The Cold War may have ended decades ago, but relations between the U.S. and Russia have never fully recovered. In recent years, tensions between these world powers have been particularly strained, as the countries clashed on issues including democracy, missile defense, NATO expansion, and independence for Kosovo. Concerns of armed conflict and nuclear war are long gone, but mutual distrust and unease between the former Cold War opponents has remained.
Relations sank to a post-Cold War low during the Bush administration, but president Obama has made clear his intentions to “reset” relations with Russia. Recent events suggest that tensions may finally be thawing.
Obama Scraps Missile Defense System
Last week, Obama announced that he was abandoning plans for a missile shield in Poland and the Czech Republic. Russia, which perceived the plans as a threat to its security and a major hurdle to an updated Strategic Arms Reduction Treaty, welcomed the news. “We view this decision as a constructive step in the right direction that deserve a positive response from the international community,” said Russian president Dmitry Medvedev. Medvedev went on to note that the U.S. government now considers short and medium range missiles from Iran to pose a more serious threat than intercontinental ballistic missiles addressed under the plan originated during the Bush administration.
Russia Returns Favor On Iran
Following Obama’s concession on the missile shield issue, Medvedev responded at the U.N. General Assembly with a commitment to enact economic sanctions against Iran if Ahmadinejad doesn’t agree to scale back Iran’s rapidly-expanding nuclear program. U.S. officials have been pushing to create a united front ahead of an October 1 meeting with Iran in Geneva. Russian support is a key component of that support, and had been in serious jeopardy until very recently. “The Russian position is simple…Sanctions rarely lead to productive results,” said Medvedev after a meeting with Obama at the U.N. “But in some cases sanctions are inevitable.”
Cooperation in diplomatic efforts to freeze Iran’s nuclear program is a huge step forward for relations between the White House and the Kremlin.
Russian Billionaire Buys NBA Stake
Russian billionaire Mikhail Prokhorov recently agreed to invest $200 million in return for an 80% interest in the New Jersey Nets Basketball team, a huge first in American professional sports. If the billionaire receives approval from 75% of owners, he would become the first non-North American owner of an NBA team. Prokhorov made his fortune, estimated at nearly $10 billion, through his control of OAO Norilsk Nickel, a Russian mining company.
While this development isn’t nearly as important to relations between the two countries as cooperation against Iran’s nuclear ambitions, such a scenario have been completely unimaginable just two decades ago, an interesting indication of just how much things have changed.
Cold War Tactics Remain
Despite all of the progress made in recent weeks towards more friendly relations, recent events in Moscow were reminiscent of scenes that played out during the Cold War. A video of American diplomat Kyle Hatcher was recently leaked to a web site associated with the Federal Security Service, the intelligence agency that replaced the KGB. It has been suggested that the video, which seems to be an outright fabrication, was released through the web site after Hatcher rejected overtures to become a double agent. The incident is the latest in a long series of “honey traps” – attempts by Russian intelligence offices to entrap diplomats with sex for extortion or recruitment.
ETF Plays on Russia
There are a number of ETFs offering exposure to Russian equities and currencies. For additional updates on the ETF industry and actionable investment ideas for current news and events, sign up for our Free ETF Newsletter.
- Claymore/BNY Mellon BRIC ETF (EEB): Russia is included in the BRIC bloc, but generally given significantly lower allocations in funds focusing on this group of countries. Brazil (52%) and China (34%) account for the bulk of EEB’s holdings, with Russia accounting for only 3%. Other BRIC ETF options include the iShares MSCI BRIC Index Fund (BKF) and the SPDR S&P BRIC 40 (BIK).
- Market Vectors Russia ETF (RSX): RSX is one of the best performing ETFs of 2009, gaining more than 100% so far this year. Shares in RSX had jumped by about 3.5% this week before global equity market declines on Thursday. If relations with the U.S. continue to improve, the Russian economy could continue to benefit in the fourth quarter.
- CurrencyShares Russian Ruble Trust (XRU): This ETF offers exposure to Russia’s currency, which has seen a bumpy ride in 2009. XRU has increased by nearly 7% in September, but is still down slightly on the year.
Disclosure: No positions at time of writing.
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