Geopolitical Risks Rise Following Crimea Referendum
* Waiting for Crimea: Although final results have not yet been confirmed, with
reports of a "record-breaking" turnout we expect the Crimean referendum will
deliver a result in favor of joining with Russia. Early “exit polls” claimed that 93%
voted for union with Russia. Following new legislation from the Russian parliament,
Crimea could become part of the Russian Federation in as little as a month.
* Only Disconnect: The G7 indicated it would not recognize the referendum, saying
in a March 12 statement that it would "have no legal effect". This underscores the
likelihood of continued diplomatic and trade tensions even if no further military
action takes place.
* Russia's Position: Kosovo As a Blueprint for Crimea: Russia has framed its
support for Crimean independence in parallel to Western support for Kosovo's
independence from Serbia, a move which was later enshrined in a 2010 decision by
the European Court of Justice. Senior Russian officials have also made
comparisons of Ukraine's importance to Russia as exceeding that of the Falkland
Islands to the United Kingdom. One compared the situation to the Comoro Islands’
secession from France.
* Lack of "Common Vision" Between Moscow and the West: World leaders are
likely to respond to Crimea joining Russia with harsh rhetoric and threats of tougher
sanctions, increasing headline risks. However, barring a dramatic escalation, we do
not at this stage foresee the imposition of sanctions against Russia beyond the
previously announced travel bans and asset freezes on an as-yet unnamed group
of individuals. Recent days have illustrated a focus from the US and EU on
supporting the new government in Kiev rather than tough economic sanctions
against Moscow, with broader sanctions likely to spark retaliatory measures that
could impact US and European companies. Even so, given Russia's view that
Ukraine's interim government is illegal, what the West regards as carrots for Kiev
may be construed as sticks for Moscow.