The Russia–Ukraine Struggle and Different Geopolitical Dangers


Joachim Klement, CFA, is the writer of Geo-Economics: The Interaction between Geopolitics, Economics, and Investments from the CFA Institute Analysis Basis.


The battle in Ukraine is dominating the headlines. For now.

However the battle’s oblique reverberations will ripple far past the borders of its combatants and their allies. Certainly, they might give rise to new and diversified geopolitical dangers all through the world.

The battle’s potential impact on the worldwide grain provide and meals inflation is particularly alarming. Ukraine is named the “bread basket of Europe,” and along with Russia, it provides wheat to creating international locations throughout Africa, the Center East, and Central Asia.

There are already reviews that many Ukrainian farmers are abandoning their fields proper initially of the sowing season to defend their nation. The world can pay a worth.

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The battle might lead to an entire or near-complete failure of the 2022 Ukrainian wheat harvest. Russian wheat exports in the meantime might drop to zero because the nation diverts its meals commodities for home use within the face of crippling worldwide sanctions.

Many international locations depend upon Russian and Ukrainian grain imports to feed their populations. The warring nations are liable for at the least 80% of the grain provide in Benin and Congo in Africa; Egypt, Qatar, and Lebanon within the Center East; and Kazakhstan and Azerbaijan in Central Asia. All these states must discover new sources of grain and pay a lot larger costs for them.

And that can compound an already dangerous scenario. Even earlier than the battle, meals inflation was rising. During the last 12 months, it reached 17.6% and 4.8% 12 months over 12 months (YoY) in Egypt and the United Arab Emirates (UAE), respectively. These ranges are paying homage to those who preceded the Arab Spring uprisings again in 2011. The scenario is much more excessive in Turkey, the place a quickly declining lira propelled YoY meals inflation to 64.5%.

Going ahead, a number of components might propel meals costs even larger. Past the dearth of grain exports from Ukraine and Russia, spiking vitality costs will improve transport and fertilizer prices. With Russia, a serious fertilizer exporter, going through extreme sanctions, there can be much more upward strain on fertilizer costs. This can add gas to the fireplace and ship meals inflation ever larger. In developed international locations, whereas the ache varies throughout the revenue spectrum, such tendencies can largely be ameliorated by reductions in shopper discretionary spending: Folks alter by paying extra for meals and fewer on journey, leisure, and so forth. However in creating nations, the place meals takes up a bigger share of complete residing bills and there may be much less discretionary spending, starvation is a extra acute danger.

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The Arab Spring is a vivid instance of how such situations can ignite civil unrest and geopolitical tensions. It isn’t an remoted occasion. The peasants’ rebellions within the Center Ages, the French Revolution, and the Revolutions of 1848, for instance, all reveal how rising meals insecurity can set off political and social upheaval. The impact is so robust that Rule 6 of my “10 Guidelines for Forecasting” states:

A full abdomen doesn’t riot. 

“Revolutions and uprisings hardly ever happen amongst people who find themselves nicely fed and really feel comparatively protected. An absence of private freedom will not be sufficient to spark insurrections, however an absence of meals or water or widespread injustice all are.”

The international locations that depend upon grain from Russia and Ukraine together with the share of their populations that have been at medium or excessive meals danger earlier than the current battle are charted within the graphic under. Kazakhstan and Azerbaijan together with Egypt and Congo are amongst these on the most danger given their reliance on Russian and Ukrainian grain imports, their current meals insecurity, or mixture of the 2.


