Will Ukraine’s Cold War heat up?

Will Ukraine’s Cold War heat up?

Condemnation of Russia’s annexation of Crimea by Ukraine’s northern and western neighbours has been surprisingly quiet, and once again the US has been left to do the heavy lifting in terms of playing “global sheriff”.

As I write this, US Secretary of State John Kerry is meeting his Russian counterpart Sergei Lavrov in Paris, in a bid to resolve the crisis in Ukraine.

Meanwhile, it’s been revealed the Crimean situation failed to derail a Franco-Russian shale oil deal between Total and Lukoil. And this got me thinking.

Russian gas sold into Germany, for example, costs US$10/MMBtu, while many Asian markets are currently paying more than US$14/MMBtu. Russia can tinker with its energy policy by raising prices, diverting supplies over the medium term (to China, for example), or by cutting off supplies completely.

And if you are a country with a large dependency on Russian energy and also have relatively stressed balance sheets in terms of a high Gross External Debt to GDP ratio, to what degree are you a hostage of Russia’s energy policy? One thing is for sure: most of the ten countries listed in the table below will not be aggravating the sleeping Russian bear…

Source: Eurostat, BOAML, CLSA

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Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

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