Financial markets at the beginning of the Korean War. What will happen to oil prices if war breaks out in North Korea? Nuclear scenario Korea vs USA

World markets, which have not had time to recover from the Icelandic volcano eruption and are painfully affected by every news from Europe, are again going into negative territory on fears of a military conflict between North and South Korea.

Asian stocks fell sharply, and shares of South Korean companies were subject to massive sales after the escalation of the confrontation between North and South Korea.

North Korea has allegedly put its troops on alert, as reported by South Korean media citing experts in Seoul, who, for their part, use their own sources in the north of the peninsula. According to these data, Kim Jong Il gave the corresponding order to the highest military officials. There has been no official confirmation of this information from Pyongyang yet, nor have there been any comments from South Korean officials, Reuters reports.

On Monday, Seoul announced it was freezing all trade relations with the North and banning North Korean ships from entering South Korean waters, in what Britain said was a crushing blow to the communist state's economy. This was South Korea's response to the sinking of a corvette in March of this year. 46 sailors were killed. Reuters calls the attack the deadliest episode in inter-Korean relations since the 1950-53 North-South War. A group of international experts admitted that the corvette was sunk as a result of the launch of a North Korean torpedo.

News from South and North Korea added tension to already nervous investors, who sold the euro on Monday on news from Spain that the local regulator had taken control of the small bank CajaSur. Japan's Nikkei index fell 2.8%, Australia's &P/ASX 200 fell 2.3%, and South Korea's Kospi Composite index fell 4.3%. Hong Kong's Hang Seng fell 2.5%, while the Shanghai Composite index lost 1.2%, The Financial Times newspaper notes.

As a result, the South Korean won fell against the US dollar in foreign exchange trading. At 10:57 local time, the dollar was worth 1,257.65 won, which is 43.15 won less than the previous trading levels, Yonhap notes. According to sources in The Financial Times, the Korean Central Bank had to intervene in the trading process to avoid an even stronger fall in the national currency.

The MSCI Asia Pacific composite index fell 3.1% to 109.24 points at 1:30 p.m. in Tokyo, to its lowest level since late July 2009, Bloomberg reports. “Rising tensions on the Korean Peninsula, combined with growing concerns about European sovereign risks, are affecting investor sentiment,” Kim Yong-jun from Seoul-based NH-CA Asset Management stated in an interview with the agency. - However, many of North Korea's statements are bluffs. I don't think catastrophic events will follow."

“I think people are overreacting to what's happening. Neighboring countries and allies will not allow conflict to flare up on the Korean Peninsula. However, it is worth considering that such news will have an impact on financial markets from time to time,” Lee Soon-Yup from Shinhan Investment Corporation told the FT.

On the other hand, North Korean defectors in Seoul claim on their website (www.nkis.kr) that the order to put troops on high alert was given on May 20, that is, before Seoul announced retaliatory actions for the North Korean attack on South Korean warship.

The website quotes words from a Pyongyang radio report: “We are not in the mood for war. But if South Korea, with the US and Japan on its tail, tries to attack us, Kim Jong Il has ordered us to complete the unification process that was not completed during the (Korean) War.” North Korean media write that the South Korean authorities deliberately fabricated the incident with the sunken corvette in order to create a pretext for an attack on North Korea.

The United States, whose military contingent in South Korea numbers 28 thousand troops, expressed full support for Seoul. On the other side of the border is one of the largest armies in the world, North Korea's, which is believed to number 1 million. However, according to experts, the North Koreans’ weapons are outdated, and they are unlikely to risk starting full-scale hostilities against the much better armed and trained army of South Korea and the American contingent.

Japan, in turn, said it could impose its own sanctions against North Korea in connection with the sinking of the South Korean ship, Japanese Prime Minister Yukio Hatoyama said the day before, the Korean Yonhap agency reports.

Meanwhile, South Korean companies in various sectors are suffering losses. Shares of KB Financial fell by 4.9%, Samsung Electronics - by 2.1%, and Hyundai Motor immediately fell by 5.8%. Investors' concerns also affected the quotes of airlines and the travel industry. "The dollar's sharp rise against the Korean won has triggered massive selling in airline stocks," said Kyung Um-dong, a Bank of Korea spokesman. Korean Air Lines fell 5.3%, Asiana Airlines fell 9.9%, and tour operator Hana Tour lost 5.8% of its market capitalization. The Bank of Korea has scheduled an emergency management meeting for late Tuesday evening to discuss trends in currency and financial markets.

Donald Trump's threats to respond to North Korea with "fire and fury" have roiled global markets. If war breaks out, there will be a humanitarian crisis. The world economy will also be shaken.

