I know, I know, no politics. Bear with me.
Among 300+ other American or European companies, BP has announced it is leaving Russia. It doesn’t have much choice, given the politics of the moment - and what looks like the future. BP, more than others, had very high exposure to Russia, almost 25% of their assets were in that country, a march they began in the 1990’s. It now looks as though those assets will be worth $0; the market has already discounted the company from a high of 35 in February to 29 today. It isn’t “future discounted cash flows” anymore, it’s “corporate assets on the balance sheet.”
Something else that began in the 1990’s, though not with a lot of notice, is a rapprochement between China and Russia. During the Cold War they were famously jealous/hostile to each other, a card Nixon played skillfully twenty years earlier. After the fall of the USSR, they began signing small agreements, trade, occasionally political drive, but now 20 years later they have become more fully allied aided in no small part by Russia’s Ukraine war.
Whether China truly supports Russia in this or is merely exploiting a moment of weakness doesn’t matter, the two countries have a long festered jealousy of the US in particular and the West in general. If Russia loses Western markets for its oil I’m sure China will be only too happy to replace it, and that would displace a lot of Australian coal going to China, probably to the detriment of that coal industry since there aren’t enough other customers.
“Oil” is only one example, with Western countries suddenly realizing that foreign markets can crumble in an instant, most will be more cautious investing in Russia and elsewhere. But China, which has been investing everywhere from the Middle East to South America would be happy to replace all those decadent Western countries, I’m sure, giving China another boost in “international” as it races to catch the US.
Russia is a mere afterthought here, it has less than 2% of international trade, even with its large energy exports. China? About 15%. But I see the formation of a new trading block covering a vast geography and a plethora of new markets for the Chinese. I suspect their executives are in the board rooms right now planning the next moves.
This will take years to play out, effects as drastic as happened to BP will be somewhat rare, but this seemingly “isolated” war will have geopolitical and macro economic effects around the world, and for years to come.
Oh, one more. With the freeze of Russian banked assets around the world (something Putin has been working on for a decade) and especially in the US and (even) Switzerland, it occurs to me that lots of governments are likely to mutter “If someone can just freeze our assets with the stroke of a pen, perhaps we should have more metal in our vaults and fewer electronic entries in our bank statements.” Or perhaps this will be the opening that crypto needs to garner international and governmental sanction.
It’s changing out there, and it’s macro time.