Ukraine In Focus Ahead of Controversial Crimean Referendum Vote

uikiEquity futures are lower on Monday following news out of China that showed Chinese exports unexpectedly fell in February, renewing concerns about a slowdown in China, while in Ukraine tensions are running high after Crimean officials said that they would move forward with a referendum vote on Saturday to join the Russian Federation.

In China exports for the month of February suddenly fell -18.1 percent (YOY) after gains of + 10.6 in January and +4.3 in December.

Meanwhile, there are now estimated to be 20,000 Russian forces in Crimea, according to the Pentagon’s latest estimate from Friday.

Russia denies that the troops in Crimea wearing uniforms with no insignia are Russian troops, although the military vehicles have Russian license plates and local citizens across Crimea deny that the troops are native to Crimea.

Russia is offering Crimea 1.1 billion if their citizens vote in favor of joining the Russian Federation during an upcoming  March 16th referendum vote which clearly goes against the Budapest Memorandum, signed by Russia and several other international countries which contains 6 provisions, including obligations by Russia to respect the sovereignty and territorial integrity of Ukraine, within its existing borders of 1994, while not threatening it or using force.

On Sunday Tony Blinken, Deputy National Security Adviser for President Barack Obama, said on Meet the Press that if Crimea votes to move out of Ukraine and to Russia, “we won’t recognize it” and “most of the world won’t either.”

Blinken explained that President Obama has been working with the international community to apply pressure on Moscow.

“The president spent the weekend on the phone with Chancellor Merkel of Germany; President Hollande of France; Cameron of Great Britain; the Italian prime minister, Renzi; the three Baltic leaders; bringing together, marshaling the work of the international community to continue to exert and increase the pressure on Russia to do the right thing going forward.” Blinken said.

On Wednesday the leader of Ukraine’s pro-Western government will meet in Washington D.C. with President Obama.

Prime Minister Arseniy Yatsenyuk is seeking western support to help resolve a Russian incursion into Crimea and secure financial assistance to help Ukraine avoid becoming insolvent.

On Thursday the U.S. House of Representatives voted in support of a $1 billion aid bill for Ukraine’s nascent government in Kiev.

Last week President Obama announced sanctions, including travel bans and the freezing of assets of individuals responsible for Russia’s military intervention in Crimea.

Gas As Leverage

Ukraine is a major transit country for transporting gas from Russia to Western Europe.

On Friday Russia said Ukraine must pay nearly $2 billion it owes it for natural gas.

Russian-based Gazprom, which is over 50 percent owned by the Russian government, recently threatened to cut natural gas supplies in Ukraine if the $2 billion isn’t paid.

Gazprom also threatened to end their gas discounts to Ukraine which may lead to gas costs jumping 37 percent.

In January 2006 Gazprom, which supplies more than half of the gas Ukraine uses each year, used gas as a weapon to punish Ukraine over price issues, late payments, and politics after the country elected a pro-Western government.

The move sparked outrage across Western Europe and led to Russia losing credibility as a major gas supplier when the demand for gas was higher than it is today with winter fading away and warmer temperatures on the way.

-Johnathan Schweitzer














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