Nothing can come from the ‘North Korean situation’, but the rising prices of raw materials, especially crude oil. Cliff Kupchan, chairman and analyst at the world’s leading political risk consulting and advisory firm Eurasia Group, does not exclude the possibility of a price explosion either. He says that the major investors and asset managers around the world will favour gold and other fixed assets, in general, along with the Swiss franc, and the Australian and Canadian dollars. Meanwhile, the shares of companies that can add and contribute to the defence industry and cyber warfare could soar. The interviewee also adds that market players have just realized that the North Korean armaments are far too serious than they have thought. The post-WWII world order that limited nuclear proliferation will likely ‘explode’. Its geopolitical consequences are unpredictable. The expert also says that the USA is powerless against North Korea unless it risks the outbreak of a potential nuclear war.
Péter Zentai: The threat posed by North Korea has become somewhat of a cliché that the world economy and the main players in the capital markets did not even bother. However, now it is about to change.
Cliff Kupchan: It is not an exaggeration if I say that we are witnessing historical geopolitical events. And we can also be assured that from now on, the indifference of capital and raw material markets will stop because their main players will have to realize that this is not the usual annoyance and provocation that they have gotten very much used to from North Korea.
What is it then?
We are talking about a global domino-effect that is quite likely to initiate significant changes in the world of raw materials and shares too. The essence of the domino effect: North Korea becoming a nuclear power provokes mainly the Middle Eastern powers to hasten their nuclear proliferation and acquire long-range missiles.
Who or what forced them into this situation? Which countries are we even talking about?
Iran was pressured by Washington to breach the agreement with America, Russia and the European Union to put its nuclear programme under international control. Washington and Israel are already distrustful towards Iran – which is not entirely unreasonable – because that particular deal, signed during Obama’s presidency, can be and possibly has been circumvented by Iran. Iran, in order to keep its power, is just as much interested in increasing military power policies as North Korea.
If both countries undoubtedly become nuclear powers – and now we know for sure that North Korea has become one –, then it will mean the end of one of the Treaty on the Non-Proliferation of Nuclear Weapons (NPT), one of the greatest achievements of history after WWII. If it happens, then it would go without question that the Western-friendly Saudi and Egyptian systems, along with Turkey, one of the world’s most powerful countries, in the classical sense, would quickly get hold of weapons of mass destruction.
Probably, only the United States can somewhat prevent the domino-effect: it has no other alternatives than stop North Korea… However, the problem is that it cannot do so. The United States simply has no such military option that would not lead to the outbreak of a nuclear war.
So, what to do next?
We are coming to a time, where – even if by coincidence – there is a small, but not negligible chance for nuclear catastrophes. The nuclear proliferation race has not only started again but now, more will ‘line up at the start line’. This is a terrible omen because the mathematical probability of a conflict fought with weapons of mass destruction increases. The North Korea problem – even if a bit late – will be treated as a matter of extreme importance.
Do you anticipate panic in the markets?
I do not predict any market panic for the near future; mainly, because investors’ assessments of the currently developing situation are too diverse. There are major uncertainties in this regard.
We are expecting serious fluctuations in attitudes, which lead to extreme volatility in the markets. All in all, at the beginning of this week, – for the first time – we got a taste of the serious and lasting drops that the ‘North-Korea complex’ can cause. Behind that – to a not negligible extent – there is also the deepening of the American-Chinese issue, which now has an increasing chance of the outbreak of a trade war because of North Korea.
We calculate with radical falls first in the Asian and then the Western markets in the coming weeks. The South Korean money losing its strength is just a by-product of this situation. The rising tendency of the yen, functioning as a global safe haven currency, can easily turn around since as the drama in the Far East is becoming more serious, it can significantly impact the market assessment of Japan’s political and economic situation. Nuclear proliferation and the Korean crisis, directly and indirectly, aggravate not only the Chinese-American and the Russian-American but the Indian-Pakistani (two big nuclear powers) and the Chinese-Indian relations too.
Markets can start pricing the probability of Iran entering the lead of the nuclear proliferation and its countermeasures from Saudi Arabia.
Nothing can come from it but the appreciation of raw material and primarily crude oil prices. A chance for a possible price explosion in the near future cannot be eliminated either. Gold and fixed assets in general, along with the Swiss franc and the Australian and Canadian dollars will be favoured by the world’s major investors; while in the meantime, the shares of companies that can contribute to the defence industry and cyber warfare will soar.
Original date of Hungarian publication: September 08, 2017