All Eyes are on Ukraine, but perhaps the market should look elsewhere – to Turkey?

Ukraine has kicked off and its risk-off for markets as the reality there being no effective Western response kicks in. The implications for markets are huge – especially from the global geo-political perspective as nations decide how to play this. Turkey is caught in a classic currency-debt crisis which is now an opportunity for Erdogan and threat for the West and China.

Blain’s Morning Porridge, 23 Feb 2022: All Eyes are on Ukraine, but perhaps the market should look elsewhere – to Turkey?

“Ra-Ra Rasputin Lover of the Russian Queen… oh those Russians”

Today: Ukraine has kicked off and its risk-off for markets as the reality there being no effective Western response kicks in. The implications for markets are huge – especially from the global geo-political perspective as nations decide how to play this. Turkey is caught in a classic currency-debt crisis which is now an opportunity for Erdogan and threat for the West and China.

Apologies for absence of Porridge yesterday, but following Putin’s de-facto annexation of the Eastern regions of Ukraine – we wait and see if that entails invasion of ground held by the legitimate Ukrainian Government – I decided to watch and listen instead.

The role of the Morning Porridge is not to tell you what you can read in the papers or hear on the media, but to make you think about what it might mean for markets – so bear with my thought for a moment, and I will get to it. The effect on markets is going to be critical – and hugely destabilising in terms of Geopolitical Debt. Its moving towards a buy Treasuries and Gold moment.

So, yesterday instead of rushing out a comment, I read through multiple email chains, watched way too much news, and spoke to people smarter than I about what this means.

Most folk told me what the West should do, including:

  • Impose harsh sanctions,
  • Emphasise NATO unity,
  • Immediately declare the Russian kleptocracy of oligarchs as persona-non-grata across the West,
  • Close Nordstream 2 (effectively done)
  • Build European energy security
  • Spend more on defence
  • And, the one I really like… Give everyone going to a Chelsea match a large Ukrainian flag to wave.

But the reality is what can the West do is all that matters ..

The brutal single reality is the West has no intention, and critically, no ability, to actually put “boots on the ground” to defend Ukraine.

That’s what Putin knows and acted upon. Russians understand reality. It’s a frank assessement of the reality that gave Putin the nerve to announce the re-establishment of his old, new Russian empire. The border, in his mind runs down the Eastern edge of Germany. Not in Ukraine. Not in Poland. Not in the Baltics.

Russians are patient.

  • 31 years ago the West was able to project power and put overwhelming strength into defending the Gulf. Iraq was crushed in a war seen as necessary in the West.
  • 40 years ago Britain demonstrated power projection, tactical and strategic guile, and a gallus can-do-it attitude by decisively and calmly humiliating Argentina’s land grab for the Falklands. It saved Margaret Thatcher and elevated her to her current semi-divine status (not where I come from!)
  • 45 years ago, the wargamers established Western Europe could defeat the Warsaw pact – if they were willing to use Nukes on the battlefields of Germany. They would have done so.


There is limited military capability and even less political ambition to project power into or out of Europe. The tanks might be the same ones that wheeled round Kuwait in 1991, but the American armies are shrunk. The Germans won’t fight. The British Army of the Rhine is effectively gone. The French – maybe? There is limited popular support – kids might fight imaginary nuclear battles in the metaverse, but no chance they’ll fight, die, bleed and suffer to hold muddy fields in Eastern Europe. The West is comfortable and flabby. Wake up Europe… a cry from the 1930s.

Whatever the West does in terms of making economic threats to counter tanks and real military assaults, none of it will deterr Putin. He’s focused on Asian markets for future Russian commodity and energy exports. Let’s not forget the Rodina is now much stronger financially after 12 years of Western easy money has restored its wealth and reserves.

And he’s picked his moment perfectly. Europe is in a post-Merkel dither. France in election mode. Biden looking a lame duck from November. Many European nations don’t see the threat. Yesterday, former President Trump called Putin’s timing “Savvy” and suggested that’s the kind of show of force the USA should be using on its Mexican border.

Whatever you believe about possible Russian interference on elections, or the Kompromat they may hold on western politicians of all hues, European politicians believe the USA is an unreliable partner. They expect Biden to lose. Should Trump, or a Republican beholden to Trump’s patronage, win in 2024 then Europe expects the USA to turn inwards, ignore Europe, and open the door to Putin’s further expansion into Eastern Europe. Poland, the Baltics, the Balkans… are all on his list.

