From a small northwestern observatory…

It’s been an extraordinarily busy winter! Yes, I’ve neglected this blog, my newsletter, and a host of other basic research. Why, you ask? Busy with that day-to-day “work” thing.

Whew, now that my mea culpa is out of the way, I wanted to comment on an article today by Derek Thomas in The Atlantic titled “Russia’s Economic Blackout Will Change the World.” It’s a great piece, and I encourage you to read it. However, it suggests some issues in the real estate sphere worth considering.

First, Thompson suggests that the world petroleum disruption results in the “green energy revolution goes into warp speed.” This will be particularly true in Europe, which is very much re-assessing their dependency on Russian oil. Europe has already been a lot more tolerant of nuclear than the US, despite the Chernobyl disaster, and its relatively stable energy demand (compared to Asia’s rapid demand growth) may give it the impetus to take a leading role in this transformation.

That leads a bit to his next point — Russia is about to become an economic dependency of China. China can certainly use Russia’s oil, and Russia can use just about everything China provides. Russia will rather quickly become a very large North Korea, and China will extract a steep price in terms of oil and natural gas from their new step-child. Unlike Korea, however, which shares certain cultural ties with China, this will be a tough relationship tied only by economic necessity. Further, Russia won’t be able to switch from Euro-centric oil deliveries to Chinese oil deliveries instantly. Putting in a pipeline infrastructure, particularly in the tough Asian terrain, will take years. Right now, all of Russia’s pipelines run in the opposite direction.

Thompson also notes that this war will significantly disrupt agriculture. Russia and Ukraine together produce about 30% of the world’s wheat and 20% of the corn. Russia and Belarus are also major fertilizer exporters. Thompson suggests that this isn’t entirely a bad thing in the long run for poor farmers in the world. About half of households in Sub-Saharan Africa are family farmers, living a subsistence existence. If this drives up crop commodity prices, a lot of the third could be lifted from poverty, albeit at the expense of consumers developed nations. However, this scenario suggests a long-term systemic disruption, and it is hard to imagine this war, or Ukraine’s disruption as a breadbasket, stretching out for the long-haul.

Anyway, I’ll try to be more attentive to my blog duties. See you again soon!

John A. Kilpatrick, Ph.D. — john@greenfieldadvisors.com