Ukraine accounts for a significant portionofagriculturalproduction. It is literally the ‘Breadbasket of Europe’ and regional emerging markets in terms of wheat, soya, and sunflower oil. Food prices will rise. Equally importantly, potential food shortages in Africa could trigger a new refugee crisis into Europe, which may be aligned today on Ukraine but could struggle with a new destabilising wave of migrants. Europe will wean itself off Russian oil and gas, but that will not be an overnight transition whichmeans long-term price instability. It’s already clear the Gulf States are happy to play off Russia versus the West. They have been waiting since the oil shock of 1973 for an opportunity to play neutral and keep prices high. They are also very aware Europe can’t rely on the USA for its energy security. In the next presidential election, it’s looking increasingly likely a pro-Trump populist Republican party will trend isolationist and at the very least pivot away from Europe. Europe has limited time to effectively rearm, secure its energy and organise its own defences. It can be done and the signals are encouraging increased European cooperation and an invigorated EU. The risk is how will Europe fare if a global recession comes on the back of broken Chinese rooted supply chains, an inflation spike, or a new refugee crisis? There is clearly more at stake than just markets. The next few months could see threat levels decline. On the balance of probabilities, is that likely? Not really. Trying to imagine Putin apologising just isn’t realistic. At the core, the tensions boil down to how effectively the Liberal-democratic West can counter the threats of resurgent autocratic nationalism from China, Russia and the risks others play the opportunity to their best advantage. Crisis for one player is an opportunity for another. Hence the shift back into defence and energy stocks. If the big one is coming, let’s not deny it, but prepare for it. The force that balanced the tension twixt the autocratic East and the Liberal Democratic West since the last cold war was always commerce and the opportunity for poorer nations to raise themselves on the back of trade. It happened for China. The big threat from Ukraine is that it represents the end of globalisation. It seems to be happening as supply chains remain under pressure. The big unknown is China. It clearly wants to internalise and continue to grow its economy, secure its borders, and expand its economic hegemony. It can do so in partnership with the West. Or it can choose conflict – which is what the Generals fear. That China will take the opportunity to engage in a land-grab on Taiwan and risk economic estrangement. But, based on what they’ve seen in Ukraine and the effect of Russian sanctions, we can hope they favour trade. Russia, frankly, isn’t even a player in the Game of Geopolitics anymore. They’ve broken themselves on Ukraine. The sanctions will leave its energy industry in tatters as expertise and spare parts dry up. It may remain a major supplier of global instability through cheap weapons, immoral mercenaries, and unpredictability, yet Putin’s throw of the dice in Ukraine increasingly looks like a losing gamble. How he plays his last few cards to sustain his kleptocracy is the known unknown. The immediate threat is Russian unpredictability. The long-term hope is China sees a better future as part of a post-Ukraine globalised economy, which is all back to guessing. What happens next? Russia, frankly, isn’t even a player in the Game of Geopolitics anymore. They’ve broken themselves on Ukraine. Finance Monthly. Bus i ne s s & Economy 15
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