When looking at the world and considering the sorts of troubles that could roil US markets, we commonly talk about the DRINCs. This acronym stands for Democrats, Russia, Iran, North Korea, and China. Just last week we noted how Russia, Ukraine, and options trading can be related as Russia poised troops with heavy artillery on Ukraine’s border. Now we see in the news that Russia sent troops into Kazakhstan on its Southern Border to help the government as demonstrations roil the country. So, DRINCs have their troubles too. How could this situation affect your options trading?
Why Is Kazakhstan Important?
Kazakhstan is a sparsely populated country the size of Western Europe which lies on Russia’s southern border. It was part of the USSR and is where the Baikonur Cosmodrome is where Russia launches its rockets. Although it has close ties to Russia still Kazakhstan has close ties with Western oil companies including Exxon, Shell, France’s Total, and Italy’s Eni. Exxon and Shell are putting $37 billion into expansion of the Tengiz oil field and the country is a major part of Chevron’s earnings. Kazakhstan produces 40% of the uranium in the world and supplies 22% of the uranium used in the USA.
Oil and Uranium Prices
Kazakhstan pumps more oil than Nigeria or Mexico and is a leading producer of uranium. Thus, any disruption of production of either commodity in Kazakhstan due to civil unrest has the potential to affect world prices. Many of the issues that are upsetting folks in Kazakhstan are the same ones that are making people angry in Russia. Oligarchs are billionaires and common people are having problems making ends meet. If Putin sends troops into Ukraine and too many come home in body bags he will run the risk of being overthrown or thrown out. So, we see that the DRINCs have their problems too as more and more people get fed up with perceived inequality between a few haves and the rest who are have-nots.
DRINCs, Crazy or Not
One thing to keep in mind when considering what sorts of trouble Iran, North Korea, China, or Russia will cause is whether they are acting crazy or following a well thought out strategy to accomplish a strategic goal. The other thing is the degree to which a leader in any of these countries is working toward the goals of the country or their personal goals. The nut job that runs North Korea is in it for himself. The mullahs who run Iran claim to serve the country and Allah but really like being rich and in charge. Both Xi Jinping and Vladimir Putin are working on long term strategic goals. Putin would like to see Russia as the head of the USSR again or something similar and Xi Jinping remembers his father being arrested and humiliated during the days of Chairman Mao. He has emphasized the need for social order enforced any way that he deems necessary. The military buildup in China is a payoff to keep the military happy but could backfire if a misstep leads to war over some small island (or Taiwan) in the South China Sea. Both China and Russia for all of their bluster are well aware of the risks that come with threats to their neighbors. Both Iran’s mullahs and the North Korean nut job are more likely to do something to get their regions into trouble because of their self-focus.
The food for thought part of this discussion is that DRINCs have their troubles too and that needs to be factored in when assessing how their actions will affect the markets.