It is important to keep in mind that the terrible conflict in Ukraine is not happening in a vacuum, of course. Quite the opposite, in fact.

From a global and financial markets point of view, the knock on consequences of Putin's senseless act and our reaction to them is far more significant than the conflict itself.

It is the punch and counter punch at the policy level and the uncertainty about what could be next that is - for now - causing the vicious moves in so many asset classes at the moment.

That volatility is jarring. Oil has swung over $10 in the last few days of the week. Many other indices had similarly jumpy performances. The NASDAQ tech index was down over 3% on Thursday and then closed up over 3%.

One terrible grotesque decision has created a host of large unknowns with powerful ramifications depending of what occurs next. There are many known unknowns.

• Will Russia be completely forced off the SWIFT banking network?

• Will their energy pipelines be canceled? How?

• What about Russian state assets in the West? Including their reserves?

• And most importantly, will Russian oligarchs still be able to buy fine Italian leather goods? Can you still get Moncler in Moscow?!

• And what about summering in Dalmatia or Capri or Cannes?

These are the critical questions that confront us and especially Europe. A lot of the immediate options are pretty bad.

Nowhere is this more evident than in global energy markets.

Our predicament is pretty simple. The West - and not just Europe - is incredibly dependent on Russian energy supplies as well as a host of other commodities.

Vladimir Putin and his regime have spent the last 8 years preparing for this moment. It may still prove to be foolhardy act but they are at least ready for it. We are not.

This limits our options for countermeasures severely. The reason?

Because our vulnerabilities are not small or insignificant.

Exhibit A:

On the day that Russia invaded Ukraine, the US bought over 1M barrels of Russian oil. This was also true the day after and it will likely continue to be the case for the foreseeable future.

The US produces around 11M barrels of oil a day and consumes around 18M. 1M of that typically comes from Russia. Yes, there are substitutes but not immediately and also not without the price rising further.

​It isn't "just" Europe that needs Russian energy.​

Exhibit B:

During the height of the fighting on Thursday and Friday both the Russian energy suppliers and Ukrainian pipeline authorities issued surreal and almost cheery updates that natural gas was, indeed, still flowing from Russia via Ukraine to Western Europe and no one's orders were yet delayed.

You can see a pretty representative map of Ukraine's pipelines below. The reasons why this is occurring get a bit complicated but the key takeaway is that, incredibly Europe will likely buy MORE Russian gas in the days ahead thereby (directly) funding an illegal and atrocious war on their continent.

And remember, they will be paying out the nose to do so.....

Exhibit C:

The sanctions announced on Thursday by the Biden administration and over the weekend on the SWIFT banking network are significant. There is little doubt about that. And this was very likely only the beginning.

But Russian oil and gas producers and suppliers, largely come out unscathed and were not targeted directly. The lifeblood of the Russian economy, military and Putin’s warchest are, at least so far, very much intact.

Our business is flowing to Russia this week and, for now, will likely be flowing next quarter and even next year. Incredibly, a lot of this will be flowing across Ukrainian territory while a war rages around them:

If nothing changes, by our admittedly rough calculations, the EU, UK and US will buy in the next 24 hours ~3.5m barrels of Russian oil and another ~275m cubic meters of gas. That is well over $700 million at the current market prices.

The amount of Russian gas bought through Ukraine jumped nearly 40% on Thursday, the day of invasion. And rose by another 28% on Friday according to Bloomberg.

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This makes for tough reading. It is difficult enough to curtail let alone deter an authoritarian regime if you are not able to demonstrate sufficient willpower to match if not exceed their own determination.

In the specific case of Vladimir Putin's Russia, the will to confront him may require Western democratic societies and economies to suffer far higher energy costs for far longer than we might be comfortable with.

It will be VERY interesting to see how Western democratic countries and political systems square this circle.

Are you yourself willing to travel cheaply, spend more on heat and electricity and have less disposable income?

We are not just trapped by our energy dependence and lack of spine however. We are even more problematically cornered in our effort to confront Russia by our own macroeconomic condition.

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