According to Russia, the objective is to keep Ukraine within its "sphere of influence", in line with its long-held view that Russia and Ukraine are one. It supports recognition of the independence of Donetsk and Luhansk, territories in eastern Ukraine where Russian-backed separatist forces have been present since 2014 (announced Monday, February 22).

This was a prelude to a broader confrontation, as Russia has accomplished little with this one action. And it believes that its recent advances may not stop until it secures a significant swath of Ukrainian territory. Russia invaded Ukraine on February 24. The invasion marks the sharpest and most permanent break between Russia and the West since the end of the Cold War.

Michael Mandelbaum, professor emeritus of American foreign policy at the Johns Hopkins School of Advanced International Studies, believes that NATO expansion played an important role in preparing for the current conflict by helping to create an anti-Western mindset in Russia. Nato has allegedly promised not to expand their territory eastward in 1990. Since then, Poland, the Czech Republic and Hungary joined in 1999, followed by Romania, Bulgaria, Slovakia, Slovenia, Croatia, Albania, Lithuania, Latvia and Estonia between 2004 and 2009, and finally Montenegro between 2017 and Northern Macedonia in 2020.



Russia says it wants to keep a distance, a sort of "buffer zone" between NATO and its territory while maintaining its influence over the regions of the former USSR that fell in 1991. The willingness of Ukraine to join NATO was the last straw for Russian President Vladimir Putin, a region he now considers to be the "aircraft carrier of NATO".

Western sanctions, which now include the freezing of assets, the US ban on Russian oil and the withdrawal from the SWIFT system, quickly piled up after Russia recognized the independence of Donetsk and Luhansk and the invasion that followed.

On the one hand, Europe cannot afford not to react, but it is also dependent on Russian exports, especially of gas and oil, and also wheat. However, this energy dependence varies from one country to another, with Finland using important 94% of its oil from Russia, while France “only” imports 24%.

Regarding the actions of the Russian government, we should not underestimate the risk that Putin is taking, and the fact that he could be very wrong in his calculations. It is important to note how isolated the Kremlin's master has been over the past two years, and especially during the pandemic. According to Allisson Nathan, Deputy National Intelligence Officer at the CIA, there is no one left who can apparently coerce him into presenting information that is incompatible with Putin's worldview (cf. the recent "parody" meeting of the Russian Security Council between Putin and his advisors). We are therefore in a dangerous situation that could last for months or even years if the Russian president does not resolve to back down. A refugee crisis could also appear and spill over into the whole of Europe, as is currently the case in Poland, Moldova, etc.

As a reminder, Ukraine is a country with a population of 44 million, and it shares 2000 km of borders with Russia. It is globally divided in two from the point of view of spoken languages. The west and center, where Ukrainian is spoken and the south and east, where Russian is spoken. Especially in Crimea in the south, annexed by Russia in 2014, where 90% of the population speaks Russian.

The Crimea had been offered at the time to Ukraine in 1954 by Nikita Khrushchev. With the fall of the Berlin Wall and the end of the USSR in 1991, Ukraine became independent and logically retained Crimea.

Since the 2000s, the Russian government has signaled its desire to keep control of these former territories and to reunify, at least culturally (but perhaps also territorially), these areas where "Rus" is still spoken.


Chronology of the crisis

Sources: Goldman Sachs Research & CIA


The sanctions 

The sanctions imposed in response to Russia's 2014 annexation of Crimea have clearly failed to deter the former USSR from further advances. Let's look at the sanctions that NATO members and the international community have already put in place.


Stopping the Nord Stream II project

Russian gas accounts for 40% of the EU's gas imports, and just over 20% of its energy consumption. On February 22, 2022, German Chancellor Olaf Scholz announced the suspension of the pipeline.

The Russian energy transport network to Europe:


Source: Goldman Sachs Research


Targeting the wallet

Russia seems to have prepared itself for a possible conflict when we look at its foreign exchange reserves estimated at 600 billion US dollars. Enough to maintain their spending for 18 months even with the total stop of exports to NATO countries. This is surely the hardest measure for the Russian government, which may have underestimated the power of the dollar and the ability of Western countries to kill confidence in the ruble, the Russian currency. Since the beginning of the conflict, the ruble has been in free fall against the dollar. With the freezing of assets and the exit from the SWIFT system, Russia will find it difficult to spend its reserves, which have been increasingly "de-dollarized" in recent years.

According to Allisson Nathan, sanctions will not have a deterrent effect against someone like Putin, who is so determined to pursue his maximalist goals that the economic costs do not enter into his calculation in a "meaningful way". At this point, the purpose of Western sanctions is to increase the cost of the conflict, to signal to the Russian people that Putin is leading their country in the wrong direction, and, most importantly, to prevent Russia from engaging in destabilizing activities internationally.

Russia has also become largely independent of external financing, and Russian business and government have prepared for possible future shocks such as the loss of access to the USD. The use of the USD in trade and financial transactions has declined sharply. Russia has also accelerated the use of its own payment cards, such as Mir, as well as its own SWIFT-type messaging service (Financial Message Transfer System, called SPFS).

The country has become more resilient since 2014, as its balance sheet, external and fiscal balances have strengthened and it has become largely independent of external financing.



It is a low debt state relative to its GDP (debt weighs between 15% and 20% of its GDP). But even this low debt and its war chest might not be enough to face the destabilization of its system and currency.

