The Russia–Ukraine Battle and Different Geopolitical Dangers


Joachim Klement, CFA, is the creator of Geo-Economics: The Interaction between Geopolitics, Economics, and Investments from the CFA Institute Analysis Basis.


The struggle in Ukraine is dominating the headlines. For now.

However the battle’s oblique reverberations will ripple far past the borders of its combatants and their allies. Certainly, they may give rise to new and various geopolitical dangers all through the world.

The struggle’s potential impact on the worldwide grain provide and meals inflation is very alarming. Ukraine is named the “bread basket of Europe,” and along with Russia, it provides wheat to growing international locations throughout Africa, the Center East, and Central Asia.

There are already reviews that many Ukrainian farmers are abandoning their fields proper in the beginning of the sowing season to defend their nation. The world pays a worth.

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The struggle could lead to an entire or near-complete failure of the 2022 Ukrainian wheat harvest. Russian wheat exports in the meantime could drop to zero because the nation diverts its meals commodities for home use within the face of crippling worldwide sanctions.

Many international locations rely upon Russian and Ukrainian grain imports to feed their populations. The warring nations are liable for a minimum of 80% of the grain provide in Benin and Congo in Africa; Egypt, Qatar, and Lebanon within the Center East; and Kazakhstan and Azerbaijan in Central Asia. All these states should discover new sources of grain and pay a lot greater costs for them.

And that can compound an already dangerous scenario. Even earlier than the battle, meals inflation was rising. During the last 12 months, it reached 17.6% and 4.8% 12 months over 12 months (YoY) in Egypt and the United Arab Emirates (UAE), respectively. These ranges are harking back to people who preceded the Arab Spring uprisings again in 2011. The scenario is much more excessive in Turkey, the place a quickly declining lira propelled YoY meals inflation to 64.5%.

Going ahead, a number of components could propel meals costs even greater. Past the dearth of grain exports from Ukraine and Russia, spiking vitality costs will enhance transport and fertilizer prices. With Russia, a serious fertilizer exporter, going through extreme sanctions, there shall be much more upward stress on fertilizer costs. This may add gas to the hearth and ship meals inflation ever greater. In developed international locations, whereas the ache varies throughout the earnings spectrum, such tendencies can largely be ameliorated by reductions in client discretionary spending: Folks modify by paying extra for meals and fewer on journey, leisure, and many others. However in growing nations, the place meals takes up a bigger share of whole dwelling bills and there’s much less discretionary spending, starvation is a extra acute threat.

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The Arab Spring is a vivid instance of how such situations can ignite civil unrest and geopolitical tensions. It’s not an remoted occasion. The peasants’ rebellions within the Center Ages, the French Revolution, and the Revolutions of 1848, for instance, all reveal how rising meals insecurity can set off political and social upheaval. The impact is so robust that Rule 6 of my “10 Guidelines for Forecasting” states:

A full abdomen doesn’t riot. 

“Revolutions and uprisings not often happen amongst people who find themselves properly fed and really feel comparatively secure. A scarcity of private freedom will not be sufficient to spark insurrections, however a scarcity of meals or water or widespread injustice all are.”

The international locations that rely upon grain from Russia and Ukraine together with the share of their populations that had been at medium or excessive meals threat earlier than the latest battle are charted within the graphic under. Kazakhstan and Azerbaijan together with Egypt and Congo are amongst these on the most threat given their reliance on Russian and Ukrainian grain imports, their present meals insecurity, or mixture of the 2.


