“John Charalambakis Ph.D. offers the most astounding and far-reaching commentaries on global reality one can imagine. He reaches back thousands of years in history and makes lessons of history relevant for today…The world would be a better place if global leaders would read John Charalambakis’ commentaries.”
– Steve Bartlett, former Texas Congressman, former Mayor of Dallas, retired CEO of Financial Services Roundtable

We invite you to check out John’s new book, The Canon of the Markets: Reflections from the Attic of History, Philosophy, Literature, and Statecraft. This collection of John’s commentaries on financial markets and statecraft is now available for purchase on Amazon.com (see bottom of this message).

Introduction: While the crisis in Ukraine has provided a powerful catalyst for the transformation wrought by the Day After, it remains an accelerator for deeper underlying trends – shaky global supply chains, a complicated energy transition, food insecurity, and increasing nationalization of cultures and economies. Our articles this week examine these four phenomena in greater detail as Putin’s war continues to pull back the curtain on the changes of the Era of Transformation.

Global Supply Lines Brace for ‘Menacing’ Economic Storm to Widen

Read the full article here

Brendan Murray, Bloomberg

Global supply chains are once again in jeopardy as ripple effects from the Ukrainian crisis and strict Covid policies in China foment disruptions. The disruptions from Russia’s war extend beyond increased energy prices (which are dangerous enough in themselves) – although Russia and Ukraine combined account for only 6% of the world’s seaborne trade, prominent economists see a heightened risk of global economic slowdown. This comes as China continues its “zero-tolerance” coronavirus policies, shutting down Shanghai last week to combat a new outbreak of the virus. China’s exports were already down from their peak in October 2021, and many local ports have closed amid lockdowns. Some analysts are concerned that global shipping could return to its late-2021 crisis mode, with cross-Pacific container spot prices averaging $10,000. The New York Fed anticipates a high degree of pressure on global supply chains, and “anecdotal evidence suggests there might be further pressure ahead.” As the world attempts to take the next step in global development, it faces a large hurdle in the brewing storm of supply chains.

Ukraine War Drives Countries to Embrace Renewable Energy—but Not Yet

Read the full article here

Jenny Strasburg and Phred Dvorak, Wall Street Journal

A movement away from reliance on Russian energy has created an odd divergence in the energy sector, with countries both seeking non-Russian traditional energy while attempting to wean their economies off dirty energy. The energy shock from Putin’s war has tested the renewable energy capabilities of many countries, with nations such as Germany forced to maintain coal and natural gas as energy sources as Russian supplies dry up. The crisis has revealed the depth of the security risk in imported energy but divorcing Russian energy from European markets would require additional annual spending of about $187 billion for the next six years to build up enough renewable capability to make the bloc self-reliant; this figure totals 1.3% of the EU’s GDP. On the other hand, skyrocketing traditional energy prices have shifted the cost-benefit analysis to favor renewable energy – developed Asian countries such as Japan have used the opportunity to bolster their renewable repertoires. There is a strong push for carbon-neutral biofuels as supply chain woes have raised the price of solar and wind energy. However, until these projects are online, homes must still be heated – a reality which has pushed many to seek alternative sources of natural gas (e.g., from the US), push nuclear plants to the edge of their safe lifespans, and re-activate coal power plants. The latter is of special concern to China, the world’s largest emitter, whose energy portfolio is still dominated by coal power. As these factors continue to shift the balance of renewable and traditional energy, the world will continue to find the equilibrium between the energy needs of today and the ecology of tomorrow – an imprecise, often messy process, but one for which a solution is nonetheless necessary.

Russia’s Invasion Unleashes ‘Perfect Storm’ in Global Agriculture

Read the full article here

Christina Lu, Foreign Policy 

As we have previously discussed in our commentaries over the last few weeks, Russia’s invasion of Ukraine is threatening global food security. The impacts of major price increases in agricultural commodities are being felt already, particularly in the import-reliant countries of the Middle East and North Africa. Exacerbating the issue is the ongoing energy crisis which has increased fertilizer prices and transportation costs, creating the “perfect storm” which could result in the “cataclysmic spike in food prices,” warns Ertharin Cousin, former executive director of the World Food Program and distinguished fellow at the Chicago Council on Global Affairs. The United Nations’ Food and Agriculture Organization predicts food prices could increase as much as 20%, creating a global food crisis and famine conditions for tens of millions of people. Historically, spikes in food prices are correlated with political instability and unrest. Sudan – which imports more than 80% of its wheat from Ukraine and Russia – is already experiencing protests, as is Iraq and Greece where hundreds of farmers have demonstrated against soaring fertilizer prices. As food, fertilizer, and energy prices continue to rise, we can expect to see instability spread to other regions of the world. Unfortunately, even the end of the war in Ukraine will not immediately bring stability to global food production. Fertilizer shortages have already impacted this year’s planting season which means crop yields will be below average, putting additional pressure on the global food supply chain which is already experiencing major shortages. These pains will be felt across a wide range of crops for months to come, with or without a Russia-Ukraine peace deal.

The End of Globalization?

Read the full article here

Adam S. Posen, Foreign Affairs

While the democratic world’s response to Russia’s invasion of Ukraine, and its subsequent war crimes, was necessary from both an ethical and national security perspective, there will be negative economic consequences that continue the “corrosion” of globalization. Over the last 20 years, two major trends have chipped away at globalization: the protectionist policies of populist and nationalist leaders and China’s disregard for a rules-based international system which has forced the West to erect barriers to Chinese economic integration. In this article, President of the Peterson Institute for International Economics Adam S. Posen outlines the reasons why Russia’s invasion and the resulting sanctions will make the corrosion of globalization even worse. First, China’s reluctance to condemn Russia’s actions will frustrate the West, further reducing its global economic integration. Second, the fear of US sanctions has heightened now that Washington is “re-enamored with its apparent power” which may prompt countries to disentangle themselves from economic dependence on the US. Third, countries may pursue further disentanglement from economic connections after seeing central Europe frantically try to reduce its dependence on Russian oil and natural gas. As Posen points out, the pursuit of self-reliance will, ironically, be self-defeating; “Russia’s current sharp economic contraction shows just how difficult it is for states to thrive without economic interdependence…Russia’s attempts to make itself economically independent actually made it more likely to be subject to sanctions, because the West did not have to risk as much to impose them.” Furthermore, the Covid-19 pandemic and now the Russia-Ukraine conflict have thrown global supply chains into disarray. Multinational companies are now shifting their supply chains away from the political risk of global value chains and towards building supply chains in safer, more dependable locations. 

A reduction of economic interconnectedness will come at a cost. There will be less innovation, lower growth, and the real returns to companies and households will decline, with the developing world suffering the most. The world’s uneven response to the pandemic has worsened the economic conditions of low-income populations, which, as a result, provides little incentive for private sector investment. The division among major economies will make public investment in these countries insufficient; the development gap will widen. Finally, the corrosion of globalization will make it much more difficult to address climate change which requires coordinated international action. However, Posen says policymakers are “not helpless.” Posen proposes that policymakers create a common market among democracies which covers goods, services, and labor, and which establishes common standards for screening cross-border investments and facilitates a market environment that fosters healthy competition. In addition, officials could reduce imbalances between economies by setting up a sustained, multi-year investment front across the democratic alliance. Western nations cannot undo the damage done to the global economy by Russia and China, but they may be able to “repair the erosion” and bring global economic stability.