December 8, 2022

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The warning has come: tough action is being taken against Putin, which could affect the whole of Europe

Analysts at Danske Bank write that talks between Ukraine, the United States and Russia are unlikely to succeed, and that there is no open war between Russia and Ukraine.

Bank employees offer a 40% chance of successful negotiations, a 50% chance of a lasting stalemate and a 10% chance of a Russian invasion of Ukraine.

According to analysts, the reason for the low probability of an attack Russia and the West face significant economic damage as a result of open war and potential sanctions. Donsky said he would be happy to see Putin increase his influence in the Donetsk Basin and that Ukraine and the West should make painful concessions. The portfolio has reached similar results in recent days:

Donskey’s analysis is new in their thinking

If there is an open invasion of Ukraine, there is a good chance that Russia will be cut off from the SWIFT.

About the international banking liaison system that handles most international financial transactions. SWIFT has 11,000 members in financial institutions and 35 million transactions per day.

Such action has so far only been taken against Iran and North Korea, so Russia’s secession will be unprecedented. Analysts say Russia’s domestic economy could move quickly to a self – developed system, but international transactions will essentially stop merging with Russia.

Imports account for about 20% of Russia’s GDP, There has been a significant decline in this area since 2014. Donske analysts point out that Russia is self-sufficient in many sectors, such as food production and certain services, and that sanctions are being avoided by importing from third world countries outside the West. Expect that If it exits SWIFT, Russia will join hands with China to create its own banking liaison systemHowever, switching to this can be a time consuming process. Overall, they say, Russia has so far demonstrated adaptability in the context of sanctions.

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Donske researchers also point out Even tougher sanctions would be worse for the United States’ allies, especially the EU. About 30% of the EU’s energy imports come from Russia, with Germany, the Netherlands, Poland and Finland being the largest markets. No study details, but it is known that Hungary also relies heavily on Russian gas.

We have previously written in detail about how Europe’s action against Russia will be affected:

Analysts are reluctant to make specific predictions about the exact impact of sanctions on Russia in the energy market, noting that the invasion of Ukraine is now a “major reversal risk” for the sector, but if this conflict is avoided. , Energy prices can lower inflation or turn it upside down.

If Russia imposes sanctions, Eurozone inflation is projected at 3.2% in 2022, up from 0.7-1.5 basis points.

Finally, the bank’s analysts elaborate on their belief that Russia has a 10% probability of launching an invasion of Ukraine and its economic consequences.

The following features are listed:

  1. Uncertainty is growing in the stock markets, But the reaction is basically the same as in 2014 after the annexation of Crimea. There will be a quick sale of shares International stock markets then adjust the market again. However, for Russia, another round of sanctions could have serious consequences, that is Russian stocks may be less active in the long run, Which may spread to Eastern European markets. If Russia separates from SWIFT, it is questionable whether it can trade in Russian bonds from abroad.
  2. Bonds, especially German government bonds, are beginning to accumulate temporarily.
  3. Energy prices are flowing; Gas prices could rise to € 300 / MWh due to supply shocks, This is three times more than it is today. This will obviously lead to an energy crisis. A protracted power and heat crisis will hit Europe, and entire major cities may be shrouded in darkness.
  4. The dollar / ruble cross will rise to 82 and the ruble will weaken by about 7% against the dollar from current levels.
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Finally, Donske analysts write in their final notes that they believe Russia will still “maintain its position of aggression” against the West and Ukraine.

Russia can gain international attention and respect only if the climate is right.

Overall, analysts say that despite the agreement with Ukraine, Russia will certainly be active in the region and “slowly gaining more and more influence in eastern Ukraine.” They say the process will be so slow that even the West will not notice it.

Cover image: Mark Schiffelpin-Pool / Getty Images