Buttonwood’s notebook | Geopolitics and oil

The Red Army sell signal

When the Russian military crosses a border, oil soon plummets

By Buttonwood

THREE times in the last 35 years, Russian military forces have crossed international borders - in Afghanistan in 1979, Georgia in 2008 and the Crimea earlier this year. As Simon Derrick, the currency strategist at BNY Mellon points out, each occasion coincided with a peak in the oil price. And each incursion was followed by a very sharp fall in the price of crude (see chart).

Now of course, one can't say the Russian actions caused the oil price fall. However the oil price peaks, by boosting the economy, may have bolstered the confidence of Soviet/Russian leaders and thus encouraged the military action. The subsequent declines simply show that the Russian government has very bad timing. Indeed the weakness of oil in the 1980s (and the sapping effect of the Afghan conflict on morale) played its part in the downfall of the Soviet empire; this time round, the Russian economy is already showing signs of crisis. If the previous episodes are any guide, oil has a fair way to fall.

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