We examine the implications of this new cold war.
There is talk of a new cold war, pitting the United States against the Russian Federation, with Europe being a main battleground where both adversaries’ grievances are playing out. Sound familiar?
It should, since this was the state of affairs between America and Russia for decades, following the end of World War II up until the collapse of the Soviet Union. Many of the battles that were played out in the 1970s and 1980s are now repeating themselves, characterized by periods of “détente” and “escalation” of tensions.
We are currently in one of those phases of “escalation,” where both adversaries are digging in their heels and firing “testing shots” to see the reaction of the other. The stakes are high, especially for the commodities markets, particularly the oil and natural gas markets.
In this week’s column, The Commodity Investor will provide an overview of this escalating conflict and determine what impact this will have on the markets that are so dear to our hearts.
Commodities Fuel A Resurgent Russia
Vladimir Putin claims that the greatest tragedy of the 20th century was undoubtedly the collapse of the Soviet Union. Ever since Putin came to power, his laserlike focus has been on creating a stronger Russia, flexing its muscles and spreading its influence regionally and globally. Ironically, one of the main factors that allowed him to do this has been the global boom in commodities.
Russia is undeniably a resource-rich country and has ridden the commodities boom to the fullest extent, benefiting from the sale of key raw materials such as crude oil, natural gas, aluminum, iron ore, coal and nickel.
This natural resource powerhouse saw its cash coffers grow exponentially as countries such as India, China and even Europe consumed and purchased its raw materials. As its commodities sales increased, so did Russia’s influence in world affairs including in military technology, espionage and industry.
Russia’s influence kept increasing as the months and years went on. First, Russia’s influence on the crucial Middle East was felt in Syria as Russia supported and backed Bashar Assad with weapons and military intelligence against American-backed insurgents. Assad remains in power while the insurgency is weak, fragmented and uncoordinated.
Russia scored another major coup when it lured Edward Snowden, the former NSA employee responsible for the greatest intelligence leak in American history. More than the symbolism of the act (that America’s most-wanted former intelligence officer is living in Russia), the treasure trove of information Snowden is suspected of giving to Russia could be game changing.
The Kremlin’s most in-your-face move came on the heels of the Sochi Winter Olympic Games, when Russia unilaterally annexed Crimea, a region under the territorial jurisdiction of Ukraine. And to add insult to injury, Russia is sending military personnel and equipment into Ukraine to arm pro-Russian separatists.
These same separatists are now suspected of downing a commercial civilian Malaysian Airlines Flight flying from Amsterdam to Kuala Lumpur last month. This event seems to have been the last straw for the United States and its allies, and has resulted in the U.S. and EU imposing economic sanctions on Russia.