Playing Crimea: Should You Be Shorting Oil And Gas Stocks Right Now?

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James Dennin, Kapitall: Russia's annexation of Crimea is creating headaches for investors in oil and gas stocks worldwide.

Russian President Vladimir Putin didn't wait long after his Olympic Games to start stepping on Western toes. Less than a month after Sochi's resolution, Putin's annexation of Crimea seems all but complete

Some Background

Located on a peninsula between Russia and the Ukraine, Crimea is a gateway between East and West. It's where FDR, Winston Churchill and Stalin met to discuss post-WWII boarders, and in the wake of the Cold War it became the gateway between increasingly liberalized former soviet republics and mainland Russia. 

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Its mostly Russian population voted overwhelmingly to approve incorporation with Russia last week. That would have made this issue pretty cut-and-dry. Crimea is mostly Russian, and wants to be subsumed by Russia. Let Democracy do its thing, right?

Except in 1994, the US and the UK signed a treaty pledging to help preserve Ukranian sovereignty and the integrity of its borders. Which basically means that on one hand you have the will of the Crimean people, and precariously balanced on the other hand are most of the precedents that make up international law. 

No wonder people are having trouble figuring out what to make of it.

Read more about investment plays on the crisis in Central Europe.

Investing Ideas

Russia's not a manufacturing economy like China, nor are they a big service or technology innovator like the US. Their economy is mostly built around exporting raw-materials and huge amounts of oil and gas to foreign buyers.

This makes finding value plays on the Russian stock market hard, as so much of Russia's economy relies on commodities prices which are by nature unpredictable. If you thought that sanctions were likely to intensify you could look for short opportunities in Russia's stock market and currency, but the valuations there are already super low.