Geopolitics and Commodity Markets

Marcel Baartman

28 June 2017

Turbulent Times

• Geopolitical Events & Trends

• Geopolitics and Commodity Markets

• Conclusions

Complex business: many types of commodities: energy, metals, agri, minerals, etc. Own characteristics

Megatrends: - Urbanisation- Demography- Climate Change- Technology- …

Accidental:- Weather- Disasters- …

Cyclical: - Economic growth- (Geo-)political

developments- …

Market Specs: - Financialisation- Stock- …

Economic Growth Engines

World Trade China’s Growth Contribution

Credit Cycle Commodity Super CycleSource: CEPR/EIU Source: IMF

Source: BISSource: IndexMundi

Oil Production Oil Transport - Maritiem

Oil Transport - Pipelines Oil Consumption

Geopolitical events: production, transportation and consumption

NORTH AMERICAUSA: America First !, protectionism, investigations on administrationMexico: elections in 2018, NAFTA

EUROPEUK: Brexit, ‘lost‘ electionEU: Brexit, Macron, restructureEuropean projectGreece: debt issuesGermany: electionsItaly: elections

LATAMBrazil: corruption leads to politicalinstabilityVenezuela: increasing social unrest

MENAIran: sanctions, regional hegmonySaudi Arabia: regional hegemonyQatar: isolated by SA and Gulf StatesMorocco: social unrestSyria: civil warLybia: political instability, refugeesTurkey: authoritarian regime, refugees

EURASIARussia: revisionist policy, Ukraïne, Middle East, demonstrations

ASIAChina: economic transformation, corruption fighting, CCP congres, OBOR, window of opportunityJapan: North Korea: missile launchesPhilippines: ISIS, authoritarianleadershipIndonesia: Religious clashes

Geopolitical Events

International Power ShiftEconomic Military

Source: IMF

Source: IISS

Source: Goldman Sachs Source: PEW Research

Geopolitical TrendsOrder

ActorsMood

RulesRelationships

NORTH AMERICA: growing social and politicalpressures, change of US global role?USA: inward-looking, highly polarized politics, populism, budget-constrainedMexico: succes or failure of Mexican reforms?

EUROPE: reform EU project, inwardlooking, threatening periphery, populism, strong institutions, trans-atlantic relationship, demographicpressuresUK: Brexit, political instabilityEU: Brexit, populism, restructureEuropean project

LATAM: public dissatisfaction in governments, crime as top concern, commodity dependent, rightward turnBrazil: political instability, rise of evangelican ChristianityVenezuela: increasing social unrest, humanitarian crisis? ALBA: continue support from China and Russia

MENA: security competition, demographic pressures, less possibilitiesto manage public discontent, possiblemore violent radicalization, contagion to Africa, Europe and Asia, USA committment?Iran: sanctions, regional hegemonySaudi Arabia: regional hegemony

EURASIA: revisionism, insecurityRussia: revisionist policy, more usage of ‘gray zone’military tactics, more domesticcoercion, nationalism, economicvulnerable and constrained, ‘spoiler’.Eurasia: more Chinese involvement, resolution of Ukraïne conflict

ASIA: security competition, regime stability & economic cooperation, uncertainty US committmentChina: slowing economy, window of strategic opportunity, growing middleclass, westward developments(OBOR), aging population, control byCCPIndia: Hedge China’s ambitions, deepening economic integration, tension with Pakistan, growingprosperity vs environmentalchallenges, demographicsJapan: More internationalengagement Indonesia: Rise of Islam

SUB-SAHARAN AFRICA: demographicpressures, migration flows, insufficienteconomic growth, fragile states and radicalization, generational transition in politics, consolidate gains, increasingreligious affiliation, increasing Chinese influence

Geopolitical Trends

Scarce Commodities

Conclusions:

• Long-term: • increasing demand commodities• whereby countries will secure supply (China)

• Short-term:• Vulnerable economic growth• More (geo)political tensions

• For Commodities:• Changing patterns• More incidents and volatility

Q&A ?