On 16th May, Russia and Ukraine held their first peace talks in three years. The proposal for discussion came after European leaders, Trump and Ukraine called for a 30-day ceasefire.
This article will cover the talks, as well as the potential impact they could have on markets, particularly European stocks, and energies like gas and oil, which have been significantly impacted by the invasion of Ukraine.
Prior to the negotiations
The peace talks were held in Istanbul, at the Dolmabahçe Palace on the Bosphorus. Expectations preceding the negotiations were fairly low, as Donald Trump, the US president, noted that a major breakthrough was unlikely until he had a chance to meet face-to-face with Vladimir Putin.
Putin was the one to initiate the meeting, suggesting that the two countries’ delegations meet in Turkey. Volodymyr Zelensky responded with an offer to meet in person but was denied. The Ukrainian president called this move disrespectful to Erdogan and Trump, noting that the Russian delegation lacked seniority, and that the organisation was shoddy, missing an itinerary and time of meeting.
Vladimir Medinsky, a senior aide to Putin, sat at the head of Russia’s delegation, stating that the Kremlin’s team had all the needed competencies. Notably, Medinsky also led the Russian side in the last direct peace talks that the two countries had in 2022. He also emphasised that the Russian side sees the current event as a continuation of the previous failed talks. The goal, he added, was to eliminate the conflict and achieve lasting peace through tackling the root cause.
Defence Minister Rustem Umerov was at the head of Ukraine’s delegation. Besides him, multiple prominent figureheads like foreign ministry, military generals, and heads of intelligence.
External views
US diplomat Marco Rubio shared a similar sentiment to Trump regarding the outcome. When NATO foreign ministers met in Turkey prior to the talks, he said that Putin and Trump would need to meet in person to achieve significant progress. Trump left the possibility of attending the talks open before retracting.
According to Rubio, it’s impossible to set a timeline for a Trump-Putin meeting at the current time. The US president was still overseas, and a more specific schedule would need to wait for his return. Trump did, however, confirm that he intends to set up a meeting.
Turkey’s foreign minister Fidan had a different view on the discussion. He called it a technical talk, which had the goal to set up a future meeting between Putin and Zelensky.
Russia also stated concerns regarding a ceasefire, stating that, while it’s prepared to end the war by diplomatic means, it’s concerned about Ukraine possibly using the ceasefire to rest its troops and bolster its weaponry.
The terms discussed
In order to achieve peace, multiple conditions were laid out as points of discussion. Like in previous discussions, Russia’s main request is for Ukraine to become an independent country and abandon its aspirations to join the NATO pact. However, Ukraine rejects this notion, stating that it would essentially mean capitulation.
The talks
There was not much ground covered during the negotiations, as Ukraine’s side called the demands Russia made unrealistic. The requests included multiple non-starters and non-constructive conditions. Among them was ceding land under Kyiv’s control and withdrawing forces from four regions, namely Donetsk, Luhansk, Zaporizhzhia, and Kherson. Russia claims these regions as its own, but fails to achieve full control over them. However, Turkish officials stated that this was mentioned in the context of a ceasefire, not as a direct request.
A Ukrainian source stated for CNN that the opposing delegation lacked a mandate to make important decisions. They held the notion that Russia is not prepared to make meaningful compromises that would end the war.
Some progress was made, however, with an agreed-upon prisoner swap. Both sides will exchange 1,000 prisoners, with other modalities in the works. Vladimir Medinsky stated that each country will also present its idea for a possible ceasefire after detailing it in writing. Lastly, he has added that Russia will consider a face-to-face meeting between the two leaders.
Ukraine and its allies believe that the Russian side is stalling, and is not serious about achieving peace. Zelensky, with German Chancellor Friedrich Merz, French President Emmanuel Macron, UK Prime Minister Keir Starmer and Polish Prime Minister Donald Tusk had a phone call with Donald Trump to discuss the talks held in Istanbul.
After the call, EU officials reiterated their position, calling Russia’s negotiation stance unacceptable. Zelensky added that Ukraine was prepared for the fastest possible steps for peace.
Possible market aftermaths
Friedrich Merz noted that a new sanction package is prepared and would likely be accepted, due to Putin’s refusal to meet in person. Historically, this has caused prices of assets like oil and gas to rise due to supply chain disruptions and increased demand pressure.
However, it’s clear that European markets are eagerly awaiting the end of the conflict. Since Trump’s announcement on 14th February, stating that the negotiations to end the war were imminent, the Dutch Title Transfer Facility (TTF), Europe’s primary gas benchmark, has shown natural gas prices shrinking by 14%. The hopes are that, after the conflict, Europe would start importing cheap gas from Russia once again, thus reducing prices.
Experts also note that this would ease inflation pressure across the board. In turn, forex markets may react, as they often do when shifts in inflation happen. It’s also theorised that the ECB could engage in sharper rate cuts, with Goldman Sachs stating that euro area inflation could drop by half a percentage point, from 2.5% to 2.0%.
A similar impact could be possible for European stocks
A combination of energy prices decreasing and consumer confidence and business investment rising could cause the market to grow as a whole. European stocks have already shown positive movement due to the US’ intention to aid in ending the conflict.
However, many European institutions have refrained from making forecasts. There is some concern that a deal will be struck over the EU’s head, thus requiring further military spending over concerns of a Europe-Russia war and straining economies, consumer sentiments, and businesses even further.
This could negate all the positive impact that energy price decreases would imply. Combined with Trump’s volatile decision-making, as well as the questionable goodwill of the Russian side it seems almost impossible to accurately predict what will happen until the situation progresses.
Penafian: This material is for general informational and educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked in this communication.
