We need to talk about Ukraine.
We started Aura because we believe in creating a welcoming, non-judgmental space where people can be free to imagine, design, and finance their best, rich lives. We recognize that the ability to imagine a better future is a privilege. One that evaporated overnight for millions of Ukrainians when Russia invaded their country six days ago.
We are a financial wellness platform dedicated to bringing you the news you need to get invested, increase your confidence, and take control of your financial future. Today, we’re going to talk about how current events shape our global sense of security, how fake news and misinformation is being used to justify an unprovoked invasion, and give you a brief rundown on the ongoing Russia-Ukraine war.
What is going on?
Ukraine is fighting against Russia’s unprovoked invasion and turning toward Western Europe, the U.S., and the world for support.
Modern-day Ukraine was officially established in August 1991, four months before the official dissolution of the Soviet Union. Ukraine started saying goodbye to communism and began the transition to capitalism culminating with a 2008 request to join the North Atlantic Treaty Organization (NATO). Russia is very anti-Ukraine (or any other neighbors) joining NATO and has consistently interfered in Ukrainian affairs to stop Ukraine from building and strengthening alliances with Western European powers.
Although George W. Bush supported Ukraine’s application, France and Germany opposed it after Russia expressed extreme displeasure. NATO offered a compromise – a promise that Ukraine could eventually join NATO, but no clear path forward for doing so. In 2009, Gazprom, the state-owned Russian gas company suddenly stopped pumping gas to Ukraine after failed negotiations on gas prices spurring a crisis that extended to many central and eastern European countries, including many NATO allies like France and Germany.
Yesterday, President Zelenskyy received a standing ovation from the European Parliament after delivering an emotional plea for the EU to accept Ukraine’s membership application. The EU still depends on Russia for natural gas today.
Why is this happening?
For more than thirty years, modern-day Ukraine has straddled the line between the West and a Russian-style kleptocracy. Ever since Ukraine voted to leave the communist Soviet Union in 1991, Russia has become increasingly paranoid about Ukraine’s embrace of capitalism and the possibility of Ukraine joining the European Union and NATO. To prevent Ukraine’s westernization and preserve its influence in the region, Russia consistently medled in Ukrainian affairs including rigging elections, poisoning politicians, and cutting off natural gas exports to Ukraine and other European countries. But things really escalated in 2014 when Russia illegally annexed the Crimean Peninsula and spurred unrest in Luhansk and Donbas.
What is the significance of Crimea?
In 2014, days before he was due to sign an association agreement with the European Union to bring Ukraine into a free trade agreement, pro-Russian president, Viktor Yanukovych, announced he would not sign the agreement citing pressure from Russia. In response, Ukranians launched a mass protest against the government calling for Yanukovych to resign. More than 100 people died during the bloody protests. Facing impeachment, Yanukovych fled to Russia. Putin declared Yanukovych’s ousting an illegal coup. Hours later, armed Russian soldiers showed up at security checkpoints in the Russian-speaking Crimean Peninsula.
In March 2014, while under Russian military control, the Crimean parliament voted to secede from Ukraine. The U.S. and European allies impose sanctions on Russia and still refuse to recognize Russia’s annexation of Crimea. The illegal annexation of Crimea marked the first time a European power used military force to seize and occupy another country’s territory since World War II.
Since 2014, ongoing violence has plagued the Ukrainian region of Donbas. Russia has repeatedly engaged in cyber warfare including a 2016 attack on Kyiv’s power grid causing a major blackout, a 2017 attack against the National Bank of Ukraine and the country’s electrical grid, and a 2022 attack on Ukraine’s government websites. Russia’s increasing aggression has been pushing Ukrainian public sentiment toward westernization and increased support for Ukraine to join the EU and NATO.
In 2019, President Zelenskyy is elected. He campaigned on the promise to make peace with Russia and end the violence in the Donbas.
In 2021,100,000 Russian troops appear on the Ukrainian border. President Zelenskyy asks NATO to put Ukraine on a path to membership.
So What’s Happening Now?
Putin is continuing to spread misinformation to justify the invasion because he believes Ukraine and Belarus (and several other former Soviet Union countries) are within Russia’s zone of influence. Whether because of personal religious motivations, a desire to restore the Soviet Union, or other historical reasons, Putin does not want his neighbors joining NATO, forming, and strengthening alliances with the West.
Whatever the motivation, Putin may have overplayed his hand. The Russian economy is currently spiraling into crisis. Western powers have acted with unprecedented speed to freeze Russian assets. Even historically neutral Switzerland joined the EU’s sanctions against Russia.
How does this affect the world?
Geographically, Ukraine acts as a buffer between Russia and NATO countries. NATO was created after World War II to “safeguard the freedom and security of all its members by political and military means.” Ukraine has been attempting to join NATO for years, but Russia views the inclusion of any border countries in NATO as an existential threat.
In December 1994, Ukraine signed the Budapest Memorandum and agreed to trade away its nuclear weapons (the third largest stockpile at the time) in exchange for assurances from the other three signatories – the U.S., U.K., and Russia – to “respect the independence and sovereignty and the existing borders of Ukraine.” In June 2020, Putin endorsed a new “deterrent” strategy permitting the use of nuclear weapons in response to a “non-nuclear attack on Russia that threatened its existence.” Belarus, a Russian ally, recently voted to renounce its non-nuclear status, which would theoretically permit Russia to bring nuclear weapons back into the country. While this doesn’t mean nuclear war is imminent, it does mean that uncertainty is in the air and with great uncertainty often comes great volatility.
How does this affect the market?
The conflict is a threat to globalization. In response to the Russian invasion, the country has been removed from the SWIFT network, their stock market has plummeted around 40%, and countries around the world are ending trade agreements with them. This means that Russia is opting into an isolationist regime, which is cut off by the rest of the world.
Putin was planning for this and has been building a financial war chest to preemptively prop up the ruble since 2014. Russia’s central bank has been returning deposits to Russia and purchasing gold to try to make itself more resilient against global isolation, but Putin underestimated Western countries’ ability to act decisively to cut off the war chest. Since sanctions were announced, the value of the ruble has plummeted 30% and is now worth less than a cent and the Russian Central Bank more than doubled interest rates to 20% prompting fears among the Russian people about what this means for their savings and their country’s financial future. Yesterday, Putin reportedly called in his economic advisors to seek an alternative strategy to prop up the Russian economy.
While the majority of the world is against the invasion of Ukraine, many countries risk economic fallout from imposing sanctions against Russia. For example, the EU still depends on Russia to supply nearly a third of its natural gas needs. If Russia responds to the sanctions by cutting off gas exports at a time when gas prices are already surging, EU states will face additional pressure to find other sources potentially impacting global energy prices. Russian Oligarchs around the world are being asked to pre-pay their bills and even the Chelsea soccer team owner, Russian Oligarch Roman Abramovich, ceded control of the team to a foundation.
This post was written to provide historical context and summarize the economic impact of the ongoing Russia-Ukraine war. However, we cannot ignore the multiple accounts of discriminatory acts against Africans seeking to leave Ukraine at the Polish boarder and the media bias in the coverage of events unfolding in Ukraine. While the larger context of global systemic racism and bias in the media are beyond the scope of this explainer, we firmly oppose discrimination in all forms.