Russia didn’t fire any shots in Ukraine on Monday, but there were plenty of casualties on Russia’s currency, bond and stock markets — even as Western nations rushed to plan their economic defense of the current government in Kiev.
Share prices of Russian companies plunged nearly 11 percent and the Russian ruble tumbled to an all-time low against the U.S. dollar despite Russia’s nearly half-trillion-dollar hoard of foreign exchange. The country’s natural gas monopoly, Gazprom, which sells to Ukraine and other parts of Europe through pipelines crossing Ukraine, fell about 12 percent, wiping out nearly $13 billion in shareholder value in that company alone.
The Russian central bank spent as much as $12 billion to prop up the ruble, Reuters reported, and raised interest rates in an effort to stem the outflow of capital, although higher interest rates are hardly what the sluggish Russian economy needs.
Investors worldwide fled to safety: U.S. government bonds, gold and oil. Crude oil prices jumped more than 2 percent on world markets. The price of Brent crude, used as a benchmark in most of the world, was up $2.32, to $111.41 a barrel, for April delivery.
“The Russian economy is definitely being hit. We have seen a slide in the ruble’s value against the dollar, and this crisis is likely to precipitate capital flight and deter investments,” said Julia Nanay, an expert on Russia and the Caspian region with the consulting firm PFC Energy. “This is occurring at a time when Russia needs to attract foreign investment to turn around its weak growth prospects.”
Despite being the world’s largest petroleum producer and second-largest natural gas producer, Russia managed only 1.2 percent growth last year and, aside from energy, plays a small part in international trade.
The International Monetary Fund, meanwhile, began meetings in Kiev on Monday to figure out how to shore up the Ukrainian economy. The IMF has been pressing Ukraine for years to overhaul self-defeating economic policies, such as spending down foreign reserves to prop up the currency and running large budget deficits to pay for fuel subsidies.
A $15 billion aid package was suspended and eventually lapsed because of the deadlock. But with political tension rising, the fund appears ready to try again.
Even if the fund can only provide limited help of perhaps a billion dollars in the short run, that could prove important if the government is pressed by Russia to cover overdue fuel bills or if it faces doubts on international capital markets about its ability to cover debt payments and the cost of vital imports.
In a statement Sunday, the heads of the top seven industrialized countries — a group that does not include Russia — said the crisis could be a “unique opportunity” to put Ukraine’s economy on a sounder footing. IMF oversight in Ukraine would be “critical in unlocking additional assistance from the World Bank, other international financial institutions, the [European Union], and bilateral sources,” the group said.
The IMF team is expected to spend about 10 days in the country developing a package that could feature immediate assistance, in case Ukraine faces a cash squeeze, and an agreement on ways to revive a larger loan for the country, perhaps after presidential elections scheduled for May.
Ukraine may need to borrow in excess of $30 billion this year on international bond markets. Its foreign reserves have fallen by perhaps 50 percent over the past two years, to about $15 billion. While the country appears able to pay its bills for the time being, IHS government debt analyst Lilit Gevorgyan said in an e-mailed note Monday, “Without the expected financial assistance from Western donors, Ukraine is likely to default.”
The crisis also puts pressure on Europe, which has diversified its sources of energy but still relies heavily upon Russian supplies for 25 percent of its needs. Europe has been awaiting the completion of a new gas route from Azerbaijan, and Russia has been building pipelines to Germany that bypass Ukraine. But half of the Russian gas exports to Europe still flow through pipelines crossing Ukraine, though not Crimea. In Germany, Russia’s biggest gas customer, the stock market index, the DAX, slid 3.4 percent.
The sales are also crucial for Russia. Its energy exports to the E.U. total about 10 percent of its gross domestic product, according to a Wells Fargo report issued Monday. A prolonged disruption of gas exports through Ukraine would have a “lose-lose result,” the Eurasia Group wrote in a report.
Russia’s ability to use gas exports as a weapon is at a low point because a mild European weather has bolstered stockpiles and the warmer, low-consumption months are starting.
Paul J. Sullivan, an economics professor at the National Defense University, said that if conflict engulfed Ukraine, it would also disrupt agriculture markets because Ukraine is a major producer of wheat and the world’s largest source of sunflower oil. U.S. wheat prices soared Monday.
Investment analysts and economists were also looking at the broader impact that a chill in relations with Russia or economic sanctions might have on Russian companies doing business abroad, or U.S. and European companies doing business in Russia.
Exxon Mobil has extensive exposure in Russia, including production in eastern Russia’s Sakhalin Island and an ambitious exploration project in Russia’s Arctic region. Pepsico sells a variety of soft drinks and snacks. BP owns 19.75 percent of the state-controlled oil company, Rosneft, whose stock slid more than 5 percent Monday.
But Wells Fargo analysts said in a report Monday that Russia accounts for less than 1 percent of U.S. imports and exports. U.S. trade ties with Russia “are still rather small when viewed in the context of the overall U.S. economy,” the bank said.