Russian incursion felt far beyond Ukraine’s borders

While the beleaguered 45m-strong population of Ukraine anxiously awaits developments, following the Russian Federation’s illegal annexation of the Crimean peninsula, analysts are starting to model economic scenarios.

As a result of losing its Southern-most territory, Ukraine will face an immediate 3 per cent GDP hit, said RBS economist Tatiana Orlova, in addition to an expected 2 per cent drop in 2014, linked to the current crisis, despite a bumper crop harvest.

VTB and Sberbank –Russian institutions exposed to Ukraine – are likely to suffer, as will businesses affected by raised interest rates due to the central bank’s emergency measures to control the ruble slide.

Sanctions, including US and EU asset freezes and travel bans, are already creating waves in Moscow, with at least one company having changed its ownership. Restrictions to Russian firms’ access to capital markets are also likely to hurt financial centres including London and New York.

“After Ukraine signs the Association agreement with the EU, many Ukrainian companies will lose access to Russian markets,” and will have to improve quality of goods to succeed in Europe, said Ms Orlova. “The West needs to help Ukraine modernise its economy and survive the tough transition period.”

Much of the region’s industry is controlled by a small coterie of oligarchs, with a shifting network of Byzantine alliances. It is their fortunes, which will ultimately decide success or failure.

Gas and chemicals tycoon Dmytro Firtash, detained in Vienna under a US warrant, claims his arrest is “politically motivated” and “without foundation” and could place Ukrainian jobs in jeopardy.

Mr Firtash, who became wealthy through controversial gas trades between Ukraine and the Russian Federation, is the largest employer in Crimea. His $3bn (€2.2bn) in private holdings in Ostchem, Nadra Bank and RosUkrEnergo could all potentially be under threat, according to global intelligence provider Wealth-X.

“If you are on the wrong side of the political divide, you can find the situation there quite uncomfortable,” said Mark Estcourt, head of International Wealth & Immigration at London & Capital, which helps business owners relocate assets.

“Switzerland is a no go area for the oligarchs now that the secrecy has gone,” he said.

The wealthiest oligarchs have the most to lose, says Wealth-X CEO Mykolas Rambus. Uzbek-born Alisher Usmanov – Russia’s richest business magnate – has already lost $1.7bn of his close to $20bn fortune since the Crimea crisis began, said Mr Rambus.

But most have been working with private bankers to limit their exposure. “Many of the very wealthy in Russia and Ukraine have already taken precautions by diversifying their wealth outside their home countries,” he said.