Putin, Ebola and ISIS: Three “pathogens” roil stock markets

by Diane Francis

Economist cover on Crimea and Ukraine

This latest stock market carnage won’t see a bottom until three major existential challenges are contained: Ebola, ISIS and Putin.

The West African pandemic is frightening and the whole region may have to be quarantined before this is over. The biggest fear is that the disease gets into Lagos and launch a truly global pandemic, but so far Nigeria claims it’s disease-free.

Equally, the “disease” spreading quickly is ISIS. The numbers seem small, as with Ebola, but the hideous tactics of this vicious group are attracting the deranged from around the world. Even if only 15,000 are foot soldiers, it was all that Hitler needed to start the Second World War. That is the number of sociopathic brown shirts that the Nazis started with to create a reign of terror, silence opposition and take over the country. This is no different.

This is why Canada must help the coalition and it’s why recent votes against doing so by Liberal and NDP leaders and caucuses is parochial and predictable given their history of letting the U.S. do all the heavy lifting both at home and abroad.

ISIS members are the brown shirts of the Middle East on steroids because they have a land base and $1-billion in cash. Their beheadings have imposed a reign of terror in the region, just as the Nazis did, and their strategy of murdering innocent aid workers and journalists illustrates a new virulent strain of terrorism that is spreading exponentially.

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Another threatening “pathogen” is Putin who swaggers toward another currency collapse, a Black Swan event that may be catastrophic for all. This week Saudi Arabia’s commitment to drive down oil prices gives relief to the world economy overall, but will end up being the most effective and damaging sanction yet imposed against Russia. It also neatly sideswipes Iran, exporter of terrorism in Syria and throughout the Middle East.

Others are piling on Putin. Britain blocked an oligarch from completing a €5-billion (US$6.38-billion) gas deal in its jurisdiction. This represents the first shot fired across the bow of any Russian doing any business anywhere, demoting Russia from rogue to pariah state.

Germany has just officially fallen into a recession, in part due to its own sanctions against Russia. And The Hague’s decision to compensate Yukos Oil Co. shareholders has sparked lawsuits that could result in confiscation of Russian assets around the world.

All these events are roiling European markets and rattling Brussels because Putin is being cornered and is more dangerous as a result.

This week, he threatened to cut off all natural gas flows to Ukraine, thus cutting off 40% of natural gas supplies to Europe as a whole. His reason? Ukraine still owes Russian state gas giant OAO Gazprom billions for natural gas purchases and the flow will stop if Kiev siphons off gas for its own needs.

That forced Brussels to cobble together a Plan B for energy that will consist of increasing storage facilities to take natural gas from elsewhere, fuel sharing, fuel switching, development of new supplies, conservation measures and boosting capacity of domestic sources.

This may be the winter when Europe’s foolish dependence on Russia becomes damaging and the only way to prevent this is to shovel good money after bad into a failing Ukraine.

More damaging to the world is that Ukraine’s natural gas bills are suspiciously high. They are based on bookkeeping, and price gouging, by Russia and involve Ukraine’s natural gas intermediary where evidence of embezzlement, payments to phantom companies and gross over-payments have been unearthed.

In light of this, consider the following figures: In 2010 (latest figures) Ukraine imported 53.16 billion cubic meters of gas from Russia then re-exported 75% of that amount to the rest of Europe. That means Ukraine’s domestic consumption of natural gas stands at 13.29 billion cubic feet of natural gas to fuel a GDP of $182.3-billion, compared to Poland which consumed 16.38 billion cubic feet of natural gas for an economy of US$544.7-billion. Such figures purport that Ukraine for years has consumed 80% of the natural gas Poland has consumed with an economy one-third its size.

Also pertinent is that enormous volumes were bought by oligarchs in the eastern part of Ukraine, now occupied by Russian mercenaries. They “paid” huge amounts, then invoiced Kiev for subsidies that covered most of their costs. This has looted the country and is suspicious — reckless or both.

This is no longer about Ukraine, but about the fact that Europe is being held hostage.

Given these existential threats, it’s little wonder that markets dove and won’t recover until these three contagions are contained — Putinism, Ebola and ISIS. These concerns override other bearish factors such as Hong Kong protests, China’s slowdown and oil price shifts.

It could be a cold winter in Europe, a devastated West Africa, millions more displaced persons in the Middle East and chilly markets worldwide.