Why resource scarcity will change the way we invest

Global demand for raw materials is growing rapidly. The main drivers are population growth, the increase in living standards particularly in larger Asian countries and Europe's green transition to greater energy independence.

Because the resources in demand are unevenly distributed among various regions and countries, global competition is increasing. While one region may control access to a raw material, another may have the technology to extract its value, obtaining the required energy from yet another region or country. This leads to complex value-extraction and supply-chains, causing shifts in geopolitical influence.

In recent decades, financial markets have become increasingly efficient, meaning that the price of a resource usually correlates with its true value. This increase in efficiency has two main reasons. First, relevant information is available to all market participants in real time. Second, advances in globalization, such as China's entry into the World Trade Organization and the opening of trade with the (former) countries of the Soviet Union, made it possible to source raw materials and other resources in the countries and regions where they are available at the lowest price. Nearly unrestricted access to resources has become a fundamental assumption when determining market prices. However, just as competition for resources intensifies, geopolitical factors are also increasingly affecting accessibility and therefore price dynamics.

Energy is one such example. Russia's invasion of Ukraine has spurred Europe's desire to implement its green transition and become more energy independent. However, this shift will require a transition period that may take several decades. During this period, not only will the demand for the metals and minerals for the green transition increase, but the demand for fossil energy sources will also remain high and can only be slowly reduced. This is because renewable energy sources must first be built and installed, which requires significant amounts of fossil energy. While some may argue that increased demand for energy will simply drive prices up, the evolving geopolitical landscape complicates the matter. Trade partners are likely to prioritize trading with geopolitical allies or restrict access to non-allies, leading to economic inefficiencies and increased underlying price pressure. In the case of Europe's green transition, the cost of energy will be determined not by the cheapest source globally, but by the cheapest source that can be secured in the respective geopolitical landscape, changing the price dynamic.