What can we do about it?


The West could announce a massive rearmament programme – building tanks, guns, drones and planes, and training new armies… Let’s hope it happens, but in a time of post pandemic austerity spending, and with Green parties demanding a focus on climate change and defence cuts, agreement will be impossible. Europe can’t agree on much. While France’s heart will ultimately be found in the right place, it’s difficult to imagine the German traffic-light government agreeing to a more aggressive defence stance while its dependent on the Greens.

New defence spending may already be too late. The recent surge of Russian submarines into the Atlantic and Irish Sea highlighted the numerical inadequacy of the Royal Navies once excellent anti-submarine capabilities. After a Russian Sub deliberately snagged the towed-array sonar gear of an ageing British warship – which had run out of sonobuoys – the shipping lanes to Europe’s major ports were effectively undefended, making an American “reforger” reinforcement of Europe practically impossible.

Where does that leave us?

The West is compromised. Putin is on a roll. If we don’t spend on defence, it’s only a matter of time before the next state on his target list is under pressure. Ukraine was easy to let fall – not a Nato member. The next target will be – perhaps exacerbating cracks in NATO if there is no ambition/ability to resist. It could happen sometime after the Nov US elections when Biden is quashed. Putin may secure Ukraine and wait for 2024. Russia has time and patience.

What are the Market Implications?

The world is not just Europe. The rest of the World is watching and will pick sides. Last night I was chatting to a chum who suggested the place to watch is Turkey.

Turkey’s faces a classic currency and foreign debt crisis. It threatens to unravel President Erdogan’s “grip”. It will require a massive debt restructuring.. Which is where it gets interesting. Erdogan was quite willing to fall out with Trump over his purchase of Russian missile systems to make a point about its value. What price might he ask the West for “economic assistance” to allow Turkey remain a critical NATO member? It controls the Bosporus and the Southern Flank? Debt forgiveness? Better than an IMF negotiation any time.

Or maybe Turkey goes to China for assistance?

Many folk expect China to use the distraction of Ukraine to seize Taiwan. Maybe they’ll just watch and wait to see how it unfolds and look for opportunities.

The risk to China is not limited. China’s debt diplomacy on “Belt and Road” trade chains has been expensive. They are very aware that if Turkey is seen to get debt forgiveness from the west, that will encourage a dozen African nations to consider default on their crippling China debts, raising the prospect of a belligerent China seeking recovery – or losing “face”. So maybe it’s in President Xi’s interest to assist Turkey?

Ukraine is about Ukraine, but it’s also a potential trigger for further instability and crisis in Europe, and with wider implications around global debt and wider geopolitics. In times of rising uncertainty then it’s the Treasury market and Gold as the prime choices…

This is just a snap reaction to where this might play out. I’d be interested in reader views.

Five Things to panic about this morning:

Washington Post –  “Genius”, “Savvy” – Trump reacts to Putin exactly as you’d expect

FT – Ukraine crisis saddles Washington with Indo-Pacific crisis

FT – Russian Stocks higher as markets weigh sanctions risks

WSJ – Bearish Bets Against Market Are Surging

BBerg – Baillie-Gifford Woes Expose UK Pension Funds (Don’t say I didn’t warn you – over a year ago I commented that Baillie Gifford building a grandiose corporate HQ in Edinburgh was key signal to dump their funds!)

Out of time and back to the day job

Bill Blain

Strategist – Shard Capital



  1. from a reader by email:
    Your observation ref defaulting countries is spot on. Africa may well put China on notice in this regard. One might also expect in this tense atmosphere to see further revolutions in Sudan, Ethiopia, and indeed in South Africa itself, leading to a threat to gold producers and platinum. The seeds are already there – the EFF wants to grab all white owned property without compensation and may calculate that it can get away with an upheaval in the streets and especially in the sea ports. There is also an ominous silence in the extremist Muslim world, have you noticed? Mali (where the French are pulling out) , northern Mozambique, Somalia, Iraq. Like a pebble sending ripples in a pond, Ukraine sends its own message to potential flashpoints elsewhere. Carpe Diem.

  2. I found it interesting that Erdogan sent aid to Ukraine. Seems while everyone focused on Donetsk and Luhansk Putin has pulled off an Anschluss with Belarus. This maybe strategically more important. Having Putin’s Army in Belarus lets him avoid the long march across Ukraine. If he closes the Suwalki Gap, that 40 mile wide strip of land seperating Belarus from Kaliningrad, NATO has no land route to Baltic states!

