RTX - Putin vs. Wagner: What does chaos in Russia mean for the markets?

2023-06-26 05:52:26 ET

Things are moving fast following a headline-provoking weekend in Russia, where an aborted mutiny by Yevgeny Prigozhin and the Wagner Group has shaken expectations about what might come next in the Kremlin's war in Ukraine. An armored Wagner convoy was only 120 miles from Moscow when a revolt was called off, with the paramilitary group shooting down six Russian helicopters and a command-center plane after seizing the military logistics hub of Rostov. Under terms of an agreement to end the crisis, Wagner’s 25,000 heavily armed troops won't face prosecution, while Prigozhin will be exiled to Belarus, though his days could be numbered there after threatening to storm the Russian capital in a "March of Justice."

Explainer: The bitter feud has been ongoing for months, with Prigozhin accusing the Kremlin of battlefield losses due to shortfalls in financing, weapons and even recruitment. Things took a turn for the worse on June 10, when Russia's Ministry of Defense ordered all volunteer detachments to sign contracts with the government. Prigozhin refused as it would deprive him of his power base and took his chances on a revolt instead of being forced into insubordination. Putin has also historically promoted rivalries in the ranks to prevent succession challenges, but this one seems to have backfired and could leave the Russian strongman's regime with some permanent damage.

"I don't think we've seen the final act," U.S. Secretary of State Antony Blinken declared. "We've seen more cracks emerge in the Russian facade. It is too soon to tell exactly where they go, and when they get there, but certainly, we have all sorts of new questions that Putin is going to have to address in the weeks and months ahead. Our focus is resolutely and relentlessly on Ukraine, making sure that it has what it needs to defend itself and to take back territory that Russia seized."

Markets are looking at the situation as a non-event for now , but traders are on edge should things morph into something bigger - like a full-out coup, uprising or even a civil war. Energy is likely the biggest sector that would be impacted, with Russia being the world's third-largest crude producer and a key supplier of natural gas to Western Europe. Even safe-haven gold barely caught a bid after the weekend's events, but based on past disruptions, shocks could roil everything from stocks to currencies and commodities pretty quickly if trouble ensues.

Defense sector: NATO allies will be thinking of the latest developments when considering new military funding or the supply of Lockheed Martin-built ( NYSE: LMT ) F-16s, which would upgrade Ukraine's firepower but could also escalate the situation with the ability to strike deep into Russia. The U.S. has already made several U-turns on supplying more advanced weapons, including heavy artillery , M1 Abrams tanks and the Patriot missile defense system . Things are taking on more importance as the Ukrainian military gets a long-planned counteroffensive under way and ahead of a NATO summit in Vilnius next month where Kyiv will press the alliance on stronger defense commitments.

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