A month after Russian troops invaded Ukraine, the conflict shows no signs of dying down. And while many people\u2019s focus is on the military action and the suffering of Ukrainian civilians, there\u2019s a major component to the crisis that could affect every single American and could almost certainly lead the economy into recession.<\/p>\n
When the first sanctions were levied against Russia, you probably remember hearing about how Russia is nothing more than a big gas station. And many people proudly proclaimed that they\u2019d be willing to pay a little more for gas if it meant helping Ukraine.<\/p>\n
For most people, all they know about Russia and its involvement in European affairs are the periodic conflicts over natural gas shipments that flare up every few years. And most people think that because they don\u2019t directly purchase any consumer goods from Russia, that they can do just fine if Russia is cut off from the world economy. But that couldn\u2019t be any further from the truth.<\/p>\n
The reality is that Russia is a major source of raw materials for many different industries, and a protracted conflict that leaves Russia cut off from the world economy could lead to painful shortages, higher prices, and a deep recession.<\/p>\n
You\u2019ve probably noticed that your grocery bill is getting bigger. It seems that every week the prices of more and more goods keep going up. From beef to dried fruit to cheese, hardly anything you buy hasn\u2019t risen in price over the past year. And those prices could increase significantly this year thanks to the conflict in Ukraine.<\/p>\n
For one thing, both Russia and Ukraine are major exporters of foodstuffs, especially grains. Wheat and barley are major export products, with Russia and Ukraine combining for around 29% of world wheat production<\/a>. As a result of the conflict, prices on wheat have risen to their highest level in over a decade.<\/p>\n It\u2019s highly likely that prices will continue to rise even further as the year progresses, as the likelihood that anyone in Ukraine will bother trying to plant crops during an all-out war is minimal. There may be some farmers who are brave enough to risk getting attacked in their fields, but anything that gets planted will more likely than not go to domestic consumption and not to exports.<\/p>\n Even worse is the fact that Russia is a major producer of fertilizer, responsible for about 15% of world supply<\/a>. Without fertilizer, many farmers are going to see significantly decreased production. And with the risk of Russia\u2019s fertilizer supply being cut off, world fertilizer prices have jumped to record highs.<\/p>\n Those increased prices for fertilizer will also have an impact on food prices, as it will make food production more expensive. So be prepared to pay more at the grocery store as the effects of both grain and fertilizer shortages begin to make themselves felt.<\/p>\n You\u2019ve probably felt the pain at the pump already, and not just due to the war in Ukraine. Prices for oil and gasoline were already rising over the past year as inflation picked up. And now they\u2019ve increased even further as it looks more and more likely that Russia\u2019s oil and gas industry may end up getting cut off from world markets.<\/p>\n Russia has warned that cutting off its oil exports could result in oil rising to $300-500 a barrel. That seems to be somewhat hyperbolic, but there\u2019s no denying that cutting off Russia\u2019s 5 million barrels of oil<\/a> and 3 million barrels of refined oil products would have a significant impact on world oil and gas prices.<\/p>\n Thus far prices have been kept in check because India and China have no qualms about purchasing Russian oil. But if the US and Europe try to put the screws to them in order to enforce sanctions, watch for oil and gas prices to rise.<\/p>\n And remember too that oil is used to produce diesel fuel, which is necessary both for farm production and for shipping. More than 60% of farm equipment<\/a> in the US uses diesel fuel, while over 96% of large trucks that transport food use diesel. So rising diesel prices and potential shortages will be yet another input factor that will drive up the price of the food you buy.<\/p>\n Russia produces significant amounts of other raw materials for industry, including titanium, aluminum, nickel, and steel. Its titanium is used extensively in aircraft production, particularly by Boeing and Airbus.<\/p>\n Its aluminum is used worldwide, and Australia\u2019s recent decision to cease shipments of aluminum ores<\/a> to Russia will undoubtedly have a major impact on the world aluminum market. You may not think about the cost to produce cans of beer or aluminum foil, but prices for any goods that use aluminum will likely increase.<\/p>\n Nickel prices more than doubled after Russia\u2019s invasion, and as nickel is a crucial metal in stainless steel manufacturing, that could have major impacts in steel markets. The rise in nickel prices already nearly caused the collapse of one major nickel trader, a Chinese steel magnate, and forced the London Metal Exchange to shut down trading in nickel for days in an unprecedented attempt to stabilize world nickel markets.<\/p>\n Russia is also a major producer of precious metals, including palladium, platinum, gold, and silver. Palladium is a crucial metal in the production of automotive catalytic converters, and disruption to palladium supply could further upend car production and lead to even higher prices for new cars. And there\u2019s no telling how gold and silver prices could be impacted if Russian gold and silver production is cut off from world markets.<\/p>\n All this is to say that Russia is a lot more than just a big gas station. No one realizes just how interconnected the world is until things start to break down. And all it takes is removing one player from the field to start that breakdown.<\/p>\n We learned the hard way just how little the supposed experts knew during the COVID lockdowns. We\u2019re still feeling the effects of those lockdowns today, as world supply chains have yet to recover. And the efforts at fiscal stimulus to boost the economy are being felt today in the form of higher inflation.<\/p>\n So it shouldn\u2019t be any surprise that the move to cut Russia off from world markets could end up being a similar miscalculation on the part of policymakers. In their desire to punish Russia, they have ended up making decisions that could cost industry and consumers significantly in the form of drastically higher prices for goods.<\/p>\n Odds are that you\u2019re already frustrated having to deal with the effects of rising inflation. Everything you buy has gotten more expensive, and costs show no signs of slowing down. If you\u2019re saving for retirement, especially if you\u2019re nearing retirement, you may be wondering how you can afford to maintain your standard of living in a world of rapidly rising prices.<\/p>\n Fortunately there is a way to protect yourself and your assets against these rising prices. It just means that you have to try to ensure that your assets gain more value than inflation takes away each year.<\/p>\n You may think that\u2019s easier said than done, and for many people it is. But there are assets out there that traditionally gain value even in the face of rising inflation. One of those is gold.<\/p>\n The last time this country experienced out of control inflation was the 1970s, a decade known for its stagflation<\/a> \u2013 a stagnant economy with high inflation. The inflation lasted until the early 1980s, and reached 11% at its peak in the 1970s. Yet gold\u2019s price gains that decade were significantly greater than inflation, with a 30% annualized rate of growth over the course of the decade.<\/p>\n If the next decade ends up being another stagflationary one, and gold ends up performing just as well, gold investors are going to be among the happiest people around. And if you want to benefit from that potential increase in the gold price, this is your chance.<\/p>\n The stage is being set now for gold to take off in a way that it hasn\u2019t in decades. With high inflation, war in Eastern Europe, and the potential for a complete upending of our entire way of life, the future is more uncertain than ever. And it\u2019s times like these when gold tends to really shine.<\/p>\nPay More at the Pump<\/h2>\n
Other Raw Materials<\/h2>\n
Do You Trust the Experts?<\/h2>\n
Can You Protect Yourself?<\/h2>\n