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World markets heaved a sigh of relief today (Tuesday) as Russian President Vladimir Putin appeared to soften his position on Ukraine, but don't look to politics for an explanation.
Instead, it was Ukraine's impact on the markets – namely Russian stocks and the ruble – that caused this sudden change of heart.
While many of the world's political leaders, including U.S. President Barack Obama, condemned Russia's de facto invasion of the Crimea region of Ukraine while threatening political and economic consequences, Putin had already taken that into account.
Remember, Putin is no novice on the world stage. He served as a KGB agent for 16 years in the old Soviet Union and has effectively run Russia since 2000.
His excursion into Crimea was well-planned and calculated. He knew the West would refrain from a military confrontation, and that he would face warnings and threats of sanctions. In Putin's mind, the strategic value of the Crimea – it's the home of Russia's Black Sea fleet based in Sevastopol – outweighed whatever actions the West might take.
But Putin underestimated the market reaction to Russian troops moving into Crimea and threatening to enter eastern regions of Ukraine, which has a majority ethnic Russian population.
Most investors in the United States and Europe were preoccupied with Ukraine's impact on the markets there – the Dow Jones Industrial Average dropped 153.68 points, or 0.9%, while the Euro Stoxx 50 index fell 3%.
But Ukraine's impact on the markets in Russia was far more dramatic.
Note: Where once the West worried about Russia's tanks, ships and planes, now that nation is part of the biggest threat of this century – cyberattacks. But that's also why cybersecurity is such a big profit opportunity…
Ukraine's Impact on the Markets Took Putin by Surprise
Putin's aggressive moves toward Ukraine had money fleeing Russia on Monday. The Russian MICEX index plummeted 11%, losing $60 billion in market capitalization – its worst decline in five years.
"The first risks investors are getting out of are Ukrainian and Russian risks," Paul Lambert, head of currencies at Insight Investment in London, told The Wall Street Journal.
Such big losses must have concerned even a thick-skinned authoritarian like Putin.