Meals Insecure and Depending on Grain Imports from Ukraine and Russia

Chart showing countries that

However excessive meals inflation isn’t the one driver of potential turmoil. Constructing on current insights from Chris Redl and Sandile Hlatshwayo, who use machine studying to establish the predictors of social upheaval, we constructed a Civil Strife Threat Index that ranks international locations based mostly on 5 key stability metrics:

  1. The proportion of their complete grain imports from Russia and Ukraine, in response to UN Comtrade information
  2. The share of their populations with average or excessive meals insecurity, in response to the World Financial institution
  3. Their youth unemployment fee based mostly on World Financial institution and Bloomberg information
  4. The variety of cell phone subscriptions per 100 folks, in response to the World Financial institution
  5. Their Democracy Index ranking from The Economist Intelligence Unit
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Why these 5 parts? Proof means that international locations with excessive proportions of younger and unemployed males are extra vulnerable to instability; cellphones are important for organizing mass protest through social media platforms; and an absence of democratic establishments implies that the inhabitants sees no alternative to vary the political management exterior of direct motion.

Combining these 5 indicators yields perception into which international locations are most liable to civil unrest. The chart under solely consists of those who immediately import grains from Russia and Ukraine, so it’s composed of solely these nations that can immediately undergo from the fallout of the battle in Ukraine.


The Civil Strife Index, by Nation

Rank Nation Threat of Civil Strife Index Worth Youth Unemployment Charge Cell Telephone Subscriptions/ 100 folks Inhabitants with Reasonable or Extreme Meals Insecurity Share of Whole Grain Imports from Russia and Ukraine Democracy Index
1 Congo, Rep. 40.5 42.7 88.3% 76.7% 2.8
2 UAE 32.5 9.0 185.8 53.5% 2.9
3 Saudi Arabia 32.0 28.2 124.1 8.1% 2.1
4 Belarus 31.3 11.2 123.9 48.6% 2.4
5 Lebanon 29.0 27.4 62.8 95.7% 3.8
6 Nicaragua 29.0 11.7 90.2 78.1% 2.7
7 Tajikistan 29.0 17.0 5.3% 1.9
8 Turkey 28.5 24.5 97.4 74.8% 4.4
9 Armenia 28.4 36.6 117.7 12.7% 99.8% 5.5
10 Egypt 28.4 23.4 93.2 27.8% 86.0% 2.9

The oil exporters — Saudi Arabia and the UAE — and Turkey, with its shut commerce hyperlinks to the UK and the European Union, are probably the most troubling from an economics and investing perspective. Instability in these international locations, might have a spillover impact that disrupts vitality provide chains and international commerce and triggers renewed spikes in inflation in 2022.

To make certain, Saudi Arabia and the UAE largely averted Arab Spring-related unrest and will profit from the rise in oil costs. However, their excessive rankings on the index, pushed particularly by the youth unemployment fee in Saudi Arabia and the UAE’s reliance on Ukrainian and Russian grain mixed with their low Democracy Index scores, might warrant some consideration.

The scenario in Turkey is especially worrisome given the nation’s already huge inflation fee and the robust chance of a sovereign default within the subsequent 12 months because of the devaluation of the lira.

Traders have to give attention to political developments in these international locations within the weeks and months forward. They might function an early warning signal of potential international provide chain disruptions that would have an effect on the UK and Europe.

For extra from Joachim Klement, CFA, don’t miss Threat Profiling and Tolerance and 7 Errors Each Investor Makes (and The best way to Keep away from Them) and join his common commentary at Klement on Investing.

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All posts are the opinion of the writer. As such, they shouldn’t be construed as funding recommendation, nor do the opinions expressed essentially replicate the views of CFA Institute or the writer’s employer.

Picture credit score: ©Getty Photographs/alzay


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Joachim Klement, CFA

Joachim Klement, CFA, is a trustee of the CFA Institute Analysis Basis and presents common commentary at Klement on Investing. Beforehand, he was CIO at Wellershoff & Companions Ltd., and earlier than that, head of the UBS Wealth Administration Strategic Analysis group and head of fairness technique for UBS Wealth Administration. Klement studied arithmetic and physics on the Swiss Federal Institute of Expertise (ETH), Zurich, Switzerland, and Madrid, Spain, and graduated with a grasp’s diploma in arithmetic. As well as, he holds a grasp’s diploma in economics and finance.



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