    On the European energy dilemma, the US can produce more gas, we just have no way to expand LNG exports rapidly. Want coal? If we can find the miners we can ship more of that. Of course the UK could mine coal too if it had the will and could find the miners.

    • Mate – the UK government will not let us mine coal. I know. One of my financing projects is a coal mine in northwest Cumbria to produce high grade metallurgical coal to make steel, which we need for windfarms and other renewable power. But UK govt is happy we export carbon by purchasing steel from China and coking coal from Oz, and deny the creation of 300 well paid UK jobs. THe local area 98% supports the new mine.

  3. Provocative Porridge this morning!

    Are we to believe that Putin, Xi, Erdogan are such clever black hats to have devised world events as they are currently unfolding? Rather, if they are clever about anything, it’s that they don’t miss chances to enhance their grip on power. It isn’t extreme, as history has shown us time and again, that autocrats like Putin are capable of the most unreasonable of actions to maintain relevance. I think that is where we are.

    We can speculate about what Putin and Xi discussed in private at the Olympics. Was a deal negotiated where Putin provides a smokescreen (Ukraine) to divert the world’s attention from China taking Taiwan? These opportunists know that the flabby West can’t handle both crises at the same time. And, Xi would be beholding to Putin for such cooperation, would he not? There could be potential huge rewards for Putin if China decides to elevate the Russian economy and declare a partnership with Russia.

    I think your chum is onto something as to Turkey becoming a chess gambit to watch. Erdogan has already shown his lack of commitment to NATO with the Russia missile purchase. (Why wasn’t that a much bigger issue at the time with other NATO members? They should have been incensed!). An easy economic solution by China could easily win over the power-hungry Erdogan completely and severely fracture NATO. That’s a win for Russia and China and Erdogan. It will take some vision on the part of our unimaginative Western leaders to come up with a counter, one that unfortunately likely be much harder to implement than Russia/China’s potential moves. If the USA mid-term election returns Congressional power to Republicans (almost guaranteed at this point) Putin and Xi will have the keys to the candy store handed to them on a silver platter! And, Europe after a brief hope that Joe Biden could reverse the geopolitical damage caused by his predecessor, will have its worst feeling confirmed that America can no longer be relied upon.

    Gold…and bitcoin!

      • Possibly another way to look at this;

        As Russia invades the Ukraine, the west can make it very tough for them politically and through sanctions. It would also be an excellent argument for the western arms sales to go through the roof to the new freedom fighters of the Ukraine as Russia gets bogged down in another Afghanistan, but 10 times worse. It will completely take Russia out of the picture, draining their resources, not the Wests.

        It is possible that the US is hoping for Putin to do something stupid like this.. it will also make the Europeans become more responsible for their own safety, rather than riding on the coat tails of the US.

        For all of those who bemoan the US pulling out of Afghanistan, it was like ripping off a bandage. It is now again Russia and also China’s problem, due to their geographic location. It was not a sign of weakness (that would have been staying there), but a brilliant pivot in handing a mess to your enemies.

        Xi will be very cautious on his actions against Taiwan, given the above scenario, rather than embolden him. He will also be wary of sending his populations’ little emperors off to be killed in a war in Taiwan. Each male supports his parents and grandparents. There is no social welfare and if enough body bags come back, his grip on power will be very tenuous.

  4. Yes, Putin has scored a short term victory and there is little the West can – or is prepared – to do. However I believe his major long term objective is the dismemberment of the EU. For that he can wait because the Member States or at least major political (populist and extermist) parties are doing most of the work for him. Moscou will of course support these movements (Le Pen Zemmour in France) just like it supported Brexit and Trump. So, the EU Member States should answer Putin’s provocation by embarking on a determined effort to deepen EU integration which means: having a federal structure responsible for defence, foreign affairs, environnment, and notably extending the Eurozone to the EU 27 (as the treaty requires). This in turn will support and expanded EU budget financed by a EU fiscal base and increased joint financing.
    Though such a program is unlikely to surface because of constant Member State bickering, the challenge raised by Putin could just push EU public opinion to see integration as a better alternative to the dismemberment of the EU and fight the growing appeal of extermists. If successful this would be the biggest blow we could inflict to Moscou while simultaneously regaining some independance from the United States.

