The Russia/Ukraine conflict continues to dominate sentiment, and promises to do so for a while to come.
So many questions, so few answers!
From a currency point of view our resource exporters are the big beneficiaries. As a result we continue to see good export flow, even as EM currencies (including the ZAR) are weakening as international developments create uncertainty and volatility. What this probably means is that the market is getting longer and longer of USD, and for now it’s comfortable being so, but any resolution one way or another will mean a swift reversal of EM sentiment.
The obvious question then is how does this get resolved?
Does everyone achieve some level of sanity and come to the negotiating table?
Does Russia simply overwhelm the Ukraine militarily?
Does someone in Putin’s inner circle exercise the Julius Caesar option – “et tu Brute?”
All of these are possible, but seemingly unlikely.
In attempting to answer the first question about the negotiating table one interesting anecdote from the history books can be revealing!
In the early 1960’s the USA entered the Vietnam conflict on the side of the South Vietnamese.
By the end of the decade both sides – in reality 4 belligerents (USA, South Vietnam, North Vietnam, And the Southern Vietnamese rebels) – realized that a military victory/solution could not be achieved and were eventually drawn to the negotiating table. The human toll of this liberation war was astronomic, eventually leading to 58 000 U.S soldiers killed and an estimated 2 MILLION Vietnamese deaths. The economic cost ran into multiple billions of USD.
The North Vietnamese knew that if they could get the US out of the South, they then could achieve their ideological objectives. The US was looking to save face but couldn’t be seen to be losing a war to an “inferior” opponent.
Thus negotiations began in 1969. Ultimately it would take 5 years for agreement to be reached leading to an eventual North victory and a unified Vietnam under a communist regime.
But here is the interesting anecdote that held up negotiations for the better part of 3 months.
Once a neutral venue, eventually Paris, was agreed upon – and that alone took many months of back and forth, the size and shape of the negotiating table was the immediate stumbling block for negotiations to begin.
It took a full 10 weeks to agree that a round table would be used.
This was all about power dynamics. In reality the real negotiation was between the North Vietnamese and the Americans, But the Southern Insurgents wanted and equal say, and so did the South Vietnamese government. And so they haggled about who would sit where for a full 10 weeks.
The point of the story is that negotiations are fraught with many stumbling blocks – often seemingly insignificant – but hugely impactful.
In this current conflict between Russia/Ukraine it would seem highly unlikely that a negotiated settlement is reached, and that in the absence of a Quick Russian victory, the conflict will drag on and on, resulting in uncertainty in financial markets for a while yet.
The full story can be read here if you have the time.