Believe me, I would love to just stay focused on finding cheap oil stocks and promising under-discussed sectors and companies.
Unfortunately, the Western leaders have been on a streak of rather unhinged declarations lately that made the prospect of WW3 an actual possibility.
And this is despite that it is obvious that the Western alliance is barely able to handle Russia alone, much less manage a confrontation with an industrial juggernaut like China.
And so while I am aware that geopolitical analyses are somewhat detrimental to my subscriber count (I remember an unsubscribe message mentioning “it will not help me retire early”), I am also ready to take the hit to honestly assess what is a bigger black swan for every portfolio than any change in interest rates or recession.
Of course, living approximately 200km from the Russian border also makes me very invested in the topic…
So let’s do a quick recap of a complex situation and see what we can learn and use as an early warning system to adapt our portfolio in time would things escalate.
(this article was written before the despicable terrorist attack on concertgoers in Russia. With the blame being put by Russian authorities on Ukraine, the USA and the UK, this is another escalation step that I was hoping to not see on the radar)
Ukrainian Collapse & Western Panic
A New Type Of Bombing
The most important news has been the progressive breaching of the Ukrainian frontline and defense capacity.
This is the result of a mix of massive human losses and weapon shortages. The war was from the beginning characterized by a Ukrainian army with more men, less equipment, less ammo, and more tolerance for losses than the Russian army.
As long as more “meat” could be fed into the grinder, this could pass for an illusion of winning.
The failure of the summer offensive is now combined with the progressive wearing out of air defenses to cause a definitive weakness of the Ukrainian forces.
Now unconcerned with air defense, the Russian air force can casually carry out tens of bombing raids per day, dropping “dumb bombs” (the same you saw in WW2 movies) upgraded into 70km-range gliders with cheap & mass produced GPS/GLONASS + inertial guidance system.
These bombs are between 500-1,500kg and literally obliterate any trench or building they hit. Making the Ukrainian strategy of sitting in trenches or apartment buildings pointless.
And with a massive Cold War inventory + massive chemical industry + massive gas supply, Ukraine will run out of men before Russia runs out of explosives.
To make matters worse, the US parliament chambers are unable to pass new Ukrainian funding bills over political disputes stemming from the entry of millions of migrants through its southern border.
The Republicans cannot let go of the issue without their party collapsing.
The Democrats cannot stop importing voters.
Western Reaction
How do we know this accurately assesses the military situation despite the fog of war?
Because in a matter of a month, a lot of (over)reactions occurred:
Complete reshuffling of the Ukrainian military leadership, to replace generals with unthreatening yes-men.
Cancellation of the upcoming Ukrainian presidential election.
Multiple countries openly talk of moving their troops to Ukraine, not as “freelance/mercenary” as was done until now, but in an official capacity.
At the forefront of irresponsible saber rattling are the UK and France, apparently eager for a Crimean War 2.0, as the first one went so well (spoiler, it was an unmitigated disaster).
As a French citizen, I can tell you how happy I am that Macron is ready to kill us for his petty ambitions…
For that matter, most of the transnational un-elected EU apparatus got the memo as well.
The French Army “is ready” and is preparing for the “hardest engagments”
If we want peace, we must prepare for war Charles Michel - president of the European Council
— Von Der Leyen -
gynecologistPresident of the European Commission
Besides this media blitz, actual preparations are in the making, with seemingly Romania picked as the staging ground for an operation to secure the Western coast of Ukraine.
When the military builds logistical hubs and air bases, this is not good news.
Other Things Going As Poorly As Expected (By Me)
Gaza
It is not like the US and its allies are not busy elsewhere.
The Gaza war is now reaching a point where “Blinken says 100 percent of Gaza population facing unprecedented food insecurity“, a fancy way to say starving to death.
Military, the picture is bleak as well.
'A Huge Mess': In Gaza, IDF Used 70-year-old Munitions and Shells Intended for Training
Israel reevaluates its ammunition requirements as shortage looms
There seems to be no winning scenario for Israel, even with tremendous money being poured into Egypt ($8B from the EU + $6B from the World Bank + $5B from Qatar, and $15B From Saudi Arabia + $35B from the UAE, or a nice total of $69B) to make it turn a blind eye about, or maybe even take in, 2 million Palestinians at the risk of its own internal instability.
Potentially, all this money is also to avoid a complete collapse of the country with a massive dependent and unproductive population as the Suez Canal is not bringing much money these days.
Yemen
The war with the Houthis in Yemen over reopening the Red Sea and Suez “poses the greatest challenge to the US Navy in modern history, coming under fire every day“ & “it’s hard to say if it is possible to stop every Houthis attack“.
…Almost as if the era of overseas engagement was coming to a close in the face of progress in missile and drone technology…
Kosovo
But that’s actually not the only flashpoint, and I have the feeling everybody is starting to lose track of the multiple conflicts starting all over the globe.
