The Georgian Crisis: Impact on ETFs?

What is the likely impact of the Georgian crisis on ETFs and , in particular, country ETFs?

Russia is digging in rather than pulling out.

The US and Georgia continued to dispute Moscow’s claims that its troops were withdrawing and accused Russia on Monday of continuing to destroy key military and and the country’s transport network.

The claims came as the principal United Nations refugee agency said the country had been “practically cut in two” by a bridge’s destruction on the main east-west railway and roadblocks on major roads, delaying relief for thousands fleeing the fighting between Russian, Georgian and secessionist forces.

The New York Times reports that oil exports by rail from Azerbaijan have also been suspended, according to the oil company BP. ”The railway line between Baku and Batumi (oil port) is not usable at the moment,” said Robert Wines, a BP spokesman.

Georgian Railways said a bridge on the main railway across Georgia to the Black Sea was destroyed on Saturday, halting railway traffic across the country, a key transit route between the Caspian and Europe.

Georgia accused Russian forces of attacking the railway and a Georgian radio station reported on Monday that Azerbaijan had rushed engineers to the Kaspi region of Georgia to help mend the railway, its only oil export route across the Caucasus since the closure of pipelines in the region this month.

BP closed its 150,000 barrels a day pipeline from Baku to Supsa on the Georgian Black Sea last Tuesday because of fears of fallout from Georgia’s conflict with Russia. BP also temporarily shut down a second pipeline carrying Azerbaijani gas exports to Georgia and Turkey. BP said the pipeline to Supsa had not been damaged during hostilities in Georgia.

For investors, this may mean a reversal of the downward trend in energy prices thereby boosting energy ETFs and energy- based country ETFs. Also, watch out for Turkey (TUR) which sits on Georgia's southern border and is down more than 3% in early morning trading.

Watch the empty words of the European Union meeting today showcase its lack of will to stand up to Russia in any meaningful way. This will batter the region's markets, so EFZ may be your best friend near term.

Comments

[Thomas Smic...:]

Russia being Russia. I know we are all interested in making $$$, but there are times when standing up against a despot who allows companies into Russia to assist with development and infrastructure and then boots them out at his pleasure - and then attacks the first of what my be several independent former Soviet Union states using brute intimidation- should receive a few not-so-gentle kicks in the groin.

Courage, anyone? Or do we look away and count our pocket change.

2008 Aug 19 08:13 PM

[TRUE:]

Does somebody seen a destroyed bridge? This again promotions Republican lie in order to increase ratings McCain. Russia will not destroy the country that it will restore the same.

2008 Aug 20 08:55 AM

[fran:]

TRUE--

yes i saw the RR bridge destruction in the TV news[CNN, BBC,FOX et al. it is part of the infrastructure disruption plan to achieve one of several Russian goals. if you search the web news/photo sites you'll find. it won't be covered in SA.

2008 Aug 20 12:41 PM

[Igorsky:]

TRUE, (your name is a misnomer) I saw the blownup bridge both in print and in the news taken by newpeople on the ground. The Russians want to control the oil flowing to the West so they can manipulate the price. They have enjoyed seeing their coffers balloon with $140/bbl oil and want more. Besides, they enjoy seeing the West squirm helplessly as they twist balls. Power and control is the name of their game. They want their old Russian glory back just like the good old days.

This is why we need to drill for oil and do it fast. This is also why we should follow T Boone Pickets' lead and free up CNG for our vehicles. This is why we need to build more nukes to provide reliable electrical power. This is why we need to revive nuclear research on fast breeder reactors which can provide us with electric power forever.

2008 Aug 20 03:58 PM