Fears of a shooting war In Ukraine were abating Tuesday, providing relief for markets and investors worldwide.
After a big drop yesterday, markets recovered Tuesday morning, with the Dow Jones industrial average climbing 200 points and the S&P 500 touching a new high.
But don’t call off the guards just yet.
Analysts were warning clients in notes Tuesday that tensions could ratchet up again, causing market volatility in the weeks and months ahead as investors worry about Russian intentions and the implications of tension on the global economy.
While the Crimea is a small portion of Ukraine and a tiny area of the world, the fear is that Russia could want to expand its influence in other Eastern European countries that once made up the Soviet Union. And if a further crisis emerges, the economic implications could be great. One of the biggest worries is that the western democracies and Russia decide to take each other on using oil and natural gas as a weapon.
Europe relies on the region for energy and any increase in energy costs would be tough to handle, as much of Europe struggles to pull out of long recession. On the other hand, Russia depends on oil and natural gas for income. Selling energy accounts for 60 percent of Russia’s exports and 50 percent of the government’s revenue, said Capital Economics analyst Julian Jessop.
The fact that the region’s oil is important to both Europe and Russia, makes analysts skeptical that it will become a weapon. But that risk, plus concerns that Russia may have ambitions to reassert itself in areas of Eastern Europe, create the potential for geopolitical upheaval. That kind of uncertainty worries investors.
Europe and the U.S. have already made it clear that they would prefer to fight a battle with economic sanctions, not military weapons. Shortly after Putin apparently began moving soldiers into the area, western democratic leaders spoke of taking aim at Russia’s economy by cutting the country off from trade opportunities.
Investors worldwide reacted Monday by pulling money out of Russia. Russia’s stock market lost almost 11 percent of its value in a single day. Today, with the military threat seemingly lifted by Putin, stocks climbed about 5 percent.