Warning Shots Fired At OSCE Mission In Crimea; Russia Threatens Treaty Force Majeure Over "Unfriendly NATO Threats"Submitted by Tyler Durden on 03/08/2014 09:21 -0500
Perhaps it is time to finally admit that anyone who thought Putin's Tuesday press conference, which the market so jubilantly assumed was a case of "blinking" and de-escalating tensions with the west, was wrong. If there is still any confusion, following yesterday's news that Gazprom officially threatened Ukraine with cutting off its gas supplies, as well as the storming of a Ukraine base by Russian troops - luckily with no shots fired so far - then today's developments should any remaining doubts. Moments ago AP reported that as the latest, third in a row, group of OSCE inspectors tried to enter Ukraine, they were not only barred from doing so, but warnings shots were fired to emphasize the point by pro-Russian forces.
The U.S. government and the Russian government have both been forced into positions where neither one of them can afford to back down. If Barack Obama backs down, he will be greatly criticized for being "weak" and for having been beaten by Vladimir Putin once again. If Putin backs down, he will be greatly criticized for being "weak" and for abandoning the Russians that live in Crimea. In essence, Obama and Putin find themselves trapped in a macho game of "chicken" and critics on both sides stand ready to pounce on the one who backs down. But this is not just an innocent game of "chicken" from a fifties movie. This is the real deal, and if nobody backs down the entire world will pay the price.
It appears Obama's latest "one hour" conversation with Putin has just made things downshift from bad to worse. Moments ago Russia accused the European Union of taking an "extremely unconstructive position" by freezing talks on easing visa barriers that complicate travel between Russia and the EU over Ukraine. "Russia will not accept the language of sanctions and threats" and will retaliate if sanctions are imposed, the Russian Foreign Ministry said in a statement about agreements reached at an emergency EU summit on Thursday. And assuring that the imminent Crimean referendum due in just over a week will rapidly deteriorate the current detente was overnight news that Russia's upper house of parliament will support Crimea in its bid to join the Russian Federation, the speaker of the upper house of parliament said Friday. "If the people of Crimea decide to join Russia in the referendum, we, as the upper house, will certainly support this decision," Valentina Matvienko said at a meeting with Vladimir Konstantinov, his counterpart in the Crimean parliament.
"Will there be war in Ukraine? I am afraid so. After all, the extremists who seized power in Kiev want to see a bloodbath. Only fear for their own lives might stop them from inciting such a conflict... Russia will not annex Crimea. It has enough territory already.
At the same time, however, it will also not stand by passively while Russophobic and neo-Nazi gangs hold the people of Crimea, Kharkiv and Donetsk at their mercy."
Dismally drifting towards deflation as credit creation is a long and distant thing of the past in the European Union, this morning's decision to hold rates unchanged leaves a lot of "whatever it takes" hope left for the press conference. Whether he will ease lending standards, cut haircuts, enable more securitization, push direct lending (there's no demand!), or "promise" open-ended QE - it's all on the table but we suspect it will be more talk and "whatever" he is doing so far is working... stocks are near record highs and bond yields record lows - which must mean Europe is fixed...
- Spot the inaccuracies: Stocks rise on Ukraine diplomacy, ECB easing speculation (Reuters)
- Bank of England Extends Record-Low Rates Into a Sixth Year (BBG)
- China's Chaori Solar poised for landmark bond default (Reuters), explained here previously
- EU leaders meet in Brussels to address Ukraine crisis (FT)
- Nine-month-old baby may have been cured of HIV, U.S. scientists say (Reuters)
- China Raises Defense Spending 12.2% for 2014 (WSJ)
- China Stock Index Rises as Developers Jump on Policy Speculation (BBG)
- VTB Cancels New York Forum as U.S. Relations Sour (BBG)
- IBM workers strike in China over terms of Lenovo takeover (FT)
- College Board Redesigns SAT Exam Making Essay Portion Optional (BBG)
While the world is convinced that Putin's Tuesday press conference was an admission of blinking to the west, the reality is anything but that, and hours ago Crimea's parliament voted to join Russia on Thursday and its Moscow-backed government set a referendum within 10 days on the decision in what Reuters said is a "a dramatic escalation of the crisis over the Ukrainian Black Sea peninsula." To be sure, the Crimea - which has an ethnic Russian majority - affiliation to Moscow as opposed to Kiev is well-known, yet still the sudden acceleration of moves to bring Crimea formally under Moscow's rule came as European Union leaders gathered for an emergency summit to seek ways to pressure Russia to back down and accept mediation. And now all Putin has to do is sit back and say the people have spoken and without spilling a drop of blood has effectively split the country in two parts, with the entire east of Ukraine, where pro-Russian sentiment also runs high - sure to follow Crimea. Just as we said from the very beginning.
