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What is MDEF™ Investing? Strategy before tactics. Strategic investments dictate tactical actions in the Metals, Defense, Energy & Food sectors.

- Jeffrey C. Borneman

Russia, Energy And The War To Come

Jeffrey C. Borneman | September 9, 2014

"Wars have been fought for it, and lost for lack of it ... ". I'm speaking of Energy and specifically the quandary now facing Russia and the latest round of sanctions sure to plunge Russia's economy into a tailspin.

Investors take note of the two areas targeted (not a pun) by the latest proposed sanctions against Russia: Defense and Energy. According to The Wall Street Journal, oil production, refining and the transportation sectors will be barred from the EU and US fundraising (capital markets). It's interesting to note the nat-gas market is excluded from the sanctions.

Also, Russia's three largest military contractors "will be barred from future EU fundraising," according to the WSJ, leaving Russia without two economic mainstays.

Prime Minister Dmitry Medvedev said, "If there are sanctions related to the energy sector, or further restrictions on Russia's financial sector, we will have to respond asymmetrically," he told Russian daily Vedomosti. Apparently, Russia's "asymmetrical" approach includes a three-step process:  

First, it plans to increase production of aircraft and limit its need for foreign spare parts. The aircraft sector cited is surely military aircraft (Defense) as the West seeks to limit Russian offensive air capabilities. 

Second, it is prepared to limit Russian airspace to only "friendly" countries with the hopes of squeezing some of the West's airlines to the point of bankruptcy.

Third and most importantly, "Moscow is seeking to prevent its European customers re-exporting Russian gas to Ukraine, threatening to choke off a crucial lifeline for Kiev and deepen the energy crunch it faces this winter (Energy), says The Financial Times.

Interestingly and not by accident, the US has begun a maritime war game to further pen in Russia. "(T)he naval war game Sea Breeze kicks off as rebels continue to clash with Kiev’s troops in the country’s east—this despite a formal ceasefire that began on Sept. 5," reports the Russian Times. The armada includes navies from Canada, Georgia, Romania, Spain and Turkey. A total of thirteen warships are participating in the war game ostensibly for "establishing and securing a maritime safety zone in a crisis area,” according to the Ukrainian Defense Ministry.

Let's recap: Economic sanctions are, and have always been, a declaration of War. Interference with another country's economy via sanctions is tantamount to invasion. The West is intentionally crushing Russia's economy by limiting access to its one cash cow: Energy. At some point, Russia will be forced to respond militarily and the reaction in the world's Energy markets will be immediate and harshly to the upside. 

If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.

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