Financial market reaction to the Russo-Georgian War

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Russo-Georgian War
Main topics
Related topics
Georgia (country) Abkhazia South Ossetia Russia
2008 South Ossetia war starts; C - Recognition of Abkhazia and South Ossetia - by Russia; D - Alexei Kudrin "no systematic crisis" speech; E - measures to save major banks are adopted by the Russian government; F - 2007–2008 financial crisis

Just on 8 August 2008, the day Russia launched a full-scale invasion of Georgia, Russia lost six billion dollars, according to the finance minister of Russia.

Lenta.Ru stated that the reports on the entrance of the Russian tanks into South Ossetia was a cue to the investors to sell their assets.[4]

On 8 August 2008,

Standard and Poor's also downgraded ratings of Georgia.[5]

Baku-Tbilisi-Ceyhan
pipelines through Georgia

Although Georgia has no notable oil or gas reserves, its territory hosts part of the pipeline supplying Europe, and journalists expressed fear that the war may damage the

light sweet crude for September delivery fell to $115.20 on the New York Mercantile Exchange.[8] The war created further issues for BP.[9]

Georgian government said that Russian warplanes destroyed the port of

Baku-Supsa pipeline and the Supsa oil terminal.[10] On 9 August 2008, Georgia said that Russian warplanes attacked the Baku-Tbilisi-Ceyhan pipeline.[11]

On 12 August 2008, BP shut down the Baku-Supsa Pipeline and the South Caucasus Pipeline for the safety reasons.[12] Gas supplies through the South Caucasus Pipeline were restarted on 14 August 2008.[13]

When Russian president Dmitry Medvedev announced the cessation of hostilities on 12 August 2008, Russian markets and ruble stopped falling.[14] After Medvedev's recognition of Abkhazia and South Ossetia on 26 August, Russia's indexes and ruble fell.[15][16]

Russian Finance Minister Alexei Kudrin stated on 17 August that $7 billion left Russia between 8 and 11 August.[17] By 20 August 2008, the market value of the Russian companies fell to less than $1 trillion.[18]

On 9 September 2008, Assistant Secretary of State for European and Eurasian Affairs Daniel Fried said at a hearing of the United States House Committee on Foreign Affairs, "The recent flight of billions of dollars from Russian equity markets is only an initial sign of the costs to Russia over time of its behavior." Fried warned that investors "generally seek a stable relationship with their economic partners and a predictable climate for their investments."[19] Russian journalist Yulia Latynina argued that the investors were reacting to the hearings at the United States Congress where Eric S. Edelman and Daniel Fried stated that Russia was responsible for the August war.[20]

Head of the Moscow branch of Barclays Capital said that the war with Georgia was the tipping point for the investors.[21][22]

Echo of Moscow reported on 10 September 2008 that experts were assessing the official figure of Russian market loss of $5 billion as artificially lowered.[23] Russian president Medvedev accused the United States of causing the world financial crisis.[24] The Russian stock market was officially recognised as the worst performing stock market in the world on 10 September 2008. The BBC reported that the Russian stocks lost more than $300 billion valuation since the beginning of the war and one Russian expert linked the capital flight to the geopolitical tension between Russia and the West.[25]

On 12 September 2008, Russian president Medvedev attributed only 25% of the stock market fall to the war with Georgia.[26][27] Medvedev contradicted Vladimir Putin's earlier statement that the Georgian war was not the reason for the fall of the market.[28]

On 17 September 2008, Under Secretary of State for Political Affairs William J. Burns stated before the hearing of the United States Senate Committee on Foreign Relations:

"Since August 7, investor confidence has plummeted; at least in part because of the Georgia crisis, Russian financial markets have lost nearly a third of their value, with losses in market capitalization of hundreds of billions of dollars. Capital is fleeing Russia, with $7 billion leaving the country on August 8 alone, according to Russian Finance Minister Kudrin. The ruble has depreciated by nearly 10 percent since the Georgia crisis began. The Russian Central Bank has spent billions of dollars of its reserves to try to halt the slide of the ruble."[29][30]

The

Wall Street Journal wrote: "The second blow [to the Russian markets] was the war in the Caucasus: Russia crushed the Georgian army, but then Russia itself was crushed by the world economy."[31] Anders Åslund commented on the Russian financial crisis that "Putin has rendered his poor country a prime victim" of his premeditated invasion of Georgia.[32]

With regard to the financial market reaction to the Russo-Georgian War, Agence France-Presse reported on 19 September 2008 that unidentified analysts believed that Russian stock exchange decline in August and September 2008, were attributed to "a mix of falling energy prices, global market turmoil and political issues including worries over the war with Georgia."[33]

