If the Washington Post articles by Zbigniew Brzezinski on March 3 and Henry Kissinger on March 5 are indications of the kind of advice that President Obama is currently receiving regarding Russia's advance on Ukraine, then we are likely to hear more strong rhetoric and see some form of economic pressure brought against Russia by the West, but not a direct reigniting of the Cold War.
Kissinger counsels: "A wise U.S. policy toward Ukraine would seek reconciliation, not the domination of a faction." Ukraine should be treated something like Finland, he suggests. Because of Ukraine's strong ties to both Europe and Russia, Ukraine should stay independent, Kissinger says, but not be hostile to Russia.
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Zbigniew Brzezinski was the U.S. National Security Adviser from 1977 to 1981 under President Carter, and he is concerned that Putin's success in taking control of Crimea will encourage him to take other parts of Ukraine that also have heavy Russian populations. Brzezinski says that the West should privately convey to Putin that "the Ukrainian army can count on immediate and direct Western aid..." Of course, much of what the West eventually does depends on Russia's next move which is highly uncertain at this point.
On Sunday, March 16, Crimean residents are probably going to vote to secede from Ukraine under the watch of Russian troops and the move will ratchet up tensions even more between Ukraine and Russia. Where events go from there is anyone's guess, and the uncertainty is adding to nervousness to the grain markets, especially for corn and wheat prices.
As far as grain markets are concerned, the conflict has come at a good time, if there is such a thing. Winter wheat in the Black Sea region is about to emerge from dormancy, and the 2013 harvests of corn and wheat had plenty of time to be shipped before Russia's seized control of Crimea on February 28. Ukraine exports 16% of the world's corn and 6% of the world's wheat and, so far, the flow of grain has not been interrupted. Since Russia's advance, May corn has gained 36 cents and May Chicago wheat is up 56 cents. Not all of the gains are a direct result of the conflict, but the general nervousness over the situation has definitely made a strong contribution.
The bigger question, of course, is where events go from here. Different wars have had different effects on commodity prices throughout history. Sometimes the anticipation of war can scare investors out of the markets as it did in the aftermath of 9/11. At other times, war is bullish for commodity prices as it was in World Wars I and II. In this case, if serious fighting were to break out, it would likely be bullish for corn and wheat as it would become difficult to grow and transport crops in the Black Sea region. Will fighting erupt? I hope not, but it is a legitimate risk to grain prices. Or perhaps this whole scenario finds a diplomatic solution, and we look back a couple months from now and see what a good selling opportunity this was for wheat. Stay tuned.
Mr. Brzezinski's March 3rd Washington Post article at: http://wapo.st/…
Mr. Kissinger's March 5th Washington Post article at: http://wapo.st/…
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