By now you might be thinking we are “pro-Russia”. Nothing of the sort. In essence, what we are trying to do is point out how Russia is way more important to the world economy than it was some 20 years ago. To embargo or limit Russia’s exports will only lead to an inflationary superstorm.

Some 20 years ago Europe (and the “West”) had the North Sea, which produced as much as Russia and the US. Now it is a shadow of its former self. And if US shale continues to disappoint, it won’t be long before Russia becomes the world’s biggest oil producer “beyond reasonable doubt”.

Do you really think that Rosneft, Lukoil, or Gazprom are in trouble of being sanctioned when they supply some 36% of Europe’s oil needs?

And natural gas (not that this is unappreciated).

But there are probably a couple of commodities that few have given any thought to, coal in particular. Russia exports almost as much thermal coal as Australia (granted the chart below is a few years old but volumes wouldn’t have changed materially in that time). Russia also exports about as much coking coal as the US and about 40% of Australia.

Hmmm… switch off Russian natgas (for a theoretical exercise) and the world will need a stink load more of coal of which Russia is one of the top 5 global suppliers. Guess you could always turn to uranium?

Granted Kazakhstan isn’t Russia, but they are rather friendly. Of course, uranium produced (yellow cake) isn’t the stuff that goes into nuclear reactors. That is enriched uranium, which Russia (Rosatom) accounts for 50% of world enriched uranium production. That is absolutely extraordinary. Roughly 20% of the US electricity supply comes from nuclear. You know who’s really screwed?

Our French mates run the place on nuclear, and guess what? Over half of this enriched uranium comes from the Russkies.

And who accounts for a fair whack of grain exports?

And without fertilizer crops don’t grow.

Leading Fertilizer Exporting Countries Based on Value – 2020 (USD Billions)

Should the rest of the world be sanctioning Russia’s commodity exports, we’d likely see Weimar Republic style inflation in those countries, particularly Europe. But given that our exposure to Russia is ~10% and we have a truck load of exposure to non-Russian, fertilizer, natural gas, uranium, oil, coal, and grain production to name a few. Honestly, speaking purely from a greedy capitalist standpoint, hyperinflation wouldn’t be such a bad thing. Of course, we don’t want that, and really everyone’s living standards falls but certainly we’d rather be protected than not.

Here is a neat little picture to make this easy from a geopolitical perspective. Those available to the West from “friendly” states.


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5 months ago

Thank you for the insights! Here is also one assessment about Russia-Ukraine Conflict with some statistics on Europe’s Russian Gas Dependency & Economic Implications

5 months ago

Most people focus on Putin, like Putin must go, as in Assad must go. They think that bad economic circumstances will lead people to change the politics while in reality they will seek food and fuel, shelter and medicines. Politics is last on the list.