In late September, the Kremlin issued $130 billion aid to help recover the stock market. The Financial Times argued that Russian invasion of Georgia damaged "the understanding that if tycoons played by Kremlin rules they would prosper".[34]

On 27 September 2008, US Vice-Presidential candidate Joe Biden said during his meeting with Georgian president Mikheil Saakashvili that Russia was paying price for her actions in Georgia and Russian stock markets lost around $750 billion.[35][36]

British

Foreign Secretary David Miliband suggested that Russia's posture could be changed by the plummeting of Russian stocks, "there is leverage on Russia, in the form of international markets."[37]

Russian billionaire Alexander Lebedev opined by late September 2008 that the war in Georgia was responsible for the 40% drop in the Russian financial market.[38]

Russian economist Andrey Illarionov noted the correlation between the escalation of the aggressive rhetoric of the Russian officials and the sharp drops of the Russian financial markets in August-September 2008.[39]

Former Prime Minister of Estonia Mart Laar stated in October 2008 that it was "miracle" that the Economy of Georgia survived the war.[40] Israeli newspaper Yedioth Ahronoth stated in November 2008 that it was the economy of defeated Georgia that was prospering, not the economy of winning opponent.[41]

Russian newspaper Vedomosti stated in late October 2008 that no investor was fleeing Russia before the war in Georgia.[42] Russian journalist Yulia Latynina commented on the Russian stock collapse that the "Russo-Georgian war can be considered the largest insider deal undertaken so far in the history of mankind".[43]

Bloomberg L.P. agency stated in late October 2008 that the Russian stocks had become the cheapest stocks in the world.[44] Stratfor stated that "nearly $63 billion in foreign investment was pulled out of Russia immediately following the August intervention in Georgia."[45]

Mayor of Moscow Yury Luzhkov claimed in November 2008 that excessive American military spending in Georgia, Ukraine and the Baltic countries was responsible for the global financial crisis.[46] James Rubin noted: "Even before the financial crisis struck last month, Russia's market was collapsing as a result of the Georgian war, making a mockery of Putin's boast that Moscow would soon be the world's financial center."[47] Russian president Medvedev announced in March 2009 that Russia was no longer considering the establishment of the world financial center in Moscow due to the financial crisis.[48]

The financial crisis in Russia caused the separatist sentiments and the emergence of the suggestions to return to the budget relations of the times of the Parade of sovereignties between Moscow and the regions. Head of Tatarstan Mintimer Shaimiev supported the idea of strengthening of federalism in Russia and the revision of the relations between the federal center and the regions. Head of the Republic of Bashkortostan Murtaza Rakhimov said that the restoration of the elements of federalism would be a "worthy response" to the financial crisis.[49] Russian journalist Mikhail Leontyev stated that the world war was the only way out of the financial crisis and did not rule out that it could begin either with the escalation between Russia and Ukraine or the renewed conflict with Georgia.[50]

The Russian gold and foreign currency reserves had been reduced from $597 billion on 8 August 2008 to $437 billion as of 5 December 2008.[51] Russia's credit rating was downgraded in December 2008 for the first time since the 1998 Russian financial crisis.[52] The Russian authorities banned the word "crisis" for describing the situation in Russia in the state-administered media.[53] Russian expert noted that the Kremlin would increase the verbal attacks on Georgia, Ukraine and the United States to distract the Russian population from the economic problems.[54]

Paddy Ashdown wrote that economic crisis triggered by the war in Georgia would cause Russia to improve relations with the European Union.[55]

The Central Bank of Russia used $74 billion in December 2008 to halt the fall of ruble which had started after the Russian invasion of Georgia in August 2008.[56][57] The Central Bank of Russia announced in January 2009 that third quarter of 2008 saw a net capital outflow of $17.4 billion, while $130.5 billion left Russia in the fourth quarter.[58] As of 30 January 2009, the Central Bank of Russia had disbursed $211 billion since August 2008.[59]

Petrozavodsk Shipbuilding Plant announced in January 2009 that the financial crisis compelled them to consider selling of warship even to Georgia.[60] On 3 March 2009, Kommersant newspaper reported that a large part of promised Russian financial aid had not yet arrived in South Ossetia due to dispute between South Ossetian and Russian authorities on the control mechanism of spending. Russian expert Mikhail Aleksandrov explained the wish of Russia to control South Ossetian spending as caused by the financial crisis and that the Russian government lacked funds for Russia's own regions.[61] Kommersant reported on 16 March 2009 that the government-affiliated workers in Tskhinvali received their January-February wages only in March and the authorities explained this delay as caused by the financial crisis in Russia.[62] In late March 2009, Russian minister of regional development Viktor Basargin stated that by the year's end, the financial crisis could cause the number of budget donor regions to drop to only two: Moscow and Saint Petersburg.[63]

