Joe Biden’s First Geopolitical Crisis
Author: Greg Valliere
April 22, 2021
RELATIONS BETWEEN THE U.S. AND RUSSIA are at rock-bottom, perhaps at the lowest point since the Cuban missile crisis in 1962, as Vladimir Putin amasses over 100,000 troops on Ukraine’s border.
JOE BIDEN HAS PLENTY OF GLOBAL CONCERNS: They include talks with Iran, which are going well; continued trade friction with China, which will persist; and a Climate Summit that will begin today. But nothing compares to this Russian crisis.
PUTIN NEEDS A DISTRACTION: Protests in Moscow and other cities have been relatively modest this week, but if dissident Alexei Navalny dies in captivity, all bets are off. A suppression like the one underway in Hong Kong could be necessarily in Russia.
SO PUTIN VOWED yesterday to react aggressively to any breaching of “the red line” between Russia and the West, whatever that means. He’s itching for an excuse to move his troops into eastern Ukraine, where Russian shelling has been persistent. And he could claim more of Crimea while establishing dominance over the Black Sea.
PUTIN HAS VIRTUALLY NO SUPPORT in the West; the titular leader of Europe, Angela Merkel, is an outspoken anti-Russia hawk. Biden has called Putin a “killer,” which angered the Russian leader, who was comfortable with Donald Trump’s sycophancy. Biden’s sanctions, announced last week, were fairly mild but could get tougher.
THE BALL IS IN PUTIN’S COURT: The Russian president is accusing Ukraine of provocations, and he has responded by moving 120,000 troops to the border, along with sophisticated missiles, paratroopers, and electronic warfare assets.
BOTTOM LINE: Our sense is that Putin won’t need much of an excuse to move troops into eastern Ukraine; he knows the West will not respond militarily. And as a bonus, he could divide the U.S., where Trump will argue that a tough Biden response would be futile and unwarranted.
FOR THE MARKETS, a Russian invasion could reinforce the recent rally in the fixed income markets, where yields have slipped below 1.6% on the Treasury 10-year bond. Investors would seek a safe haven, especially if Navalny dies and gives Putin the pretext he’s looking for to rally the public with an invasion of Ukraine.
FOR BIDEN, EVENTS HAVE CONSPIRED TO STALL HIS AGENDA: The new president had planned to spend the spring fighting for his infrastructure bill and tax hikes, but he will have to focus on police reform legislation, the immigration mess, and now Russia. An infrastructure bill will pass, but it may have to wait wait until these other issues are addressed.
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