Global markets have yet to react to the rapidly increasing Russian military presence at the Ukrainian border and risk of invasion. Energy and gold commodity prices appear to be more a function of general economic demand and supply chain bottlenecks rather than potential outright shortages with a threat of military conflict in Europe.

As negotiations between the US/NATO/EU and Russia seem hopelessly deadlocked, specialized military equipment is already in transit from Russia's Far East to the Ukrainian border according to US officials. The scale of the Russian military build-up, an expensive endeavor, goes beyond large scale war games or maneuvers. In my opinion, Russian incursion into Ukraine is now a matter of when rather than if as well as how much territory Russia will occupy.

Global Markets' Icarus Moment

For the aforementioned reasons, sadly, regional European war is the ideal investment environment for short-sellers of equities in general and bullish for investors in energy commodities as the global markets will experience an Icarus moment – severe sell-off. Russia on war footing is a "gift" for those market doomsayers whose advocates have proliferated exponentially these past months.

Soaring Energy Prices

For the past decade Russia has been the dominant supplier of (hard) coal, crude oil, and natural/liquified gas to the EU. Should Russia reduce or cut-off the export of these commodities, the collective of remaining suppliers would be hard-pressed to make up the shortfall particularly on short notice even without supply chain challenges.

A convenient excuse Russia may provide for energy export reductions is the convenient present-day standby excuse of supply chain issues and increased domestic consumption. Diabolically they can resort to providing contractually the minimum energy exports required. For this reason energy prices will spike particularly during mid-winter.

The following link provided by Eurostat entitled Main Origin of Primary Energy Imports, EU 2009-2019, articulates the EU's enormous dependency on Russian exports in key commodities:

With respect to 2020-2021 year-on-year commodity pricing specific to Russia's exports to Europe (except gold), the following information from the World Bank Commodity Price Data (The Pink Sheet) indicates a sharp one-year price rise. A military adventure into Ukraine will super-charge them:

Gold

I believe that gold will outshine bonds and cryptocurrencies as the historic and most liquid 'flight to safety' investment. As the invasion commences, gold may experience a brief selloff as investors scramble to cover their brokerage margins during a rapid market drop before ascending to profitable levels.

The Post-Invasion Landscape

In the aftermath there's a level of uncertainty with respect to the duration of Russia's occupation and subsequent post-invasion negotiations with the US/NATO/EU which will determine how much further these commodity prices will rise.

The US and EU have threatened draconian sanctions in addition to the present-day ones. However Russia has comfortably weathered the present-day series of sanctions and has undoubtedly prepared for such contingencies to weather more severe and longer lasting sanctions in their war game scenarios.

According to the World Gold Council article entitled Assets of Russia's National Wealth Fund to be Invested in Gold, published 16 June 2021, the National Wealth Fund (NWF), the public pension fund, moved 20% of its US dollars into gold as part of their long running strategy of de-dollarisation. Their gold allocation is 23% of their total reserves. For this reason Russia is economically well-prepared.

Geopolitical & Military Overview

For the readership who desires a deeper-dive into the politically contrarian perspectives for Russia's aggressive military adventure into the Near Abroad these are discussed in an article entitled Vladimir Putin's Double Bind published 9 December 2021.

Furthermore for those who desire to know more about Russia's military capability, please refer to Global Firepower that ranks Russia as the world's second most powerful military as indicated in the following link entitled The World's Most Powerful Militaries as of January 2022. This index includes 50 factors including military might, financials, logistics and geography.

Conclusion

Russia has the options of military invasion and control of essential energy exports to the EU as political leverage to force a binding agreement to halt any further eastward expansion by NATO. With a 2021 allocation shift to gold Russia is better insulated against US-imposed economic "shocks". For this reason the aforementioned energy commodity prices will soar as the global markets experience a rapid sell-off in an increasing bellicose environment.

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The Cerulean Council is a NYC-based think-tank that provides prescient, beyond-the-horizon, contrarian perspectives and risk assessments on geopolitical dynamics and global urban security.