Meals Insecure and Depending on Grain Imports from Ukraine and Russia

Chart showing countries that

However excessive meals inflation isn’t the one driver of potential turmoil. Constructing on latest insights from Chris Redl and Sandile Hlatshwayo, who use machine studying to determine the predictors of social upheaval, we constructed a Civil Strife Threat Index that ranks international locations primarily based on 5 key stability metrics:

  1. The proportion of their whole grain imports from Russia and Ukraine, in response to UN Comtrade information
  2. The share of their populations with reasonable or excessive meals insecurity, in response to the World Financial institution
  3. Their youth unemployment fee primarily based on World Financial institution and Bloomberg information
  4. The variety of cell phone subscriptions per 100 folks, in response to the World Financial institution
  5. Their Democracy Index ranking from The Economist Intelligence Unit
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Why these 5 elements? Proof means that international locations with excessive proportions of younger and unemployed males are extra liable to instability; cellphones are important for organizing mass protest by way of social media platforms; and a scarcity of democratic establishments implies that the inhabitants sees no alternative to alter the political management exterior of direct motion.

Combining these 5 indicators yields perception into which international locations are most prone to civil unrest. The chart under solely consists of people who immediately import grains from Russia and Ukraine, so it’s composed of solely these nations that can immediately undergo from the fallout of the struggle in Ukraine.


The Civil Strife Index, by Nation

Rank Nation Threat of Civil Strife Index Worth Youth Unemployment Charge Cell Telephone Subscriptions/ 100 folks Inhabitants with Reasonable or Extreme Meals Insecurity Share of Whole Grain Imports from Russia and Ukraine Democracy Index
1 Congo, Rep. 40.5 42.7 88.3% 76.7% 2.8
2 UAE 32.5 9.0 185.8 53.5% 2.9
3 Saudi Arabia 32.0 28.2 124.1 8.1% 2.1
4 Belarus 31.3 11.2 123.9 48.6% 2.4
5 Lebanon 29.0 27.4 62.8 95.7% 3.8
6 Nicaragua 29.0 11.7 90.2 78.1% 2.7
7 Tajikistan 29.0 17.0 5.3% 1.9
8 Turkey 28.5 24.5 97.4 74.8% 4.4
9 Armenia 28.4 36.6 117.7 12.7% 99.8% 5.5
10 Egypt 28.4 23.4 93.2 27.8% 86.0% 2.9

The oil exporters — Saudi Arabia and the UAE — and Turkey, with its shut commerce hyperlinks to the UK and the European Union, are essentially the most troubling from an economics and investing perspective. Instability in these international locations, might have a spillover impact that disrupts vitality provide chains and world commerce and triggers renewed spikes in inflation in 2022.

To make certain, Saudi Arabia and the UAE largely prevented Arab Spring-related unrest and will profit from the rise in oil costs. However, their excessive rankings on the index, pushed particularly by the youth unemployment fee in Saudi Arabia and the UAE’s reliance on Ukrainian and Russian grain mixed with their low Democracy Index scores, could warrant some consideration.

The scenario in Turkey is especially worrisome given the nation’s already monumental inflation fee and the robust probability of a sovereign default within the subsequent 12 months because of the devaluation of the lira.

Buyers must deal with political developments in these international locations within the weeks and months forward. They might function an early warning signal of potential world provide chain disruptions that might have an effect on the UK and Europe.

For extra from Joachim Klement, CFA, don’t miss Threat Profiling and Tolerance and 7 Errors Each Investor Makes (and How one can Keep away from Them) and join his common commentary at Klement on Investing.

In the event you favored this put up, don’t neglect to subscribe to the Enterprising Investor.


All posts are the opinion of the creator. As such, they shouldn’t be construed as funding recommendation, nor do the opinions expressed essentially replicate the views of CFA Institute or the creator’s employer.

Picture credit score: ©Getty Photographs/alzay


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Joachim Klement, CFA

Joachim Klement, CFA, is a trustee of the CFA Institute Analysis Basis and provides common commentary at Klement on Investing. Beforehand, he was CIO at Wellershoff & Companions Ltd., and earlier than that, head of the UBS Wealth Administration Strategic Analysis group and head of fairness technique for UBS Wealth Administration. Klement studied arithmetic and physics on the Swiss Federal Institute of Know-how (ETH), Zurich, Switzerland, and Madrid, Spain, and graduated with a grasp’s diploma in arithmetic. As well as, he holds a grasp’s diploma in economics and finance.



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