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For investors, the most important geopolitical events involve access to natural resources. Gauging the scale of any disruption is essential to understanding the investment impact. Investors also need ways to hedge risks caused by such disruptions.


Chapter 3: Access to Resources

Read the Chapter (PDF)

Overview

When investors think about geopolitics, one topic often heads the list: oil, or commodities in general. Some people even go as far as claiming that all wars are in some form or another wars about access to natural resources. I do not agree with this statement, but without a doubt, gaining access to natural resources (be it through force or diplomacy) is a key driver for international policy. At the same time, oil and other resources can have a significant influence on financial markets. Spikes in oil prices lead to higher inflation and can even create recessions in some countries.

Chapter 3 of Geo-Economics: The Interplay between Geopolitics, Economics, and Investments investigates the influence of oil prices on the economy and financial markets. In particular, I show how Saudi Arabia—as the world’s largest oil producer until recently—held significant power over developed countries. With the rise of fracking and the production of shale oil and shale gas in the United States, however, the world is witnessing a silent geopolitical revolution. Suddenly, not only is the US economy less vulnerable to oil shocks but the United States may even benefit from oil shocks in the future.

And although oil has historically been the most important commodity, other commodities have from time to time played an important role as well. I look at the history of access to industrial metals as a geopolitical and economic force and discuss the current need for rare earth metals as a vital input into modern technology applications. I show that investors have much less to fear from geopolitical tensions around metals than around oil and gas.

About the Author

Joachim Klement
Joachim Klement CFP, CFA

Joachim Klement is a strategist at Liberum. He has more than 20 years of experience in the financial markets and has spent most of his career working with wealthy individuals and family offices, providing advice on investments and helping manage portfolios. Mr. Klement studied mathematics and physics at the Swiss Federal Institute of Technology in Zurich (ETH Zurich) and earned a master’s degree in mathematics. He later studied business administration at the University of Zurich and the University of Hagen and earned a master’s degree in economics and finance.