    • Paul, the key question: is there “the West” post-Brexit and post-Trump? What glue holds these nations together? Are you sure that Germans, Italians and French are still closer to Brits and Americans than they are to Russians?

      Back in the Cold War days, there was an impenetratable ideological East-West divide. Now there’s none. The world is to be realign according to the current interests of the actors rather than some ideological shadows from the past.

      • Are your serious?
        I would suggest the fundamental difference between Russia and Europe remains – the Europeans got rid of their kleptocratic dictators 77 years ago and embraced the rule of law and justice.. while Russia has not.
        Democratic Europeans is far more close aligned with the US and UK, than with Russia – which by its current actions has become the very-Nazi state it professes to hate and fought against.
        On every single level – personal freedom, consumption, wealth, health and happiness the divide between the West and Russia is startling and always in favour of the West.
        European and US democracy may be imperfect – but its a damn sight better than thousands of young Russians being put in Putin’s meatgrinder to serve his obscene goals and preservation of his personal power.

        • Bill, that’s a load of ideaological BS, sorry.

          Here’s the fact: UK’s and US’s closest friend and ally is Saudi Arabia – a country, where woman’s vote is 2/3 of a man and being outed as gay means a death penalty; a monarchy where it’s fine to kill your own kin to guarantee yourself the kingdom. A country build on a slave labour of Indians, Pakistanians, Africans and South-Eastern Asians.

          Their neigbour, another American ally, Qatar, openly admits that more than six thousand construction workers died during the preparation for upcoming Olympics – as we are in Ancient Egypt building pyramids.

          Yet, you open your borders and your coffers for their political elite (are there anyone but Saudis living aroung and shopping in Harrods these days?), and you support their war efforts.

          If you are fine with Saudis and the like, why Germans can’t be fine with Putin’s Russia? Besides, Putin, too, shall pass – but Russia will stay around for a while.

          • I’m allowing this comment through the firewall on the basis its so complicit in Putin’s crimes against humanity that it deserves a full audience so we can express our contempt.
            To justify the invasion of Ukraine on the basis the West is active with Gulf States really is scraping the bottom.
            I am currently in the UAE – and there are more Russians than any other nation. You can tell them straight away – skeevy, blingy, rude and arrogant.

    • Your basic premise that doing away with more nation states will somehow make a more cohesive union seems to me to be incorrect. The more this occurs, the more people hold allegiance to nothing. Indeed the current model is enough evidence of this. despite it appearing to have some unity it is more and more split between the productive versus the non-productive economies. The non-productive are able to just go on doing what they do to an even greater extent. Just amalgamating it all to make the books balance does not fix the societies.

    >A recent dinner in Washington suggests that a seemingly forthcoming visit to Turkey by Israeli President Isaac Herzog could be about more than putting an end to strained relations between the two erstwhile allies.
    >The Turkish president has since said he would like to resume talks with Israel on transporting Israeli gas to Europe. Europe’s gas supply could be in jeopardy if the West sanctions Russia in response to a potential Russian military operation in Ukraine. The sanctions could halt Russian gas sales to Europe.
    >Sanctions could also affect TurkStream, a gas pipeline that bypasses Ukraine by running from Russia under the Black Sea to Turkey, from where gas is pumped to Europe.
    >Turkish-Israeli gas cooperation would strengthen Mr. Erdogan’s bid to position Turkey as an alternative energy hub for Europe. Azerbaijan has said it was ready to supply Europe with emergency gas that would flow through Turkey should the Ukraine crisis disrupt Russian shipments.
    >Mr. Erdogan this week arrived in the UAE for a two-day visit as part of a regional balancing act in which various Middle Eastern states are trying to ensure that their differences and multiple regional conflicts do not spin out of control.

  6. Americans confuse defense spending with actual defense. Is the potency of our defense establishment as great as we tell ourselves? Aircraft carriers look impressive but as a single Exocet missile demonstrated in the Faulkland’s war, surface ships are vulnerable. And in the 21st century exceedingly so. It looks like we continue preparations to fight the last war, bankrupting and misleading ourselves along the way.

  7. I’ve got an idea you offer Russians under the age of 30 the opportunity to emigrate to the West to start a new life. I think Russia has 12 1/2 million under the age of 30. If you can get to the West you can claim your new life. That solves two problems the demographic time bomb and removes fighting men from Russia.

    • I’m one of this cohort, and there’s plenty more – there are ~150k Russian-speaking people in London alone (from Russia, Ukraine, Belarus, Baltics, Kazkhstan, etc.).

