MNI POLITICAL RISK ANALYSIS-Russia-Ukraine Crisis Scenarios

• Geopolitical tensions between Russian and Ukraine are reaching fever pitch as a build-up of Russian troops and military hardware in Crimea and on Ukraine's eastern border raises fears of an imminent Russian offensive into the separatist Donbass region.
• The ongoing escalation in tensions risks drawing European countries and the United States into any conflict that emerges, which in turn risks a prolonged and destabilising conflict in the region. Please see our previous article 'Russia-Ukraine Crisis Heating Up, 7 April'for more information on the escalation.

In this article we assess the implications of three scenarios, a 'best case', a 'worst case', and MNI Political Risk team's 'base case'. A summary of the scenarios is present at the top of the article those seeking more information can read further. Of course, there are many more potential outcomes than the three outlined here, but the three outlined below would be either the most impactful (either positively or negatively) or are the most likely to take place. We also analyse the potential impacts of these scenarios on relevant asset classes and commodities.

Summary

• Base-case scenario: No 'Hot War', But No Resolution – Status Quo Prevails With Putin Using Escalation As A Test Of NATO, Ukrainian Mettle.
  • Russia does not engage in any military offensive, instead seeking to probe both Ukrainian military strength and NATO willingness to support Kyiv. No resolution to Donbass crisis and sporadic fighting continues indefinitely, region remains a geopolitical hotspot.
  • Choppy consolidation in RUB assets within current ranges, dominated by a form of headline ping-pong with geopolitical risk premia remaining embedded until an eventual moderation in tensions.
• Worst-case scenario: 'Hot War' Breaks Out, US and NATO Dragged In, Potential For Great-Power Conflict
  • Russian invasion results in major conflict drawing in NATO powers, risk of escalation beyond the immediate region. Most significant geopolitical crisis since Iraq War.
  • USD/RUB to 80-82 (~+5-7%) and acute selling in OFZs & Russian equity indices
  • Risk premia spike and remain elevated until the situation de-escalates
• Best-case scenario: Brink Of War Leads To Re-Assessment And Deal
  • Each side turns back from conflict due to major risks evident, results in emphasis on a permanent settlement of Donbass conflict. Kyiv and Moscow agree to terms on Crimea and regions of the Donbass.
  • Upon signs of agreement or movement towards greater regional stability USD/RUB back to 73.50-75.50 zone.

MNI POLITICAL RISK ANALYSIS-Russia-Ukraine Crisis Scenarios.pdf