Red Bear Rising: Russia’s Resource Based Geopolitical Strategy

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
Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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3 Comments on "Red Bear Rising: Russia’s Resource Based Geopolitical Strategy"

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Coffee Addict
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… Read more »
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… Read more »
Jason, Bondi
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… Read more »
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