Don’t expect geopolitics to get any better

The world seems to be moving further and further away from
the idea of ‘make love, not war.’ Conflicts continue to erupt everywhere, with
no end in sight.

Recently, the US Department of Defence has updated
its Arctic strategy, as the Arctic is becoming a
strategic area of competition between the world’s major powers.

Experts predict that the Arctic could have its first
ice-free summer by 2030. As the ice melts, new shipping routes will open up,
and access to underwater resources will increase.

Within the Arctic Circle are an estimated 90 billion
barrels of undiscovered oil, 1,670 trillion cubic feet of gas, and critical
metals and minerals necessary for today’s economy.

What is at stake is above all money. Those who can control
the most critical resource areas will not only gain additional income but also
influence others.

Will it at least reduce resource prices?

Unlikely. It is essential to understand that resource
extraction is quite costly. Companies must first deal with icy roads, remote
areas, and specialized rig transport.

According to a World Wildlife Fund analysis, oil prices would
need to range between $63 and $84 per barrel to break even, which is close to
current levels.

No one will work at a loss, so companies and countries will
try to keep prices at acceptable levels. It is therefore too early to say that
black gold will lose its charm.

How valuable is all this information for investors?

The significant investments that countries are making in
the Arctic and the extraction of natural resources there suggest that demand
for oil and gas will remain
high for decades.

This does not mean that the ESG agenda is a lost cause or
that alternative energy sources will cease to be developed. Only that they are
unlikely to be sufficient on their own.

As AI grows, the demand for electricity increases, and wind
and solar power alone cannot meet that demand. For now, it is likely that we
will have to rely on traditional energy sources.

On the other hand, rising geopolitical tensions will affect
countries’ rearmament needs and investments in this sector. Adding related
companies to the watch list would be a good idea. Using a stock screener to
identify these companies can help in making informed decisions.

Still, caution is warranted as to whether now is the right
time to bet on these stocks. Further deterioration in the global economy could
hurt energy prices in the short term.

This article was written by FL Contributors at www.forexlive.com.