The First Big Victim Of Russia-U.S. Financial Warfare Is In … China.

Looking at the multi-dimensional battlespace in the Russian-Ukraine War (including kinetic, cyber, economic, and resource-related), we see mostly losers and no immediate winners. Ukraine’s infrastructure is being ruined, its military degraded, and its civilian population is suffering tragically.

Russian citizens are being economically deprived – its economy will probably shrink 25% in the first half of 2022. Russia’s military is also suffering losses even as they continue to advance on Ukrainian targets.

The West is experiencing an influx of two million Ukrainian refugees, mostly in Poland and Romania, and its citizens are paying much higher prices for gas, food, and electricity. That will get worse as the ripple effects of Russian retaliation cut off fertilizer needed for agriculture and strategic metals needed for many manufacturing processes.

Initially, it seemed that China might be the big winner because the Chinese could just sit back and watch the West and Russia tear each other apart. But in a stunning example of global interconnectedness, Chinese interests have emerged as major losers also, as described in this article.

One of the biggest impacts of the war has been on commodity prices. We all know that gold and oil prices have spiked. But this phenomenon has not been limited to those two key commodities.

We’ve seen spikes in the prices of titanium, platinum, palladium, neon, aluminum, and many other critical inputs to a variety of manufacturing processes. One of the most dramatic price spikes has been in the price of nickel.

Nickel has gone up 1,000% since the war started and 250% in just two trading days last week. That’s usually fine for producers, except that many producers take short positions on futures markets to hedge their output. Speculators also take short positions to profit from expected price declines. Oops.

Chinese entrepreneur Xiang Guangda was one of those who took a short position in nickel futures on the London Metals Exchange (LME). He is estimated to have lost over $1 billion on this trade and has struggled to meet margin calls. The situation got so bad that LME suspended trading, terminated open nickel contracts, and required counterparties to settle up based on the closing price from the day before the suspension.

This is a backdoor bailout of Xiang and others because their losses would have grown much worse if the trading had not been suspended. By the way, I’ve warned for years that this will happen in the gold futures market also when prices surge out of control. That’s one reason I have always recommended having physical gold bullion rather than relying on paper gold futures contracts because when you most want your gold price exposure, the futures contracts will simply be torn up by the exchange (which they can do under their rules in the case of “disorderly” markets).

We have not heard the end of surprise financial losses from this war. Stock market crashes usually happen quickly, but losses in off-balance-sheet derivatives sometimes take weeks to be publicized because banks try to hide the losses and the entire market operates behind the curtain.

Still, the losses do come to light sooner than later. It is just that it takes a week or more for the bodies to float to the surface.

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