issue of raw materials during conflicts

Heraclitus of Ephesus said so “War is the mother of all things”. It was a common, common occurrence to conquer cities, lands, and the natural resources they contained—energy and minerals—or the food they produced.

The Russian invasion is not of this nature. This is not understandable, because Russia does not know the lack of raw materials, and therefore does not need any conquests for natural resources. Also incomprehensible, because this is not the work of the Russian people, who are struggling with unacceptable living conditions. Finally, it is not understood that it is so much like the wars of religion, which always end in unhappy empires, that a kind of peace is maintained by other means.

Instead of war for raw materials, the Russian occupation uses selected resources to finance and win the war: the raw materials of war.

Development of the Doctrine of Natural Resources

In general, before the war, the leaders of the nations prepare for it. They thought unimaginable things when establishing the Doctrine of Natural Resources. They have secured long-term sustainable access to raw materials, local resources or resources from nearby and friendly countries. That is, they will have replaced the financial logic of just-in-time inventory management with “just in case” security logistics. Russia did it, unfortunately Europe did not hear this message. Therefore, because this security rationality appears to be an easy political fruit to obtain, the extremes in our democracies are fascinated, but the path is complicated.

After this stage, natural resources of war appear precisely during war. Natural resource conversion the goods War should be compared with the psychology of leaders. The war in Ukraine shows that Russian natural gas is hostage to the conflict and a the goods war because it finances Russia. Gas is abundant, so this choice is political, not geological. In fact, all resources become strategic in conflict because they are political. Geological criticality takes the second place.

In contrast, other notable materials were not selected. Spraying the “rare metals” infox again, no metal is “war”. By contrast, at the height of the Russian offensive, without sanctions or embargoes, Russian-origin nickel and aluminum imports continued to rise by 22% and 13%, respectively, from March to June 2022 compared to 2021. 21% in Europe and 70% in the US. %.

Physical Load Value (VEP)

More specifically, these policy choices are also related to the Physical Load Value (EPV) of raw materials. That is, the lower and easier the extraction, logistics and transfer costs are, the lower the resource’s VEP and the better its return for conflict financing. The PEV of gas for Russia is very low. Therefore, sabotage of the Nord Stream 1 and 2 gas pipelines was not in Moscow’s interest. Otherwise, it was always necessary to sabotage the above-ground gas pipelines passing through Ukraine and Belarus. However, these provocations are a response to the bombing and occupation of nuclear power plants in Ukraine.

All in all, the best the goods War is the title deeds of the real estate that the victor monopolizes when capturing a city. It’s VEP is almost zero because it’s just a piece of paper that can be created, canceled, and recreated infinitely at no cost. The victor of the war can use this property to sell or lease it, while the latter can be seized by the historical owner; he can also give to reward or pay his soldiers. Northern Iraq and eastern Syria have recently witnessed these practices.

The financing of conflicts in West Africa with blood diamonds was also explained by very low VEPs because they were easily transported and exchanged.

Archaeological features in the Middle East, minerals in eastern Democratic Republic of Congo, oil, natural gas, or certain plants (opium, coca) have higher VEP. Their movement can quickly become a traffic jam.

Finally, both animal and plant species (valuable wood, wheat) have even higher VEP rates, as demonstrated by Ukraine’s wheat exports.

Wagner’s militia would make extensive use of this concept to finance and reward itself the goods war under all palettes.

The existence of a number of international agreements

To combat this human trafficking, the international community has international agreements, especially the Kimberley process for diamonds; Unidroit for Archaeology; IETI, OECD, Dodd-Franck act, TinSCi for minerals and energy; Cites and Flegt for animal and plant species. The exception remains traffic in real estate ownership documents. No international agreement has been put forward to prevent this, and if we take the example of the Russian reconstruction of Mariupol, we understand the difficulty of its implementation. But what is the continuity of property rights between the destroyed Ukrainian dwellings and the new Russophile dwellings rebuilt on their old foundations? A more difficult question between private and public properties is what will happen to the continuity of property rights if the foundations of destroyed Ukrainian buildings are turned into streets and new Russophile buildings are built in place of the old streets. On what legal grounds will residents own or rent these places?

Let us conclude with a brief look at the prices of raw materials during the war.

The impact of conflicts on prices is most pronounced when the conflict is global and unpredictable. If the struggle was not planned, if it was more moderate, planned and regional, it would be local and almost zero.

The evolution of prices during conflicts

According to our classification, during the war of 14-18 years, which was unexpected and global in nature, the prices of agriculture (grain, meat, etc.) and metals rose. On average, the price of aluminum and wheat increased by 3 times, the price of meat or sugar increased by 2.5 times, and oil increased by only 50%. Globally, however, the inflationary effect was less during the anticipated World War II. Wheat and meat prices rose more than 100%, while energy and metal prices were under control. During the Korean War, inflation was less than 50% for the materials most affected. Regional wars and tensions in Vietnam or the Middle East had an even smaller price impact. Note that the oil shock in 1973 caused the price of crude oil to rise from $3 to $18, and economic or climate crises have more inflationary effects than wars.

The conflict in Ukraine is regional and not global, the CIA said, which was predictable, but unexpected in Europe. Therefore, its impact on prices should be moderate.

Indeed, after three months of inflationary speculation in the spring, at the height of the crisis, the price of gas alone rose more than 150%. Wheat inflation exceeded 40% in a very short time, and oil inflation exceeded 30%. Nothing compared to past wars. In addition, other natural resources are limited from 2% to 15% at worst. Between the summer and the writing of these lines, 9 months after the Russian invasion, commodity markets have completely digested the war.

The price of copper is 17% lower than February 24, 2022, the price of aluminum is -35%, the price of gold is -13%, and the price of oil is -8% lower. Price of both the goods War, wheat and gas are now -10% and -13% below their February 24 prices respectively.

All these elements contribute to the return of inflation to pre-war levels. Logically, as long as gas prices remain low, this deflationary trend will intensify if Europe meets its gas needs through continued purchases, rather than consuming its reserves, thus preserving gas reserves as much as possible for the winter of 2023-2024.

Finally, like the post-World War I wars of 14-18, commodity prices learned to live with the conflicts, and the inflationary effects of the latter continued to decline for a century. . Reason ? Undoubtedly, the fluidity of the deflationary flow of natural resources created by globalization.

Preparation for future economic sovereignty disputes

Rather, if the Russia-Ukraine conflict continues to be challenged by the quest for sovereignty, it pays to prepare for tomorrow’s economic sovereignty conflicts, as they may be the last of globalization.

That is, consider commodity embargoes in exchange for bellicose action. Sanctions on this or other issues will lead to other sanctions on other elements. The most obvious examples are between minerals and integrated circuits and energy and agriculture. That is why, before the war, the leaders of the nations have to develop Natural Resources Doctrines dominated by something they do not like: the surprise and the unthinkable.

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This text is from a reading given at the International Chromium Development Association 2022 conference.