See also

References

  1. ^ "The Caucasus Crisis". German Institute for International and Security Affairs. November 2008. Archived from the original on 1 December 2008.
  2. ^ Torrey Clark; Greg Walters (8 August 2008). "Putin Says `War Has Started,' Georgia Claims Invasion (Update4)". Bloomberg L.P. Archived from the original on 29 July 2012.
  3. ^ "Russian rouble, stocks hurt by Georgia conflict". Reuters. 8 August 2008.
  4. ^ Цена войны (in Russian). Lenta.ru. 11 August 2008.
  5. ^ Lesova, Polya (8 August 2008). "Fitch lowers Georgia's debt ratings to B+". MarketWatch.
  6. ^ Pagnamenta, Robin (8 August 2008). "Analysis: energy pipeline that supplies West threatened by war Georgia conflict". The Times. Archived from the original on 12 August 2008. Retrieved 21 September 2008.
  7. ^ Watkins, Eric (7 August 2008). "Fire-damaged BTC oil line could have 5-week shutdown". Oil & Gas Journal. Archived from the original on 31 January 2013.
  8. ^ David Goldman (8 August 2008). "Oil sinks to 3-month low". CNN.
  9. ^ Watkins, Eric (8 August 2008). "BTC export alternatives on hold as Russia, Georgia clash". Oil & Gas Journal. Archived from the original on 11 September 2012.
  10. ^ Harvey Morris; Roman Olearchyk; Catherine Belton (9 August 2008). "UN row flares over Ossetia conflict". Financial Times. Archived from the original on 31 July 2012.
  11. ^ "Russian jets targeted major oil pipeline: Georgia". Reuters. 9 August 2008.
  12. ^ "BP shuts in Georgia links". upstream. 12 August 2008. Archived from the original on 20 August 2008. Retrieved 21 September 2008.
  13. ^ "BP turns on Georgia gas taps". upstream. 14 August 2008. Archived from the original on 22 August 2008. Retrieved 21 September 2008.
  14. ^ Oleg Shchedrov; Margarita Antidze (12 August 2008). "Russia orders halt to war, Georgia skeptical". Reuters. Archived from the original on 19 August 2008. Retrieved 25 February 2024.
  15. ^ Sebastian Alison; Lyubov Pronina (26 August 2008). "Russia Recognizes Independence of Georgian Regions (Update4)". Bloomberg. Archived from the original on 17 July 2014.
  16. ^ Признание независимости Абхазии и Осетии ускорило обвал фондового рынка (in Russian). Lenta.ru. 26 August 2008.
  17. ^ Отток капитала из РФ в период боевых действия в Южной Осетии составил $7 млрд (in Russian). Interfax. 17 August 2008.
  18. ^ Nailya Asker-Zade (20 August 2008). Бегство капитализации (in Russian). Kommersant.
  19. ^ "U.S.-Russia Relations in the Aftermath of the Georgia Crisis". U.S. Department of State. 9 September 2008.
  20. ^ Yulia Latynina (12 September 2008). О ПАДЕНИИ РЫНКА И СЛУШАНИЯХ В КОНГРЕССЕ (in Russian). EJ.
  21. ^ Catherine Belton (9 September 2008). "Moscow facing lending crisis". Financial Times.
  22. ^ Catherine Belton (10 September 2008). "Moscow facing lending crisis". Royal Dutch Shell Plc.
  23. ^ Российский рынок акций открылся сегодня новым обвалом (in Russian). Echo of Moscow. 10 September 2008. Archived from the original on 13 September 2008.
  24. ^ Медведев упрекнул США в "подставе" на финансовом рынке (in Russian). Lenta.ru. 10 September 2008.
  25. ^ Фондовый рынок России стал самым худшим в мире (in Russian). BBC Russian. 10 September 2008.
  26. ^ Janet McBride (12 September 2008). "Russia wants "normal, good" investment climate-Medvedev". Reuters.
  27. ^ "Run on Russia". Wall Street Journal. 18 September 2008.
  28. ^ Stefan Wagstyl (13 September 2008). "Medvedev and Putin at odds on market fall". Financial Times.
  29. ^ "RUSSIA'S AGGRESSION AGAINST GEORGIA: CONSEQUENCES AND RESPONSES". U.S. GOVERNMENT PRINTING OFFICE. 17 September 2008.
  30. ^ Susan Cornwell (17 September 2008). "Russian markets paying price for Georgia action: U.S." Reuters.
  31. ^ Западные СМИ возложили ответственность за финансовый кризис на Кремль и Путина (in Russian). NEWSru.com. 18 September 2008.
