Stock Market Misunderestimating Russia Threat

Did you hear George Bush’s speech about the Russian invasion of Georgia this morning? It sounded an awful lot like his father’s “this will not stand” speech about Iraq’s invasion of Kuwait. That one ultimately led to the first Gulf war.

Bush II stopped short of threatening violence, but he has to be thinking about it. And although, unlike Bush, we haven’t looked into Vladimir Putin’s eyes and seen his soul–as Bush did prior to reassuring America that Putin is actually a great guy–we don’t imagine Putin will roll back the tanks just because Bush is thinking badly of him.

So that likely means, at best, sanctions.

Russia produces 12.5% of the world’s oil and 23% of its natural gas. If Bush and NATO retaliate with economic sanctions, Russia’s exports could be taken off the world market. That won’t do wonders for energy prices. It also won’t help an already reeling global economy.

And then there’s the larger issue: The lurch toward a new Cold War. Despite Bush’s insistence that the “Cold War is over,” it certainly seems as though Putin would be happy to start it up again. Unless Bush puts his troops where his mouth is, therefore (which could lead to other destabilizing events, such as nuclear war), why will Russia stop at Georgia? Why have wimpy neighbours thumb their noses at you when you can just install puppet governments and keep their resources for yourselves?

It’s early yet, but so far the stock market has ignored the Georgia conflict. It shouldn’t. The standoff could be radically destabilizing. It could also lead to a resumption of the trend that, right now, the market fears most: higher oil prices. And that’s far from the worst-case scenario.

See Also: As Expected, Global Economy Headed Into The Tank

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