We all watched as the probability of Russia invading Ukraine increased last Friday, with markets across the board responding as if it was the first time trading algorithms had seriously factored what looks to be inevitable into the equation. Two of the most watched commodity markets tied to the region exploded with crude oil blowing up to just short of $95 per barrel, hitting a high of $94.66, its highest mark since September 2014. Chicago SRW wheat climbed to a high of $8.06 per bushel, up nearly 35 cents (4.5%) for the day. These two commodities are in the spotlight because Russia is in the top three of both oil production and exports, trailing the United States and Saudi Arabia in both categories. Russia reportedly accounts for 11% of global oil exports despite sanctions still in place from the EU and United States following the 2014 invasion of Ukraine and takeover of Crimea. As for wheat, according to USDA WASDE reports, Russia and Ukraine combined account for roughly 30% of global exports. News late last week was Russia had moved a substantial part of its naval forces to the Black Sea and the Mediterranean, immediately putting grain exports from the important Black Sea ports in question.

One of the most asked questions these days is, “Why now? Why is Russia’s President Putin getting so aggressive at this time?” It’s a complex problem, and before I go much further let me add I will in no way try to read Mr. Putin’s mind. He uses his KGB training and experience well, giving nothing away while always attempting to make his adversaries feel small. One pattern I’ve picked up on could have to do with the US, the undisputed leader of the western world, and the view of its leaders. Let’s first consider 2014, 2018, and 2022 were and are years of mid-term elections in the United States. Back in 2014, US President Obama did not hide his dislike and distrust of Mr. Putin and gave no ground when it came to negotiations. When mid-term elections rolled around that year Republicans, the opposing party of the President, retained control of the House of Representatives and won control of the Senate. Fast forward 4 years and Donald Trump in the US office of president. Mr. Trump, reportedly according to associates, admired Mr. Putin and said as much in some of his public statements. However, US Democrats, the opposing party to the president, retook the House of Representatives while leaving the Senate in control of Republicans. This meant the Republican Party kept control of the executive, legislative, and theoretically judicial branches of the US government, a favorable situation for Mr. Putin.

The next round of US mid-term elections occurs later this year with Democratic President Biden holding down the executive branch, and the Democratic Party in control of both the US House and Senate. This is not a favorable situation for Mr. Putin as Mr. Biden was Mr. Obama’s vice president for 8 years, and at least publicly refuses to acquiesce to Mr. Putin’s demands. Given this, an argument could be made Mr. Putin could use another invasion of Ukraine to influence US mid-term elections, hoping to paint the picture of weakness on the part of Democrats. However, if this theory is correct, it is also an unnecessary risk due to all the changes in US voting made by the Republican Party since the 2020 election cycle, nearly guaranteeing Republicans will not lose another election. Mr. Putin could’ve waited a year without risking lives and economic sanctions from the West. But again, I’m in no position to read his mind.

Mr. Putin has likely spent a great deal of time studying the chessboard that is global politics, and sees now as the time to make a bold move. As author Anne Applebaum discusses in her book “Twilight of Democracy”, the world has seen a move to nationalism over the last decade, meaning countries are looking out for self-interest rather than the global good. Again, this is more a calling card of the US Republican Party and British Conservative Party with its Prime Minister Boris Johnson, two western powers standing as Russia’s opposition. With both the US and Britain splintered politically, and the world media focused on anti-vaccination uprisings across North American and Europe, Winter Olympics in China, and yes the US football Super Bowl championship game, Mr. Putin could view this as an opportune time to invade Ukraine again.

Speaking of China, I found the pre-Olympic meetings between Mr. Putin and China’s President Xi interesting. Not only because diplomats from many western countries were missing due to a boycott tied to China’s human rights violations, but because of the timing. Mr. Putin may have been informing Mr. Xi an invasion was imminent and could either disrupt the final week of the Olympics or occur just after. Since those meetings occurred, one of Russia’s biggest stars, 15-year-old skater Kamila Valieva, was found to have failed a drug test back in December putting her Olympic participation in doubt. The meeting to decide if she can continue in the Games was held today (Sunday, February 13). If the official decision the young skater is banned, look for Russian tanks to roll on US Super Bowl Sunday (today). If she is allowed to continue, Mr. Putin may hold off his invasion until at least the Closing Ceremony next Sunday.

Setting some of these possibilities aside, it could be said Mr. Putin wants to “Make Russia Great Again”, though I doubt he is selling red hats with the slogan. Articles I’ve read talk about Mr. Putin’s unhappiness with how Russia has been replaced in the spotlight on the global stage by China, now viewed as the major antagonist of the West. Not only does Putin’s Russia want back in the room where it happens (a Hamilton reference), he wants to basically reassemble the old Union of Soviet Socialist Republics (USSR) meaning reasserting Kremlin control over countries that were given their independence with the fall of the Berlin Wall. This includes countries like Georgia, Belarus, and of course Ukraine. Mr. Putin has made demands the West not extend membership of these buffer-zone Eastern European countries to the North Atlantic Treaty Organization (NATO), ever, as it brings enemies too close to the gate of Mother Russia. It’s these demands Mr. Biden has unequivocally refused. Again I can’t help but think back to the Cuban Missile Crisis when Russia reacted to increased US missile presence in Europe by placing nuclear missiles in Cuba. Naturally, the US was not happy about this development and tense negotiations between the two then superpowers and Cold War combatants began. After a few days, with the world on the brink of nuclear war, an agreement was reached between US President John Kennedy and Soviet First Secretary Nikita Khrushchev that both countries could live with, and therefore the rest of the world would survive.

But such negotiations don’t seem possible these days, again due in large part to the rise of nationalism. As Ms. Applebaum wrote for a piece in The Atlantic this weekend, for a generation the West has failed “to understand what kind of state Russia was becoming and to prepare accordingly…Now it may be too late.”

Until next time, and I hope there is a next time,

Darin Newsom