This week’s edition focuses on green energy commodities and the consequent geopolitical impact, the ramifications for the Russian state as the war in Ukraine sallies on with no end in sight and cracks in the power structure start to take shape, and five long-term factors critical to the future shape of the global economy.

The new commodity superpowers

Leslie Hook, Harry Dempsey, & Ciara Nugent, The Financial Times

Ballooning demand for critical minerals such as copper, cobalt, nickel, and lithium -minerals that come from only a handful of nations – has positioned producing nations well to expand their global import and market control. For instance, the Democratic People’s Republic of the Congo produces some 70% of the cobalt needed in lithium-ion batteries, while two-thirds of nickel and 90% of lithium are produced by just three nations respectively. The refining market, too, has become increasingly cornered, as China dominates the markets for cobalt, copper, and lithium, lagging behind just Indonesia in nickel.

Yet, Indonesian strength in nickel refining is no accident. The country leveraged its position in the market to create export rules banning the export of raw nickel. The resulting flood of foreign direct investment in the Indonesian market positioned the country to be not just mining but also a refining powerhouse in the industry, with others set to leverage their market role to their advantage as well. Others have followed Indonesia’s lead, such as Zimbabwe and Namibia, while countries such as Chile have tracked a separate course toward state ownership of its mining assets to boost control over the market. Nonetheless, certain risks exist such as the less stable nature of the commodities due to technological advances and the wide availability of reserves that is currently being supplied. Still, in the short term, these countries have the potential to be commodities superpowers, and moves to solidify their position have only just begun.

Putin’s Age of Chaos

Tatiana Stanovaya, Foreign Affairs

 

Putin’s increasing detachment and mismanagement of the affairs of the state and the prosecution of the war in Ukraine have left the Russian government in an increasingly unstable state. While the general public broadly supports the president and the war effort currently, cracks in the power structure, as seen in the Wagner group mutiny under Evgeniy Prigozhin, have demonstrated serious risks for the regime. Those risks, however, will not manifest in a push for peace, but rather in heightened nationalism and increasing hawkishness, with elite opinion potentially shifting towards harsher repression internally and a stronger response against Ukraine and the West more broadly. The result will be a Russia that is more unpredictable on the world stage, acting in ways that appear contradictory.

Five factors that signal headwinds for long-term investors

Phillip Coggan, Financial Times

 

Instead of becoming caught up in short-term news, investors ought to focus on five factors that inform the long view of the economy: demography, energy supply, debt, inflation, and geopolitics. Unfortunately, these five factors interact in a way that can make forecasting a challenge. For instance, the demography of Western countries is skewing older, which to date has been associated with low inflation and low interest rates. Yet as the workforce retires and retirees spend their savings, there will be a shortage of workers and a rise in real wages, sparking increases in both inflation and interest rates. Structurally higher interest rates will have an impact on debt, which has grown and continues to do so. Additionally, Geopolitics has shown the ability to significantly disrupt in recent years, with globalization in the crosshairs. Russia’s war in Ukraine stands at the axis of geopolitics and energy, showing the risk that reliance on an individual supplier has; a risk currently posed by China as it corners the electric car batteries production market at the same time that competition is rising between it and the West. In sum, these five factors present significant headwinds, causing risky assets to ultimately prove less profitable than they were during the period of the 2010s.