As a global investor who focuses on the emerging markets, I generally consider myself willing to put money to work almost anywhere in the world there’s a return to be made. I say almost because Russia is the one country I make a point of avoiding.

As I’ve written in the past, Russia is a country where politics isn’t so much the “art of the possible” but a blood sport. The powers that be are generally willing to contravene their own interests, both social and economic, in order to settle a political debt with a rival.

One need only look to the case of Russian oil magnate Mikhail Khodorkovsky. While Khodorkovsky was arrested in 2003 on charges of fraud and tax evasion, it’s believed that the real reason for his arrest was his funding of political parties in opposition to Vladimir Putin. He was widely viewed as a potential challenger for the country’s presidency and, given his vast wealth as one of the richest men in Russia, he was a viable threat.

Khodorkovsky’s oil company OAO Yukos, then one of the largest in Russia, was driven into bankruptcy by back-tax claims and Khodorkovsky was recently released after 10 years in prison.

Russia’s invasion of Ukraine isn’t even that big of a surprise. Russia most recently pulled this sort of shenanigan in 2008, when Russian tanks rolled into South Ossetia after it voted to break away from Georgia. Then Prime Minister Putin justified the invasion by saying he was merely protecting the ethnic Russians in the region who were being subjected to a genocide, never mind the fact that no evidence of that was ever produced.

The Russian government has used the same basic line of reasoning to justify its recent occupation of Ukraine’s Crimea region. A peninsula jutting into the Black Sea and separated from Russia by only a thin channel of water easily crossed by ferry, there is a large ethic Russian population in the region where political sentiments are closer to Moscow’s than Kiev. Russia also has several military installations in Crimea, not the least of which is its naval base at Sevastopol and home port of Russia’s Black Sea Fleet.

But while the Russian government may be saying that it has acted in both Georgia and Ukraine to protect the interests of ethnic Russians there, the real reason is much more political. Following the Rose Revolution of 2003, the Georgian government had become entirely too pro-Western for Moscow’s comfort and with massive street demonstrations in the Ukrainian capital of Kiev, another former satellite seemed ready to tip towards Brussels.

That’s dangerous for Moscow. Beneath Russia’s vast expanse lies oil, natural gas and coal, gold, iron ore, nickel and a host of other minerals. But geographically speaking, Russia’s eastern steppe is virtually indefensible with few natural barriers to slow an invasion, a sad fact ably demonstrated by the French and then the Germans just in the past 200 years.

Both armies were ultimately defeated as much by the sheer distance they had to travel to reach Moscow and the difficult weather conditions on the steppe as by Russian military might. That underscores the Russian reliance on buffer zones – both Georgia and Ukraine are important border countries – for its defense, particularly in periods when its military is relatively weak. It’s also why Russian predations, using Sudetenland-like logic as justification, are likely to continue in the region.

I doubt the current Ukrainian situation will escalate into a hot war since Russia’s military is still in a post-Soviet rebuilding phase. Moreover, the Russian government can’t make the same case that ethic Russians dominate the rest of the Ukraine. Russia will likely be content for Crimea to remain a disputed region as long as it is allowed to maintain its military presence on the peninsula.

I also doubt that Western Europe will become much more exercised over the issue given the region’s dependence on Russia for natural gas. According to the European Commission, more than half of Europe’s energy consumption is imported from outside the region and about a quarter of that originates in Russia.

In January 2009, the Russians turned off the natural gas taps to the Ukraine over disputed contract prices and allegations that Ukraine was siphoning off gas meant for the rest of Europe. That shutdown lasted for two weeks during a bitterly cold winter spell and reverberated throughout Europe, forcing industrial gas users to suspend operations, electric utilities to find alternative fuels and some homeowners to shut off the heat. Gas prices also spiked by more than 30 percent that month as users scrambled to find new supplies.

This time around, natural gas prices across Europe have spiked by more than 10 percent and the region’s oil benchmark Brent Crude rose above $112 a barrel, its highest price since December. While Europe’s reliance on Russian gas has declined from nearly 45 percent a decade ago and it has developed alternative gas transit routes around Ukraine, it is still in no position to risk another Russian shutdown.

Given the region’s dependence on Russian energy, while Brussels will make a lot of noise about the illegality of Russia’s occupation of the Ukrainian Crimea and the need for sanctions, I doubt the EU will risk angering the Russians by taking particularly tough measures. So this will be one of those situations which will hang over international relations and further chill relations between Russia and the rest of the world. But the country is too large and too integrated into the global economy to completely isolate through tough economic sanctions such as those imposed on Iran. Meanwhile, its ouster from the G-8 which would only complicate diplomatic relations.

From an investment perspective, Russia will always be a regional wildcard a potential source of European political volatility. Any aggressive moves by Russia will also have a broad impact on the global markets, reflected by how emerging market stocks took their biggest dive in more than a month on the news that the Russians had moved into Crimea.

Aggression will also impact Russia though, with its ruble taking a dive of its own on the invasion and forcing its central bank to unexpectedly boost its interest rate to protect the currency. Yields on Russian government bonds also spiked by more than a half percent, so economic consequences alone will act as some check on Russian expansionism in the future.

But as Russia’s military becomes more confident in the coming years, it will continue to deepen its buffer zones and work to project its will on its former Soviet satellites.

Portfolio Updates

Thankfully our portfolios have little direct exposure to the Russian market. Mindray Medical International Limited (NYSE: MR) and Dr Reddy’s Laboratories (NYSE: RDY) both generate significant revenues there, but their products are unlikely to be affected by any potential sanctions on humanitarian grounds. That said, all of our holdings will likely be impacted by higher than usual volatility until the Ukrainian crisis reaches some sort of resolution.

Nonetheless, I’m not changing any of my recommendations as a direct result of rising tensions in Eastern Europe.