Palladium has gained 5.5% during the last five days of the crisis and is up 7.9% year to date. Ore deposits of palladium are rare and are mostly located in Russia and South Africa. Russian resource nationalism, as has been seen with natural gas, could lead to supply disruptions and to palladium going higher in the coming months. Some analysts believe palladium may be in deficit for most of the next decade as Russia depletes stockpiles and industrial uses and investment demand for the precious metal increase.
There are days when it seems that the Nobel Peace Prize should just go home and put their feet up, ask the home-help to make them a cuppa and to bath them and then they can be put to bed and tucked in
Following warnings from US and European nations over economic (and travel) sanctions against Russia, the upper house of Russia's parliament has struck back. As RIA reports, Russia is mulling measures allowing property and assets of European and US companies to be confiscated in the event of sanctions being adopted. Layers are studying the costitutionality of the 'confiscation' but cite Europe's standards (i.e. Cyprus) as precedent. This is further to the threat to "dump US goverment bonds" issued earlier in the week.
Ukraine Won't Pay Russia For Gas, Has Billions In Obligations Due; Europe Promises Aid Money It Doesn't HaveSubmitted by Tyler Durden on 03/05/2014 08:03 -0500
About an hour ago, the head of Russia's top natural gas producer Gazprom said on Wednesday that Ukraine had informed the company it could not pay for February gas deliveries in full, further adding to tensions between Moscow and Kiev. Alexei Miller said Ukraine's total debt to Gazprom for gas deliveries was nearing $2 billion. "Our Ukrainian colleagues informed us that they would not be able to pay in full for February gas deliveries," he told Russian President Vladimir Putin.
"If you're sick in Greece, you have an expiration date," is the cheery message from Greece. As WaPo reports, while economists proclaim Europe is turning the corner, a look across the still-bleak landscape, from Greece to Spain, Ireland to Portugal, suggests a painful aftermath, where the plight of millions of Europeans is worsening even as the financial crisis passes with public health being hit in the most troubled corners of the European Union. Greece is the hardest hit and while Greek Health Minister Adonis Georgiadis is attempting to create a fund to help the most acute cases, his concluding remarks are chillingly blunt, "illnesses like cancer are not considered urgent, unless you are in the final stages."
UPDATE: EU is suggesting it will help Ukraine pay its $2bn Russian gas bill (to keep its spice flowing)
The question many are asking this morning is what is the iron-first of Putin thinking? With his "military exercise" over, does he believe it enough to have shown the world his potential for disruption? We suspect another reason may have been weighing on his mind. As we noted previously, Europe accounts for around a third of Gazprom's total gas sales, and around half of Russia's total budget revenue comes from oil and gas... and whatever Putin's geo-political ambitions, we suspect he did not want to jeopardize that source of revenue - no matter how much sabre-rattling and Gazprom-fear-mongering. As the following chart shows, Europe should be sighing a huge relief this morning - but remain cognizant that this, we suspect, is far from over.
Futures are soaring and are just shy of their record high first following news that the Russian military drill has ended, even if Russian troops stationed in the Crimea remain, but more importantly driven by a just completed press conference by Vladimir Putin in his residence outside of Moscow, in which the Russian leader appears to have softened his stance on Crimean aggression, saying he does not consider adding Crimea to its territory. What the market is focusing on is the repeat of Putin's stance that he will not be sending troops to the Crimea yet (even though they are there already), and that he suddenly appears concerned about the impact on markets and the fallout from sanctions.
We had previously warned that Putin's "trump card" had yet to be played and with Obama (and a quickly dropping list of allies) preparing economic sanctions (given their limited escalation options otherwise), it was only a matter of time before the pressure was once again applied from the Russian side. As ITAR-TASS reports, Russia's Gazprom warned that not only could it cancel its "supply discount" as Ukraine's overdue payments reached $1.5 billion but that "simmering political tensions in Ukraine, that are aggravated by inadequate economic conditions, may cause disruptions of gas supplies to Europe." And with that one sentence, Europe will awaken to grave concerns over Russia's next steps should sanctions be applied.