Why Russian Stocks Crashed on Tuesday

What happened

Russia invaded Ukraine last night -- well, technically, it invaded Ukraine eight years ago, but it invaded a bit more last night -- and investors reacted immediately to the news by selling off Russian stocks Tuesday morning.

As of 10:05 a.m. ET:

• Russian tech giant Yandex (NASDAQ:YNDX) is down 6%.
• Telecom titan Mobile TeleSystems (NYSE:MBT) is down a similar 6%.
• Steel producer and iron ore and coal miner Mechel PAO (NYSE:MTL) has plummeted 9.4%.
• And online real estate classified advertiser Cian PLC (NYSE:CIAN) is leading the sector lower with a 16.2% decline.

So what

In a rambling televised address on Monday, Russian president Vladimir Putin laid out the case for why, in his opinion, Ukraine doesn't deserve to be a country. He eventually came to the point an hour in, declaring that Russia acknowledges the "Donetsk People's Republic" and "Lugansk People's Republic" -- two regions of Ukraine that Russia invaded and occupied with proxy forces in 2014 -- as "independent" nations.

And then he sent columns of armored tanks rolling into these new nations to ensure their independence.

International reaction was swift, with members of the United Nations Security Council denouncing the invasion and the United Kingdom, the United States, and the European Union all announcing new economic sanctions against Russia. Of particular note, this morning Germany announced that it is suspending approval of the $11 billion Nord Stream 2 pipeline that Russia built in order to bypass Ukraine when piping out natural gas to sell to Europe.

Image source: Getty Images.

Now what

What does all of this have to do directly with Yandex and MTS, Mechel and Cian? That remains to be fully seen.

The Western nations that announced sanctions against Russia last night and this morning, targeting primarily Russian banks and high-net-worth officials and oligarchs with direct ties to the occupied Ukrainian regions, have indicated that more sanctions are forthcoming. The full brunt of the sanctions -- up to and potentially including delisting Russian stocks from US exchanges, or even cutting off Russia and its companies entirely from the international SWIFT banking system -- probably won't be felt unless and until Russian troops move beyond the occupied territories to attack other parts of Ukraine.

That being said, it's looking more rather than less likely that those extra sanctions will soon be deployed, with potentially devastating consequences for US-listed Russian stocks. In yesterday's speech, Putin was far from conciliatory, practically growling his threat into the camera: "You want de-communism-ization [in Ukraine]? Very well, this suits us just fine. But why stop halfway? We are ready to show what real de-communism-ization would mean for Ukraine."

It seems the war that started with Russia's invasion of Crimea in 2014, that expanded with the subversion of Donetsk and Lugansk later that year, and that expanded with yesterday's arrival of armored troops has only just begun.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends Yandex. The Motley Fool has a disclosure policy.