Russia's "peacekeeping" mission

Delivered on By Justin Pyvis

Good morning! Well, it happened. Russia’s President Vladimir Putin decided to invade Ukraine under the guise of a “peacekeeping” mission on Monday night, triggering a wave of condemnation and lukewarm sanctions from Western nations.

In terms of Australia’s response, ScoMo said “the moment that other countries put in place strong and severe sanctions on Russia, we will be in lock step with them and we will be moving just as quickly”.

It’s obviously a rapidly changing situation but we’ve provided a quick summary of what we know so far and what might happen from here in today’s Food for thought below.

Reading the tea leaves

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Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries. The S&P500 is a snapshot 30 minutes before close.

The US S&P500 was at one stage down -1.81% in the afternoon session following Russia’s invasion of Ukraine but quickly reversed when US President Joe Biden took the stage, announcing a series of underwhelming sanctions against Russia. At the time of writing the index had recovered to be down -0.74%.

Locally, the ASX200 fell an even -1.00% with all major sectors losing ground except for consumer staples (+1.82%), healthcare (+1.07%) and energy (+1.94%), the latter of which was helped by surging oil prices following Russia’s invasion of Ukraine and the possibility of sanctions – Russia produces over 10% of the world’s oil.

Food for thought

On Monday Russian forces moved west to 'liberate' the separatist-held regions of Donetsk and Luhansk.
On Monday Russian forces moved west to 'liberate' the separatist-held regions of Donetsk and Luhansk. Source

Yesterday Russia sent “peacekeeping forces” into the Donbas region in south-eastern Ukraine (see map above), mere moments after President Vladimir Putin declared on Russian TV that he had taken “the long overdue decision to recognise the independence and sovereignty of the Donetsk People’s Republic and the Luhansk People’s Republic”.

The regions in question have been controlled by Russian-speaking separatists – or “Novorossiya” (New Russia) – for several years. Fighting has been a regular occurrence in the regions despite the declaration of a ceasefire as part of the Minsk Agreements of 2014-2015.

The move was most certainly an “invasion”, at least as defined by the United Nations, but it’s not as bad as it could have been – Russian tanks are not yet rolling towards the Ukrainian capital of Kyiv, or anywhere not already controlled by Russian separatists. We have yet to see reports of any violence.

In a sign that Putin plans to make Russia’s stay in the newly “independent” provinces a long one, 10-year “friendship treaties” between Russia and the separatists were promptly signed, giving Russia the right to build military bases in Donetsk and Luhansk. The parties also agreed to “commit to defend each other and sign separate agreements on military cooperation and on recognition of each other’s borders”.

What remains to be seen is whether Putin will be content to stop at the annexation of Donetsk and Luhansk, or if Russian forces will continue to push further into Ukrainian territory not already controlled – but claimed – by the Novorossiya, which includes much of the land to the north of the Black Sea.

However, incentives still matter: “80% of Russia’s natural gas sales go to Europe and 36% of Russia’s total budget come from oil and natural gas sales.” Any push by Putin beyond the Donbas region would be more costly to Russia as it would come with a higher chance of Ukrainian military resistance and stronger economic sanctions.

But incentives work both ways. The deterrent of sanctions is only effective if Europe and the US are prepared to tolerate higher energy prices to punish Russia, which is no certainty given the politically unpopular, rapidly rising inflation rates in those countries.

Chewing the fat

Bits and bytes

🛢️ Germany’s government halted its approval of the Nord Stream 2 gas pipeline from Russia “in light of what has changed in last few days”.

🐧 The Australian government will spend $A800 million over the next decade “in drone fleets, helicopters and other vehicles will enable us to explore areas of East Antarctica’s inland that no country has ever been able to reach before”.

🛒 Coles warned that inflation “has been going on in certain categories for quite some time, but the level of across the board cost inflation that we’re seeing hasn’t been seen for quite some time”.

😀 Queensland’s government will abolish its mask mandate for shops, workplaces, schools and hospitality venues from 4 March.

😁 Victoria’s government will also abolish mask mandates “in most indoor settings” from 25 February.

🛂 South Australia’s Premier Steven Marshall said “I think we will gradually see all of those restrictions reduced over the next two, four, six weeks.”

👩‍💻 The Western Australian government finally released its modelling that informed its “transition to living with COVID-19”.

🤒 Clive Palmer – who last November said he was unvaccinated against COVID-19 – was forced to cancel his speech at the National Press Club yesterday after displaying “flu-like symptoms”.

🚶‍♂️ Australia’s three remaining diplomats in Ukraine will move to Poland following Russia’s invasion.

🚆 Sydney’s trains should be running close to normal after the NSW state government dropped its Fair Work Commission case against the rail workers' union and “commence rewriting the enterprise agreement which expired in May last year”.

🕊️ The pandemic in the UK will effectively be over from 1 April, with free testing only available to the “most vulnerable” and the legal requirement to isolate after testing positive to be dropped.

🚢 The cargo ship that caught fire off the coast of Portugal containing an estimated 4,000 Volkswagen vehicles could “cost the automaker at least $US155 million”.

🗳️ The latest Resolve Political Monitor showed a further swing against ScoMo and the Coalition, as “Only 38% of voters believe Mr Morrison is doing a good job, down from 41% last month.”

⚖️ Elon Musk’s lawyers accused the US Securities and Exchange Commission of leaking information about a federal investigation “to retaliate against my clients for exercising their First Amendment rights”.

😷 The Mayor of New Orleans was filmed “singing karaoke maskless with two other women, who were also without masks”, just weeks after “reinstating the city’s COVID-19 mask mandate for schools and indoor public spaces”.

🐻 A 225kg bear known as “Hank the Tank” has broken into 40 homes near Lake Tahoe, California/Nevada, since last July having “lost all fear of people”.