Where to invest during the oil crisis?

 I'll start by saying this is not investment advice and is more my ramblings about the state of the world.  

So one thing is certain - we (the collective We - not just the UK) are heading for period of high inflation.

Despite what  Red Milibrain thinks - the world is heavily dependent on oil and all the green energy in the world will not fix that.

Very few British policitians have any science or technology qualitifications. The only one's I am aware of are Kemi Badenoch and Chi Onwurah (Labour). Red Milibrain has a degree in Politics which is about much use as a chocolate teapot for doing calculations on energy.  He certainly hasnt got a Chemical Engineering  degree and therefore probably hasnt got a clue about the Haber process and why it is important.

The Haber process is a chemical method to make fertiliser. It is critical for low cost agriculture - typically it uses gas as an input material to make fertiliser - it's not about creating electricity - it's about creating a chemical reaction to make fertiliser.  Wind turbines and solar panels are not going to help you out unless we melt them down and use them as an input material. 

So oil prices are rising.  Fertiliser needs oil so expect farmers to increase prices.  We all know how cash rich farmers are and that they are happy to absorb the oil price hike and swallow  the fertiliser prices as they sky rocket. Not...

The UK is in a pretty dire position.  Our once thriving Chemical industry is collapsing.  Expect paints, cement and things like that to get more expensive or maybe even cease trading.  Expect Labour's  house building programme to falter or become significantly more expensive as raw materials like cement rise in price.

Energy is needed for transport.  It's needed for industry.  It's needed for pretty much everything.

So where do you invest?

My thoughts are don't invest in countries which are heavily exposed to oil prices.

The UK and Germany are very exposed so avoid.

The UK economy is very exposed to high government debt and excessive borrowing.  February's numbers showed an additional £14.3 billion in borrowing on top of the TRILLIONS in existing debt. What is worrying is that of the £14.3 BILLION in additional borrowing £13 BILLION of it was to service the debt ie interest payments on the debt pile. How long before we are borrowing 100% just to service the debt?

Rachel has been crowing about interest rates falling a lot over the last month.  This isnt because she is happy people will be paying less for their mortgage. No ! It's because the cost to service her huge bloated debt pile falls when interest rates fall. Much of the debt (gilts) are linked to interest rates and inflation. However the Bank of England Monetary Policy Committee on the 19th March decided to hold interest rates at 3.75% - there had been speculation of a rate cut (which would have delighted Rachel) but their tone was more that a rate rise is on the cards due to inflation.

So the UK has high inflation, zero growth, rising unemployment - stagflation is coming.

So clearly the UK is not a great place to invest -  if the companies are UK based but don't rely on the UK market/economy then they may be worth considering.   

Maybe UK energy companies are the thing to invest in?  Well Shell and BP will make bumper profits. However Red Milibrain is denying them the right to exploit UK natural oil.  They already pay windfall taxes etc.  I suspect the communist Labour government will impose more windfall taxes on them. I wonder how long it will be before they decide to be domiciled in another less hostile country? 

Short term I would say energy companies, more specifically oil companies, are a good investment. However I would think an ETF is the best vehicle so you are less exposed to political interference eg Labour targetting BP or Shell.

So where else in the world to invest?  

France is in better shape as it has significant nuclear energy. However France, like the UK, has it's own zombie government and debt challenges.

Germany I would say is a no go area.  Merkel made the crazy decision to turn off all their nuclear power so they are very exposed to oil and gas prices. Germany has a big Chemical industry which will struggle with higher oil/gas prices. Germany is getting gas from Russia so slightly less exposed to the Middle East.  However Trump is talking about relaxing sanctions on Russian gas exports so Russia will be a winner.  Doubtless China will be placing bigger orders with Russia for energy.

Japan has lots of nuclear energy and their new PM is keen to stimulate the economy. However they have significant government debt but their cost of borrowing is less than the UK overall (despite having significantly more debt).  I think Japan looks a good area to think about.  However they are very export driven and large chunks of the world will be in recession so demand for their products will fall.  They do have a domestic market but generally the Japanese are frugal so unlikely to compensate for a fall in overseas demand.

Korea is very dependent on imported energy - they may struggle.

The USA I would say is not a good place to invest.  Their stock prices (in particular tech stocks) are massively over valued.  Their erratic President is making many Nato allies to question allegiances. The dollar has been weaponised so there is growing reluctance for international trade to be done in USD. So the USA's friendly overseas customers are likely to be more reluctant to do business.

Although the USA has significant oil and can be largely immune to oil chaos in the middle east, they are not immune to the world boycotting them. 

As inflation ramps up, I would expect anti-USA sentiment to rise as this situation has been caused by the USA.   

The USA also has a huge debt pile and it's growing bigger by the day.  I suspect creditors will start expecting a premium for USA debt which means they wont be able to continue using their inflation and asset bubble trick if there's a global recession - they could be in for some big headaches.  I would say the USA is a no go area.

So what about gold?  Gold has been rising steadily but has fallen recently.  It is seen as a bit overvalued.  It however is a good long term store of value.  Maybe Gold is a good insurance policy if it all fails. 

I think the safe bet for now is an ETF in oil and see how things deteriorate.