For example, the 1990s bombing into the Stone Age of Yugoslavia is coming back to haunt NATO at the worst moment 25 years later. The Serbian president warned a few weeks ago “If you want Kosovo, you won't have Serbia“.
“But we are educated enough and wise enough and brave enough and we have learned enough and gained experience after all that you have done to us in the past 25 years to wait for the best possible moment and take advantage of the opportunity, our chance“
Africa
Meanwhile, in Sub-Saharan Africa, things are also evolving:
And Niger Orders American Troops to Leave Its Territory, a place where the USA has its largest African operation based (1,000 troops).
I agree with Labrador Skeptic:
2024 may be viewed as a turning point by future military historians. After 2 years of development in the laboratory of the Ukraine War, Russia and Iran now have the manufacturing capacity to crank out cheap drones - and send them anywhere in the world, in quantity.
All they need is a rebel force, terrorists, or a conflict - and they can f*ck up the US, its allies, and the globalized economic & financial system at will. The supply is currently limited by Russia needing the drones for its own war. Once that ends, the floodgates may open.
Troubles in Niger, Sudan, and Yemen, the expulsion of French troops from Mali and Chad + the entry into the BRICS of Egypt + Ethiopia makes for a massive chunk of the world falling out of Western control.
I guess there is just Algeria, Lybia, and Saudi Arabia to add to the mix to lose a big chunk of the tropical latitudes…
And the “U.S. Accuses Niger of Iran Uranium Deal“ is the cherry on the cake.
Upcoming Red Flags
I think the most important thing to set up for investors, and Europeans like me, is a set of warning signs of an escalation of the conflict into a full-blown war of Europe/NATO vs Russia.
No matter how scary or unthinkable a global war can be, we can think rationally and anticipate a few milestones that our enlightened leaders will cross or not.
Europe
Milestone 1: Asset Seizing
With the freezing of the Russian central bank assets, a previously unthinkable step has been taken by the Western financial system. One that has been a clear trigger in the shifting alliance of Saudi Arabia the USA to China.
But some level of realism settled in, and actually seizing that money has been postponed. There are ever louder voices of using these $300B+ to finance Ukraine.
This would be a major step toward total war and giving up on keeping the eurodollar system held by anything but sheer brute force and threats.
Milestone 2: Belarus And Offensives
On Russia’s side, getting Belarus and/or recently formed new armies to open a new front would be another escalation, likely telegraphing the intent for a total annexation of Ukraine (maybe minus a small piece of land at the Polish border), by far the most likely outcome.
(for reference, I consider the likely ultimate Russian goal is to never let Ukraine be a threat again in the future AND to build a land bridge to friendly Slovakia and Hungary, and through these countries, to Serbia).
Milestone 3: Oil Blockage
But if there is one signal that should indicate a major European war and direct confrontation it will be moving from sanctions on Russian oil to an actual blockade.
No matter if China and India want to buy Russian oil, the Western navies are likely able to block Russian oil from getting out of the Arctic, the Bosphorus Strait, Denmark’s waters, and the Far East.
This would in turn strangle the Russian war economy, and force it to desperate measures. It would make it very similar to how stopping oil supply to Japan essentially made Pearl Harbor a guarantee.
Milestone 4: Deployment In Ukraine
In Europe, an important milestone will be the deployment of NATO troops inside Ukraine. That’s one I honestly felt like dismissing even when Macron started talking about it. I am not so sure anymore.
Mass deployment (in the tens of thousands of soldiers) of NATO forces would be another way for the conflict to escalate out of control, with Russia likely to consider from this point onward that it is fully at war with NATO anyway.
From that point, it is hard to imagine the conflict to NOT devolving into WW3, with Russia fully supported by China, hence the irresponsibility of Macron’s recent declarations.
Middle East
An escalating global conflict is brewing in the Middle East as well, with Israel vs Iran as the focal point.
Milestone 1: Lebanon
Would Israel engage its army in Lebanon, it would most likely be in desperate need of Western support, not only in weapon supply and air attacks, but maybe even in actual feet on the ground.
The success or failure of such an operation could spell doom for Israel, and by extension a dramatic blow to the West military prestige. Especially if in parallel with Russia's progress in Ukraine.
Milestone 2: Yemen
Another area of potential prestige losses is the incapacity of reopening the Red Sea sea lanes.
I already described how the response is inadequate short of an Afghanistan-style invasion.
A more rational response would be to step back and admit defeat while pushing Israel to retreat from Gaza. What is sure is that the longer the US fleet stays off the Yemeni shore, the more their anti-air systems will become depleted on a countdown to zero.
Milestone 3: Middle East & Iran
Should the Israeli wars in Gaza and maybe Lebanon spread out of control, a direct intervention by Iran against Israel is not unlikely. This could have a large array of out-of-control consequences, from closing the Hormuz Strait (21% of global oil) to setting the whole region on fire.