  32. ^ Anders Åslund (18 September 2008). "Russia's Coming Financial Crash". Project Syndicate. Archived from the original on 20 October 2012.
  33. ^ "Russian stock market still shut after plunge: market official". AFP. 18 September 2008. Archived from the original on 19 September 2008. Retrieved 21 September 2008.
  34. ^ "Russian lessons". Financial Times. 20 September 2008.
  35. ^ Грузия не хочет вставлять клин между Россией и мировым сообществом, заявил Михаил Саакашвили (in Russian). NEWSru.com. 27 September 2008.
  36. ^ С жесткой критикой в адрес России выступил кандидат в вице-президенты США Джозеф Байден (in Russian). Echo of Moscow. 27 September 2008. Archived from the original on 1 October 2008.
  37. ^ Bridget Kendall (27 September 2008). "West looks to future with Russia relations". BBC.
  38. ^ Ellen Barry (27 September 2008). "A Tycoon Tweaks Putin, and Gets Away With It". The New York Times.
  39. ^ Andrey Illarionov (2 October 2008). Природа российского кризиса (in Russian). gazeta.ru.
  40. ^ Экс-премьер Эстонии Март Лаар об экономике послевоенной Грузии: "Чудо, что она не рухнула" (in Russian). NEWSru.com. 14 October 2008.
  41. ^ Израильтяне восстанавливают Грузию, которая уже "сильнее России" (in Russian). izrus. 20 November 2008. Archived from the original on 23 January 2009.
  42. ^ От редакции: Рубль и реальность (in Russian). Vedomosti. 21 October 2008. Archived from the original on 21 October 2008.
  43. ^ Russia's meltdown (in Russian). gazeta.ru. 24 October 2008.
  44. ^ Акции российских компаний названы самыми дешевыми в мире (in Russian). Lenta.ru. 27 October 2008.
  45. ^ "The Financial Crisis in Russia". Stratfor. 28 October 2008.
  46. ^ Лужков видит причины финкризиса в "раздутом" военном бюджете США (in Russian). RIA Novosti. 11 November 2008.
  47. ^ James P. Rubin (19 November 2008). "Red Herring". The New Republic.
  48. ^ Медведев: Мировой финансовый центр в Москве больше не актуален (in Russian). Grani.ru. 7 March 2009.
  49. ^ В России резко запахло сепаратизмом. Кремль создает свой «спецназ» (in Russian). URA.RU. 13 November 2008.
  50. ^ Леонтьев: единственный выход из кризиса - глобальная война (in Russian). dpmoney.ru. 13 November 2008. Archived from the original on 10 December 2008.
  51. ^ Kirill Sukhotsky (17 December 2008). Курс евро к рублю дошел до исторического максимума (in Russian). BBC Russian.
  52. ^ Fred Weir (10 December 2008). "Russians trudge ahead as economy tanks once again". The Christian Science Monitor.
  53. ^ ""Crisis" a word best spoken quietly in Russia". Reuters. 16 December 2008. Archived from the original on 16 December 2008.
  54. ^ Parmy Olson (24 December 2008). "Russia Frets Over Social Unrest". Forbes. Archived from the original on 2 February 2009.
  55. ^ Европейский эксперт: Путин - судьба России, и это вина Европы (in Russian). NEWSru.com. 18 December 2008.
  56. ^ Catherine Belton (15 January 2009). "Shift to dollar sees rouble plumb new low". Financial Times.
  57. ^ Catherine Belton (15 January 2009). "Shift to dollar sees rouble plumb new low". EURO2day.
  58. ^ Чистый отток капитала из РФ в IV квартале составил $130,5 млрд - ЦБ (in Russian). RIA Novosti. 13 January 2009.
  59. ^ Alex Nicholson (30 January 2009). "Investors Say Nyet to Putin's Ruble After Davos Talk (Update1)". Bloomberg. Archived from the original on 7 November 2012.
  60. ^ Кризис толкает ВПК РФ продавать военные корабли даже Грузии (in Russian). NEWSru.com. 15 January 2009.
  61. ^ Южная Осетия для России - чемодан без ручки (in Russian). BBC Russian. 3 March 2009.
  62. ^ Южная Осетия не восстанавливается на достигнутом (in Russian). Kommersant. 16 March 2009.
  63. ^ Минрегион: кормить Россию будут Москва и Санкт-Петербург (in Russian). infox.ru. 27 March 2009.
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