Support Russia Insider - Go Ad-Free!

Paris Changes Everything: Putin's 'Strategic Blunder' in Syria May Be a Boon for Investors

The terrorist attacks in Paris may make it much harder for Washington to ignore Russia’s request for full cooperation in protecting Syria from ISIS

Originally appeared at Forbes

Remember when Russia’s entrance into the Syria crisis was a “mistake” and even a “strategic blunder”, according to Washington? Following Friday’s terrorist attacks in Paris, Russian air strikes on ISIS strongholds in Syria are no longer viewed as making the migrant crisis worse. Instead, they are viewed as a means to keep Syria from falling to the enemy. Under such dire circumstances, it will be hard to see European leaders agreeing to continue sanctions on Russia beyond July 2016. Russia has gone from foe, to friend.

“The Obama Administration will likely look to keep both issues separate,” says Brettonwoods Research founder Vladimir Signorelli about the Ukraine-inspired sanctions and the Syria crisis. “Still, Washington can’t ignore how ‘well Russia’s cooperation against ISIS will play in European capitals. Putin has an opportunity to build goodwill there, which will likely add heft and legitimacy to calls by nationalists and euro-skeptics to rescind Russian sanctions,” he says.

While January is likely too early to see the end of Russian sanctions, which began last year due to Moscow’s involvement in supporting separatists in east Ukraine, odds are high that Russia could see discussion on the rollback on sanctions soon. “Markets will discount that well before hand,” Signorelli says.

The Market Vectors Russia (RSX) exchange traded fund closed 3.9% higher on Monday as investors weigh this sentiment shift. In fact, Russian equities beat out the S&P 500, the MSCI Emerging Markets Index, and oil futures, all higher today.  Over the last 12 months, though, Russian investors have been hit by the double whammy of declining oil prices and sanctions, with equities down nearly 20% in dollar terms.

Prevailing winds are blowing in Russia’s favor.

Even the Washington-backed Free Syrian Army has shared intelligence on ISIS hideouts with the Russian Air Force . Dare Washington say it (and they won’t), but Russia is looking competent.

Obama and Putin discussed Syria at the G-20 Summit in Turkey this weekend. The two leaders are finding they have more in common on ISIS than not.

U.K. leader David Cameron said the gap with Russia over Assad is narrowing. Washington’s regime change policy is looking now as old as the think tankers in the Beltway that have been promoting it since 2001.

The potential for a single international coalition in the fight against ISIS, one that even includes Syrian leader Bashar Assad’s army in that effort, is now emerging as the next evolution in the fight against jihadis. Back in September, Putin told Charlie Rose in a candid one-on-one interview outside of Moscow that like it or not, Assad was the leader of Syria and that leader was the only guy fighting the Islamic State. And he was losing. Meanwhile, U.S. backed groups, some who share a similar ideology to ISIS, were fighting and weakening Assad.

On Monday, President Francois Hollande called for the U.N. Security Council to discuss a joint response to the terrorist attacks, the worst attacks in France since World War II. This follows agreement over the weekend between Obama and Putin to task the U.N. with negotiating a peace-deal between the opposition and Assad’s government.


Among Western nations, it is clear that the categorical rejection of allowing Assad any constructive role in Syria is breaking down. The rejection of Russia’s direct cooperation with U.S. and European forces may also be about to shift.

Former French president Nicolas Sarkozy said over the weekend that there cannot be two forces fighting ISIS in Syria, meaning one where the U.S. and Europe is on one side, and Russia and Assad are on the other. Look for the talking heads to go on the offensive in explaining how this is a bad idea.

In France, nationalists and anti-immigrant politicians like Marine LePen are leading in the polls for April 2016 elections. She has urged an immediate halt to migrant intake.

A state finance minister in Germany, Marcus Söder, said over the weekend, “Paris changes everything. The time of uncontrolled immigration cannot continue.”

It is easy to see how just one more jihadi bomb in the E.U. puts the passport-free Schengen travel regime in jeopardy within 22 E.U. countries. This suddenly becomes a security hole for Europe that could fragment the region and represents another headwind for the euro currency union, particularly in light of a more nationalist mindset in Europe, Brettonwoods Research believes.

With this in mind, any one seen as an ally in the fight against jihad will be a welcome voice in Europe.

For his part, Putin said on Monday that while bilateral relations with the West have deteriorated, a common enemy has helped. U.K. intelligence has helped Russian investigators with deciphering what caused the downing of a MetroJet passenger plane over the Sinai peninsula on Oct. 31.

“It is clear to me that we must work together to defeat this scourge of terrorism that is a threat to Britain,” Cameron told Putin. “It’s a threat to Russia. It’s a threat to us all.”


The European point of view on Russia may be drifting from Washington’s and this bodes well for both economies. Since sanctions, Russia’s economy has contracted by 3.5%. European companies like French dairy giant Danone, has been spending millions in the country in an effort to keep market share safe from retaliatory Russian sanctions on food exporters.

“It is difficult to fault Russia for its sense of timing,” says Jan Dehn, head of research at the Ashmore Group in London. “They got themselves inserted into the ISIS situation in Syria just weeks before the Paris attack. The demand for action is so strong now in the West that Russia is absolutely in a stronger position than it has been in a long time. But I don’t think the Syria situation will lead to the removal of sanctions, although it aligns the interests of Russia to the West,” he says.

Support Russia Insider - Go Ad-Free!

Our commenting rules: You can say pretty much anything except the F word. If you are abusive, obscene, or a paid troll, we will ban you. Full statement from the Editor, Charles Bausman.