Markets are Keeping an Eye on Russia

In late June, the Wagner Group, a Russian state-funded paramilitary organization composed of mercenaries, broke ranks with the Russian army, sending the Moscow leadership scrambling. Wagner’s leader, Yevgeny Prigozhin, briefly went rogue, threatening President Putin’s hold on power and the “special military operation” in Ukraine.

After President Lukashenko, a Putin ally, intervened, Prigozhin found exile in Belarus, and his followers had a choice. Join the Russian army, head to Belarus, or face the consequences of treason. Time will tell if the Russian leader will honor the deal that stopped the mercenaries from moving into Moscow and starting a civil war. President Putin is not likely to have compassion for the leader and his troops after a failed mutiny.

Meanwhile, markets reflect the economic and geopolitical landscapes. The failed attempt to challenge Russia’s leadership could be the first of many steps that spell the downfall of the Kremlin’s leadership, with widespread ramifications for markets across all asset classes.

The Wagner Group’s actions- A sign of discontent

• While the Wagner Groups’ brief coup attempt failed, it was the first significant challenge to the Kremlin’s leadership.
• Russian citizens are growing weary of the economic sanctions and fatalities impacting many families.
• The attempted coup could empower other dissident factions to unseat President Putin and the current Russian leadership.
• Russian discontent could lead to a civil war and revolution.

Instability in Russia poses a threat to the world

• Russia is not a leading economy and is ninth in population, behind Bangladesh and ahead of Mexico.
• Russia is the world’s largest country by land mass.
• There are no guarantees another Russian government will not be autocratic.
• In 2023, Russia owns the most nuclear weapons globally, with 6,257. The U.S. is second with 5,550.
• An insurrection that leads to factional leadership could put nuclear weapons in unstable hands. 

Russia is a critical commodity producer

• Russia is a top oil, gas, and coal producer and the most influential OPEC non-member, cooperating with the cartel on production quotas.
• Russia produces and exports precious and base metals worldwide.
• Russia is the world’s leading wheat producer.
• Russia is a leading fertilizer producer and exporter.
• Political instability in Russia could impact global raw material supply chains.

The bifurcation of the world’s nuclear powers

• Since early 2022, Russia’s alliance with China has bifurcated the world’s nuclear powers.
• Russia invaded Ukraine in February 2022.
• China intends to reunify with Taiwan.
• China is leading the BRICS countries to challenge the U.S. dollar’s role as the world’s reserve currency.
• Russia is China’s leading ally.

All quiet before a volatile storm

• S. stocks have been rallying, while bonds have declined over the past weeks.
• S. markets are focusing on the Fed’s monetary policy path far more than the geopolitical landscape.
• The current quiet could be the eye of an extremely volatile storm.
• Keep an eye on events in Russia, as instability would have far-reaching consequences.
• Be prepared and expect the unexpected in Russia, as the lack of transparency could be covering up significant political changes that are on the horizon.