Even if the former Russian empire has adapted to the various sanctions imposed by the West in the past, this resilience may not be enough in the face of a cohesive response from NATO members.


China's support:

In the face of these sanctions and the potential inability of Russia to supply Europe with gas and oil, China could take advantage of these energy flows. China abstained from the vote against the UN resolution to sanction Russia. As a reminder, five countries have veto power: the United States, France, the United Kingdom, Russia and China. Beijing could take advantage of this crisis to get closer to Russia while keeping its distance from Putin's warlike decisions, so as not to draw attention to its own expansionist policy on Taiwan.

The future of the West depends on developments in Ukraine, but the toughest sanctions have their counterparts. First, measures that would have a substantial impact on the Russian economy, such as energy sanctions, are likely to spill over to other economies, including the United States and Europe. Second, these spillover effects could weaken unity among allies, some of whom bear a greater economic cost than others, making sanctions less effective.


Sectors that are favorably impacted:


The arms industry:

Germany has announced a significant increase in defense in its budget to 2% of its GDP. If all NATO members reach the initial target of 2% of GDP devoted to defense, this would imply a 25% increase in the global budget according to Jefferies. The entire sector should therefore benefit greatly from these favorable policies.

Globally, we find stocks like Lockheed Martin, Mercury Systems, Kratos Defense, SAAB, Dassault Aviation or BAE Systems.



Unlike 2014 when the world was on the verge of an energy glut, this year's exceptionally low inventory levels and low spare production capacity across the commodity complex now leave commodities vulnerable to even minimal physical disruptions that could result from conflict. Oil and gas, but also gold, become an effective means of diversification against geopolitical risk. As a reminder, Russia is the world's 3rd largest producer of natural gas and 1st exporter.

Russia is also the world's largest exporter of wheat, with nearly a third of world production. It also occupies an important share of exports in agrochemicals, titanium, palladium, nickel or fertilizers.


Here are a few stocks :

In fertilizers: The Mosaic Company, Nutrien, CF Industries, Yara International;

In metals: Freeport-McMoran, Steel Dynamics, Nucor, Reliance Steel & Aluminum, Eramet, Cleveland-Cliffs;

Chemicals: Linde, Westlake Corporation, Dow, Air Liquide

Oil: Shell, Exxon Mobil, Chevron, Diamondback Energy, Marathon Petroleum, etc.

The current geopolitical tensions are part of a broader trend of de-globalization following the health crisis that has affected the world. Developed countries are more interested in relocating their production. From an energy point of view, European countries are moving away this year from Russian gas and oil, towards LNG or renewable energies. This also reinforces the other major global concern of the moment: the rise of inflationary pressures on raw materials.


Renewable energy:

Energy independence is at the heart of the concerns of European countries, which are 40% dependent on Russian natural gas, for example. France is doing rather well with a 25% dependence, but Germany and Italy, for example, are more dependent on Russia.

Companies in the renewable energy sector, particularly solar and wind power, should benefit in the coming years

We find stocks such as Enphase Energy, SolarEdge Energy, SunRun, Nextera Energy.



An asset that has historically been rather well decoupled from the equity markets, gold is taking advantage of the turmoil in the fiat currencies to climb nicely towards $2,000. For now, it is holding above $1900.

The main gold companies are: Barrick Gold Corporation, Agnico Eagle, Newmont Corporation.


Sectors that are adversely affected:

We have, of course, companies with a market share in Russia and Ukraine, but also Russian (and Ukrainian) companies, such as VK Company, Yandex, Novatek, Norilsk Nickel, Gazprom or Polyus.



While the arms industry is benefiting from this conflict through a possible rearmament of Europe in the coming years, the semiconductor industry, which is intrinsically linked to all technologies, could be negatively impacted. Their production stopped when the conflict started on Thursday. It turns out that Ukraine provides 70% of the world's neon gas and 90% for American players. Neon is a gas used in the key stage of semiconductor production, namely photolithography. Neon gas is used to produce UV light at 193 nm and 248 nm, which is needed to etch transistors. Tensions in the supply chain should logically continue. Indeed, the risk of a disruption in neon supply and therefore the shutdown of some production lines is a risk that cannot be excluded. However, the existence of precautionary stocks, improved techniques that allow for less gas consumption, and the industry's ability to quickly diversify its supply sources, as the sector has shown on several occasions in the history of the industry, put this risk into perspective.



Banks that have assets in Russia and whose balance sheet visibility is still unclear are suffering, despite the context of rising rates that is favorable to them. The rise in energy prices could lead to higher and more lasting inflation than expected and a slowdown in growth, i.e. a stagflationary scenario unfavorable for the equity market but favorable for gold and commodities.

Banks and insurers that cover, for example, certain airlines against rising fuel prices could suffer from the explosion in oil prices. Many financial arrangements could also surface in the coming months, hence the current caution of investors towards banks, insurers and reinsurers.


Transportation sector:

Automobiles and airlines will bear the brunt of rising fuel prices (closely correlated to jet fuel). Moreover, persistent inflation logically leads to a decrease in household purchasing power and a postponement of large purchases (e.g. a car) or large discretionary expenses (e.g. a trip).

These next few months should continue to oscillate between two sides of the same problem: euphoria exacerbated at the slightest easing of tensions and a worrying pessimism every time the conflict hardens. The Ukrainian crisis is not just an armed conflict, it is a crisis of energy independence from Russia, but also a military crisis for Europe from NATO and the United States. Volatility could continue to be the common thread running through markets in 2022.