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Crimea’s Bear Case Scenario for Russia $SPX, $SPY, $DJX, $GAZ, $OIL

Crimea under military occupation appeased Moscow and voted to leave the Ukraine. As Mario Gabelli pointed out in a tweet on the weekend the following metrics look difficult for Crimea.

  • 90% of their water comes from Ukraine
  • 80% of their electricity comes from Ukraine
  • 60% of primary goods comes from Ukraine
  • Crimean tourism consists of 70% Ukrainian citizens
  • Moscow pays a rent of $98 million per annum for the use of Black Sea ports.
  • Crimea runs an annual deficit of $1 Bln which will now need to be covered.

Moscow will stop paying rent to the Ukraine and Ukrainian tourism to Crimea will disappear. Russian forces recently took over a natural gas pumping station just outside of Crimea. Someone realized that 100% of Crimea’s natural gas passes through Ukraine in one pipeline. Not sure if the Ukrainian workers are reporting for regular work. But eventually something will break down and need repairs. That will be interesting.

The Ukraine also paid approximately $1.1 billion in state funds for pensions and transfer payments to Crimea and residents. Moscow will have to cover the tab or else face charges of betrayal.

While the gas, electricity and water will probably continue to flow primary goods will probably dry up and Russia will need to replace.

Crimea does not seem to be economically viable. Their value is strategic from a military point if view. Warm water port for Russian navy has been a critical factor since Catherine the Great. The costs will continue to mount for Russia. Military activities are parasitic from an economics perspective. Russia is going to expend wealth and only have military prestige to show for it.

To finance Russia will need to continue selling Oil and Gas for hard currency.

George Gutowski writes from a caveat emptor perspective.