The globe grapples with a plethora of risks key of which are geopolitical tension in the wake of the recent Russia invasion of Ukraine, excessive inflation in light of excess liquidity injections to avert pandemic induced credit risks, climate risks occasioned by deforestation and carbon emissions and lastly the COVID19 pandemic. The world is flirting with $105 a barrel high crude prices on supply concerns on the back of war actualization in the Eastern block. The world remains divided with NATO backing Ukraine yet arguably very little tangible action save sanctions slapped on Russia whose effects may only be felt in weeks or months after. A swift termination for Russian banks is on the table to cripple the flow of finances into the eastern block giant.
Crude is a subject of demand and supply drivers pushing the price to record highs. The world is reopening, as pandemic risks fade, to claw back eroded growth and so is a mining boom supported by a string decarbonization drive contributing to energy demand. On the supply side, the OPEC+ has for the longest of time fine tuned supply to support Brent and WTI prices at a time when the worlds demand was muted.
Geopolitical tension in the east does shock the oil supply curve as Russia despite not being a member of the OPEC still makes the OPEC+ listing and sanctions will distort its contribution let alone the markets have already priced in supply shortages scaling prices higher. Russia remains the second largest crude producer in the world.
Higher prices will hurt manufacturing, mining, logistics for oil importing nations which could exacerbate super high inflation that the world still grapples with. What the war has done is merely invade every petroleum station of an oil importing nation between fuel hikes in the absence of subsidies are eminent in the coming months. On the positive, a higher price supports fiscal balancing for oil exporters.
Another risk no one is speaking about is growth erosion which is a mere reversal of economic expansion attained so far while further growth will slow down on uncertainty in the eastern block. Actualization of these risks coincides with the US Fed stance to hike rates which could push US treasury rates higher, brew a stronger dollar and by default weaken emerging markets & frontier market currencies. In the labyrinth of rising uncertainty the world is more poised to succumb to asset sell off pressure.
The Kwacha Arbitrageur