      Obv. you can’t absorb 12.5 mil, and even if you somehow do – modern armies do not rely on draft. It’s about the weaponry, not the numbers.

      Besides, for a white-collar worker in top-20-but-not-top-1% group, the overal quality of life and career opportunities in Moscow are much, much higher than in London, or Paris, or Berlin, or Amsterdam these days. Even poles now are getting back to Warsaw and Krakow because London is not what it used to be just ten years ago (and most parts of Germany are outright depressive even for ex-Soviets).

  8. Bill a very insightful and in my view accurate assessment. The body politic of the Western Nations (e.g. G20) does not have the people, the institutions, the skills and the acumen to address the challenges the World face. It is all about the next ‘soundbite’ in a news cycle that is maybe 24 hours long and what is needed are leaders to the mould of JFK’s book, ‘Profiles of Courage’ making the right decisions today to benefit us (the world) in the next and beyond generations.

  9. Great post, but what puzzles me is an implied unity of “the West”. I think there’s more angles to that. E.g. EU is going to loose some of their markets due to now-to-be-sure energy crisis is actually a very positive event for the post-brexit UK or cirisis-mode USA. And that’s exectly what we see: the land war in Russia is bad news for one part of “the West”, but brilliant news for the other. EU taking the hit from sanctions/conter-sanctions AND pays more for the energy AND accepts a wave of refugees while UK and US grab their core markets and do “thoughts and prayers”. Unless of course UK is ready to subsidise Germany’s industry and settle two millions of Ukrainins on the Island? Is there a political will and general support for that? If there’s any, I can’t see it.

    Germans and French can deal with Russia on their own just fine – EU and Russia need each other badly. And they most certainly don’t want to die for Taiwan. So why they need NATO, a tool of faded military haegemony of Pax Americana? It’s not that “Poland and Baltics would be next”. It’s EU leaving NATO and financing their own army – maybe allied with Russia, – interacting on their own terms with Russia, to go their own way, different from the Commonwealth and the US.

    The unity of “the West”, a temporary aligment of interests by very different parties – long outdated and shattered by Brexit, Trump, Fed’s endless money printing, etc. – is on the table here.

  10. Personally, I hope the US does not waste any more $ on military because of this. While Putin is taking advantage of the current situation, longterm Russia is weakening, economically and demographically, and I would rather spend money on transforming to a greener world. I am doubtful that Putin wants to take back the rest of Eastern Europe and would want to challenge an actual NATO member.

  11. The USA has been weakened, over a period of some 50 odd years through running chronic and increasingly severe Current Acccount Deficits. The new Economics said Current Account Deficits don’t matter. A chronic CAD tells you a whole variety of things about your economy – none of them good.
    – Your currency is over-valued relative to your productivity
    – Your economy gets stripped of its industrial base which itself results in a whole variety of bad things
    – you lose your middle class – that working core of every society that supplies both the necessary stuff
    to live comfortably and the fighting men to defend the place
    – unlimited government in terms of numbers and regulations to stop producers making stuff
    – the destruction means that the society loses cohesion. “The centre cannot hold”
    – Your education system gets destroyed as it is more and more aimed at non-productive occupations
    – Your nation loses sovereignty as more and more of your debt as, by definition foreigners will hold the
    – Worse foreign interests will own more and more of your mineral resources, farms and factories as they
    are holding all the spare USD.
    – Your people over-consume. There are no savings just debt. Further development requires foreign capital
    because there are no REAL savings. (note if you print the supposed capital it still ends up, finally, in the
    hands of foreigners as the money flows through the economy and is not saved)
    – Your main industries become lawyers, government, HR, retail shopping and entertainment, etc.
    – Your media reflects this and reinforces the structure. Real working people become the ‘deplorables’ who
    cannot think like we sophisticated city dwellers.
    The list could go on….
    This process has now gone on for three generations. Contrary to modern economic orthodoxy, It cannot simply be reversed by printing a few more trillion and ‘adjusting’ the markets. The rot is embedded deep in your society. The process of getting it out looks impossible. No ‘democratic’ government could ever get re-elected on policies that would even begin the process.
    The UK, Australia, New Zealand, and most of Europe have followed down this road of mangled willful stupidity. Our populations will now not even fight for our nation – even if we had the ability to arm them.
    We’re soft, lazy and stupid and easy pickings for any disciplined people.

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