, but here are some predictions:

If we decide to get serious and freeze, lets say, Russia's hard assets, they would do the same to us in turn. I do find it interesting that Russia has been increasing the amount of gold it has on hand by 70% over the last year.

Will pro-western governments in the EU stop using Russian Oil? This would cause russia a good amount of grief but the redcent deals they have signed with China, (to sell china their oil), would lessen the impact.

If the tit-for-tat continues this could become full blown economic war. Just think the Berlin Air Lift, but with computers.
One could easily forsee hackers from both countries wrecking havoc on the others ability to function in todays digital age.  Does anyone know what a firesale is?
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Here is the good news: the remaining part of Ukraine, (minus the region of Crimea) is now on the precipice of a deal with the EU. This is one of the reasons that Ukranians were upset with former president Viktor Yanukovych. He would not pursue membership in the EU and instead signed a Line of Credit with Vladimir Putin and Russia.

This deal will save the Ukraine 500 million Euros every year on Tariffs as well as helping to stabilize the near bankrupt economy. To draw another similarity to the years in and around WWII this feels eerily like the Marshall Plan.  While I have no proble with buying friens, we should at least protect them by moving the anti-ICBM missiles back into the area.

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