The main disruption this week for investors centered on the tensions in the Crimea region of the Eastern Ukraine.
Early in the week, intense volatility emerged in financial markets around the globe as the internal political struggle in Ukraine progressed into a conflict involving the Russian military.
While I certainly never intend to diminish a situation involving violence – this is a finance column, and from an American financial perspective – in my opinion, the events in Ukraine appear as mostly a distraction.
I am certainly not qualified to comment on the subtleties of former Soviet cultural and political theater, but I believe this situation has revealed some insight into the modern reality of the interconnected global economy.
While the intensely corrupt political class (both sides) in the Ukraine is no innocent victim here, what the Russians have done by invading and occupying the Crimean peninsula region of the Ukraine is clearly deplorable. The world is appropriately outraged, and government statements from the both the U.S. and Europe have reflected as such.
But that’s where it ends. And while the reasons for the limited response are multifaceted, underlying any potential reaction is one element that cannot be ignored: the money.
According to CNN Money, Russia buys over a half a trillion euros of manufactured goods and services annually from European Union nations, making it the EU's third largest trading partner. In return, the EU is the primary market for Russian energy products, particularly natural gas.
As Europe emerges from a deep recession, it simply can’t ostracize a customer the size of Russia, and more than half of Russia’s government spending is derived from revenue linked to natural gas sales to the EU.
At the end of the day, neither Russia nor the EU can afford to clash on this issue. So when money was potentially on the line, the Europeans displayed appropriate but reserved consternation and in turn Russian President Putin illustrated his own form of restraint by not further escalating the military intervention.
I guess one lesson we can discern from this state of affairs is while it’s said money can’t buy happiness, money can for now apparently provide us with a small measure of well-deserved world peace.
The other lesson is, once again the world has shown us the importance of continuing to develop North American energy resources. Perhaps the best way to address bullies like Russia’s Putin is to marginalize them economically.
As this reality continues to become more and more self-evident, investors will want to continue exploring the opportunities being created by America’s energy production and transportation infrastructure.