Global markets have yetto react to the rapidly increasing Russian military presence at the Ukrainianborder and risk of invasion. Energy and gold commodity prices appear to be morea function of general economic demand and supply chain bottlenecks rather thanpotential outright shortages with a threat of military conflict in Europe.

As negotiations betweenthe US/NATO/EU and Russia seem hopelessly deadlocked, specialized militaryequipment is already in transit from Russia’s Far East to the Ukrainian borderaccording to US officials. The scale of the Russian military build-up, anexpensive endeavor, goes beyond large scale war games or maneuvers. In myopinion, Russian incursion into Ukraine is now a matter of when rather than ifas well as how much territory Russia will occupy.

Global Markets’ IcarusMoment

For the aforementionedreasons, sadly, regional European war is the ideal investment environment forshort-sellers of equities in general and bullish for investors in energy commoditiesas the global markets will experience an Icarus moment – severe sell-off. Russiaon war footing is a “gift” for those market doomsayers whose advocates haveproliferated exponentially these past months.

Soaring Energy Prices

For the past decadeRussia has been the dominant supplier of (hard) coal, crude oil, and natural/liquifiedgas to the EU. Should Russia reduce or cut-off the export of these commodities,the collective of remaining suppliers would be hard-pressed to make up theshortfall particularly on short notice even without supply chain challenges.

A convenient excuse Russiamay provide for energy export reductions is the convenient present-day standby excuseof supply chain issues and increased domestic consumption. Diabolically they canresort to providing contractually the minimum energy exports required. For thisreason energy prices will spike particularly during mid-winter.

The following chart providedby Eurostat entitled Main Origin of Primary EnergyImports, EU 2009-2019,articulates the EU’s enormous dependency on Russian exports in key commodities:

With respect to2020-2021 year-on-year commodity pricing specific to Russia’s exports to Europeexcept gold), the following information from the World Bank Commodity PriceData (The Pink Sheet) indicates a sharp one-year price rise. A militaryadventure into Ukraine will super-charge them:

Gold

I believe that goldwill outshine bonds and cryptocurrencies as the historic and most liquid‘flight to safety’ investment. As the invasion commences, gold may experience abrief selloff as investors scramble to cover their brokerage margins during arapid market drop before ascending to profitable levels.

The Post-Invasion Landscape

In the aftermath there’sa level of uncertainty with respect to the duration of Russia’s occupation and subsequentpost-invasion negotiations with the US/NATO/EU which will determine how muchfurther these commodity prices will rise.

The US and EU havethreatened draconian sanctions in addition to the present-day ones. HoweverRussia has comfortably weathered the present-day series of sanctions and has undoubtedlyprepared for such contingencies to weather more severe and longer lasting sanctionsin their war game scenarios.

According to the WorldGold Council article entitled Assetsof Russia’s National Wealth Fund to be Invested in Gold, published 16 June2021, the National Wealth Fund (NWF), the public pension fund, moved 20% of itsUS dollars into gold as part of their long running strategy of de-dollarisation.Their gold allocation is 23% of their total reserves. For this reason Russia iseconomically well-prepared.

Geopolitical &Military Overview

For the readership whodesires a deeper-dive into the politically contrarian perspectives for Russia’saggressive military adventure into the Near Abroad these are discussed in anarticle entitled Vladimir Putin’s DoubleBindpublished 9 December 2021.

Furthermore for thosewho desire to know more about Russia’s military capability, please refer to GlobalFirepower that ranks Russia as the world’s second most powerful military asindicated in the following chart entitled The World’s MostPowerful Militariesas of January 2022. This index includes 50 factors including military might,financials, logistics and geography.

Conclusion

Russia hasthe options of military invasion and control of essential energy exports to theEU as political leverage to force a binding agreement to halt any furthereastward expansion by NATO. With a 2021 allocation shift to gold Russia isbetter insulated against US-imposed economic “shocks”. For this reason theaforementioned energy commodity prices will soar as the global marketsexperience a rapid sell-off in an increasing bellicose environment.

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TheCerulean Council is a NYC-based think-tank that provides prescient,beyond-the-horizon, contrarian perspectives and risk assessments ongeopolitical dynamics and global urban security.