The "apparent" Russia / Ukraine conflict involves a significant number of variables, many of which aren't easy to discern or understand given the complexities of their interconnectedness and the politics, vested interests, and corruption that follow.
What’s important when trying to understand geopolitical risks and events is reading a wide source of materials in order to get a better feel of the issue at hand, the ramifications of the issue, and then make an educated guess as to the likely outcome and then impact of the issue at hand.
Insight's research has uncovered the following critical factors in relation to the Russia/Ukraine issue:
Both the leaders of Russia and Ukraine have maintained open dialogue all the way through this, and both have made it perfectly clear that there is no imminent threat, and that no protection or intervention is needed - you could argue they're lying, but maybe they're not. But when the country that is at risk of being invaded is calling for calm, then you should probably focus your attention on that.
Russia clearly understands their position of power right now - ie. the world has shifted way too far towards renewables and has significantly under-invested in their transition energy base - eg. Russia supplies between 30-50% of Europe's gas needs (different by country). If Russia were to cut off Europe's gas supply, it would be catastrophic for Europe.
Russia clearly understands that the USA is distracted with all things China, especially the threat of China taking Taiwan, given how easily they move on Hong Kong. ie. a show of strength whilst your foe is weak makes sense.
President Biden's approval ratings are almost below 30% with mid-term elections in November - at present looks like the Dems will lose both the House and the Senate, which would be disastrous for them - that means he's getting more and more desperate to turn things around. A war would help his approval rating, or at the very least, provide a distraction from domestic issues.
NATO's involvement - this is where things get complicated. Russia wants to divide NATO, which it looks like has worked given NATO member countries are all communicating quite differently at present. Russia also wants to push NATO back so that NATO is not in their "backyard" so to speak. Europe needs to remind the world that NATO is to be taken seriously given they've been a laughing stock for a while now. US wants NATO to pull their weight given Trump has made clear that NATO members weren't pulling their weight financially (ie. NATO is mostly funded by the US, with European countries significantly undershooting on defence spending) and the US wants NATO to also pull their weight physically (ie. show of cohesion and force) so that the US doesn't have to send troops to Europe.
Oil/gas prices and energy security - if you look through history, the US has entered many conflicts and wars in order to ensure energy security. This time may be no different, except for the fact that it's not in the Middle East.
Sanctions - any pre-emptive sanctions from the USA / Europe towards Russia further emboldens Putin and actually harms Europe given their need for Russian gas.
War or threat of war is a great diversion tactic more broadly when there is political or economic mess - eg. exiting the pandemic, very high inflation, sky high debt levels, climate change / renewables transition, etc.
In the interest of brevity, there are many more factors we’ve chosen not to list as the ones above are the most critical.
It's worth remembering that geopolitical tensions and risks rise and fall on almost a daily basis. Most go unnoticed. Even for those that are noticed, they rarely if ever have any material impact on markets over the medium to longer term. Even in the short term, their impacts are usually very weak and minor.
Right now, we don't believe war is imminent. But the risks of something happening (ie. a mistake) have definitely risen and need to be watched closely, which we are doing. However, that also means we don't think any changes to portfolios are necessary to account for these rising risks.
The biggest risk for markets right now is inflation and the central bank reaction function to that inflation (ie. how quickly they raise rates and to what level), followed by pandemic health restrictions (supply issues) and weak Chinese economic growth. These are where we're spending most of our time worrying about portfolio positioning and any potential changes.