Contrary to anti-Israel rhetoric, I expect Turkey will stay on the NATO/USA side here, or else risk seeing Iran become the regional hegemon instead of Erdogan’s neo-Ottoman ambitions.
Especially as Turkey will also be able to bargain from a strong position with its potential closing of the Bosphorus Strait to Russian oil.
Asia
Milestone 1: North Korea
Asia is overall calmer than the expanding conflict zones in West Eurasia, but North Korea stays a wild card with a reputation of being a loose cannon.
South Korea seems to be the only “arsenal of democracy” left when it comes to the all-important artillery. Crucial semiconductors and civilian shipyard capacity could be destroyed as well.
So it could make sense for Russia and/or China to use it as a distraction for the US from the wars in Eastern Europe and the Middle East.
And considering how it would cripple the possibility of supplying artillery systems and spare shipbuilding capacity, it would be a major blow for the Western Alliance.
Milestone 2: India’s neighborhood
India’s long-standing border issues with Pakistan and China could flare up as well.
This is a much more dangerous escalation as all potential participants are nuclear powers. At the same time, they have a long history of limited conflicts and wars that did not escalate beyond a certain point.
It could occur both from China supporting Pakistan in taking aggressive actions or from the USA supporting India in doing the same.
Unrelated to India itself, but in the area, a proxy war through factions of increasingly unstable Myanmar could be another step in the destabilization of most of Eurasia's borders.
Milestone 3: Taiwan, Philippines, Japan & Australia
And of course, the major escalation in Asia could be over the South China Sea and Taiwan.
Especially if the strategy is to try to starve China by blocking imports passing by the Strait of Malacca.
Anything happening here like a blockade of Taiwan by China would likely escalate directly into WW3 and without much possibility of an off-ramp. This would directly involve all Asian US allies of Japan, South Korea, the Philippines, and Australia.
Forecasts & Milestones Conclusion
There is still time to step back from the brink, but for that we need the great powers’ leaders to actually talk to each other.
Most likely, by the end of 2025, we will have a clear view of where we are going.
If too many of the milestones I mentioned are hit, we should duck for cover, and so should our portfolios.
I consider the few major alarm bells to be the following, in no particular order:
A DIRECT attack/invasion by the US on Iran or by Iran on Israel.
A direct presence of tens of thousands of NATO troops in Ukraine.
This would likely be forewarned by a blockade on Russian oil exports, putting a maximum of a 6-month timer before a global conflict initiated by NATO.
A North Korea attack, signaling it got the green light and support from China and Russia to do so.
The 6-month timer starting would likely be similar, but this time initiated by Russia+China
And obviously, an invasion of Taiwan
This would a trigger with barely a few weeks before a global confrontation.
Alternatives to a global conflict are few but not unrealistic yet and likely include:
Demilitarization, regime change, and partial occupation of Ukraine (at least Crimea + eastern part).
Integration of Taiwan into China through a multi-decade political process.
Unfortunately for the involved parties, both the neutralization of Ukraine and the long-term re-integration of Taiwan are likely to be viewed as existential by Russia and China respectively.
So this is not a question of right or wrong and most likely my and your opinion do not matter.
Once again, this is a tentative to make a de-passionate analysis and correct forecasts.
If we want to correctly anticipate if a global conflict will occur, we need to consider that a neutral Ukraine and a China-friendly Taiwan are likely the only options where the Eurasian powers do not trigger a conflict at the time of their choosing.
Are these objectives compatible with the US’s own red lines? Maybe not.
Certain US/ANTO red lines will need to not be crossed either for peace to have a chance, like:
NATO integrity (no Baltic States or Poland invasion).
Free navigation in the South China Sea (no Taiwan blockade).
Getting time to relocalize the chip supply chain out of Taiwan and into the US.
Only time will tell.
The Funny
I am aware this made for a depressing read.
But at least, I hope my readers have now a better view of what could happen, and how to judge if we are progressing on the “wrong” timeline.
After all that serious military and geopolitical talk, let’s conclude with a rather absurd and amusing piece of news.
May the world’s militaries be more concerned with such matters:
I generally have similar worries for rather some time.
And in some sense I have similar personal situation to yours, though also somehow different. I spent most of my time in one of the Western Balkan countries (not a native here but I have a wife and a son here) where is reemergence of conflict not unimagable .
In case of conflict "just" inside of our country we could move to my native EU country.
but the answer to which myself I haven't an answer yet what to do is what to do in case of wider European war, which could potentially go NUCL.
in that case retreat to my home country doesn't help much. what are your thoughts/plans for such a case?
speed of the strengthening of the provocations is alarming and to be frank I am stuck in not not knowing what to do in order to save our bare lives if major European (nucl) war comes into play...
https://asiatimes.com/2024/04/us-troops-in-moldova-in-emerging-plan-b-for-ukraine/