Is the Red Bear Rising again? We promised a few extra thoughts on what's going on in the Caucasus yesterday. Here they are. Investors should take note that Russia's Grand Geopolitical Strategy is resource based (energy and metals). This leads us to at least three insights, which could, of course, be wrong. But here they are anyway.
The balance of power in the world has shifted to resource producers (because of relative scarcity) and not consumers. You see a mini version of this in China (an iron ore and coal consumer) and its steadfast objection to a Rio Tinto (ASX: RIO) - BHP Billiton (ASX: BHP) merger (Aussie resource producers). The merger, from China's perspective, would create the so-called OPEC of Iron ore. If pricing power shifts to the producers, so does a greater share of the profits. Profit margins on Chinese steel would go down and the cost of steel-essential to China's great industrialisation-would go up.
Second, we see that in the execution of this strategy a resurgent Russia asserting itself against former Soviet territories and controlling all the energy corridors to Europe from Siberia and the Caucasus-you have a potential floor in energy prices. This will scare the heat and daylight out of natural gas consumers in Europe. But it also puts a premium on non-Russian energy projects, which investors might want to consider owning. Hello North West Shelf.
Finally, symbolically (along with the hosting of the Olympics by an authoritarian capitalist State) this indicates the end of benign globalisation and the beginning of a bull market in State on State warfare over resources. It will be a much darker, competitive period of economic history. Not quite a New Dark Ages. But that would be the worst-case scenario.
The good news in all of this? You can do something about it! The resource sector has been pounded so much recently that world-class projects are selling at pretty significant discounts.
Dan Denning
The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- Invest in China’s Geeks and Guts
- Australia’s Next Big Export Industry
- America’s Next Great Commodity Boom
- The Saudi Arabia of Coal
- The Rising Tide of Resource Nationalism
About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by Coffee Addict on 12 August 2008:
The market may be underestimating the significance of the Georgian/Russian conflict and the spill over effect this conflict will have on Middle East politics.
Key issues include the apparent (or alleged) participation of US advisors in the attack by Georgian troops on Tskhinvali, the direct targeting of the Russian battalion there, the deaths of 1600 ethnically Russian civilians in this raid, the alleged provision of 11 tonnes of materiel by the US to the Georgians and the chastisement of Putin by Bush in Beijing.
I am not taking sides and I don’t know anything about the provocation. I have however observed how Putin thinks, works and reacts. He will be livid and he will want the Georgians and their allies smashed.
Unless Medvedev can hold it all (and Putin) together I will expect to see a major blitzkreig style of offensive that will go all the way to the site of a levelled Presidential Palace in Tbilisi. Current actions by the Russian 58th Army is only the beginning.
Comment by Ross on 12 August 2008:
What did Condi and Stephen Smith talk about in Perth? Was it Rudd doing his mission to South Korea or was it Ossetia? We put some signaler trainers into Pakistan but that wouldn't rate would it? At least it wasn't Iran .... but in any case being a mate of the US is getting to be a total drag. Too many guns and not enough dollars is a dangerous cocktail. All we need is McCain's temper and down hole festered hatred of the Russians .. but the alternative is an Obama that looks less predictable and equally reactionary. I'd rather Australia be talking about new alliances and friendly rivalry with the likes of Brazil that have no army. And putting Worley Parsons into the field in all the places the US has alienated. But if the Americans can't afford to compete to buy it on the open market they show every sign of using surrogate crims to annex anything that makes it onto Cheney's mates pinboard ... You wouldn't sit in Cuba near a sugar farm for quids these days.
Comment by Jason, Bondi on 16 August 2008:
Russia "The Childless Empire" where-the-death-rate-is-higher-than-the-birthrate, will be a temporary "empire". Imagine it in the year 2030. The all conquering Russian Army charging accross the rest of the world, ruling Europe with an iron fist. I can see it now...General Oldinov waving a laser sword in one hand and a walking stick in the other as he orders his (old) men "over the top" for (grand)Mother Russia. The troops of the Russian Army in 2030 take two hours to clear the trenches amonst moans of "My arthritis is so bad I can't hold my gun" and "Oops, my chlostomy bag just fell out."
No offense but Russia has some SERIOUS DEMOGRAPHIC PROBLEMS it needs to urgently attend to, as does America and its allies.
Even now as they fight the Georgians over control of "Elektra King's" pipeline, they are tossing away there shrinking youth.
More like the "Rise of the OLD Bear". (Although I must admit, this current plot by "Mad Vlad" reminds me of a James Bond film).