Supply and production of everything from smartphones to cars to flat-screen TVs will take a major hit, hurting the growth of economies around the world and driving up prices, an analysis by Capital Economics Ltd. found. This is because South Korea is an important link in the supply chain required for the production of electrical appliances. First of all, the Republic of Korea is the largest manufacturer of LCD monitors (used in the production of televisions and other electronic devices), accounting for about 40% of global production. Secondly, South Korea is the world's second largest producer of semiconductors (used in smartphones); this country accounts for 17% of the market share. Thirdly, the Asian country is one of the world's largest automakers and is also home to three of the world's largest shipyards.

“If South Korean production is seriously affected by the war, shortages will be felt throughout the world,” economists at Capital Economics said. “And it will take a long time to rebuild—it takes about two years to build a semiconductor factory.” There are also risks for shipping lines. Any conflict could disrupt major routes along the east coast of China, the world's largest trading nation. “If it becomes too dangerous to enter and leave Chinese ports, the global economy will suffer even more,” Capital Economics warns.

For the United States alone, the costs could be enormous. The federal debt will balloon further due to the need to finance war and construction. If America spends approximately the same amount on reconstruction on the Korean peninsula, as in the case of Iraq and Afghanistan, the national debt will soar by another 30%, the company's experts calculated. However, we are certainly not at that stage of the conflict yet, and many analysts say fears are now exaggerated, citing previous similar cases of rising tensions that eventually fizzled out. At the same time, it is unclear how any military conflict will unfold, given the diversity of potential participants in this process.

But even if it doesn’t come to the point of using weapons, tense relations are already bad news for North Asia’s growth prospects, Bloomberg Intelligence notes. “In South Korea, looming uncertainty is eroding confidence, which risks jeopardizing investment and job creation. And in the case of Japan, the rise of the yen is hitting corporate profits and the reflation plans of the Central Bank.”

Geopolitical risks are returning to financial markets. The Russian ruble and Russian markets reacted to the unexpected missile strike launched by US President Donald Trump on Syria. The American stock market pulled back after the US dropped the world's largest non-nuclear bomb on Afghanistan. At the same time, the Korean won and Korean markets are struggling amid heightened tensions over North Korea, and the spread between French and German 10-year bonds is widening as elections in France approach.

This emotional reaction to political shocks and risks is typical of the behavior of investors and people in general. Geopolitical events tend to cause traders and investors to worry, which in many cases leads to increased volatility in financial markets.

But as history has proven time and again, such events usually do not have a lasting impact on markets. Looking at data on major geopolitical events over the past 100-plus years, Giles Keating, former head of market research and deputy chief investment officer at Credit Suisse, found that stocks tend to recover after such shocks.

“For the vast majority of individual major events - from the assassination of Archduke Franz Ferdinand 100 years ago to the terrorist attacks of 9/11 and the recent events in Iraq and Ukraine - the stock market reacts by about 10% or less, and within a month it fully recovers,” - he wrote in an explanatory note to his clients. “This means that the most profitable strategy could be one of trading against the crowd, buying dips caused by similar incidents.”

To better understand what this actually looks like, let's look at a few charts related to different geopolitical upheavals.

The first chart, taken from a report last year by Credit Suisse Research Group, shows the performance of the Hong Kong Stock Exchange HSI index immediately after the Tiananmen Square protests and over the longer term.

“In our experience, markets tend to overreact to political turmoil, as can be seen in Tiananmen Square, when the HSI index fell 22% in one day, and in total fell 37% from its peak during the protest period. Then it began to recover steadily, reaching the previous peak over the next year,” the report’s authors note.

The following chart shows that the stock market followed similar trajectories after the Cuban missile crisis (left axis) and the 2003 invasion of Iraq (right axis).

Blue Line - Cuban Missile Crisis

Orange Line - Invasion of Iraq

Horizontal - number of days from the bottom point

“Although geopolitical events are often unpredictable and can affect different countries, market reactions can often be predicted,” writes Charles Schwab of Jeffrey Kleintop, commenting on this chart. “Our analysis of 37 geopolitical events since 1980 shows that stock markets did not always fall in response to scenarios that led to increased international tensions. But in those cases where he did, the average decline was 3%, and the average duration was only seven days... While a regional military conflict may well have a negative impact on the market, there is a long history of market reactions to military strikes and operations, as well as diplomatic efforts efforts aimed at containing the North Korean threat suggest that the most likely outcome will be a negligible impact on the market."

Finally, although markets began to melt shortly after the British voted to leave the European Union last June, stocks have since bounced back (see chart below).

ScheduleS&P500

To be fair, there have been a few instances where markets have not recovered as quickly after major geopolitical upheavals, such as the 1940 invasion of France and the 1973 Arab-Israeli War (which resulted in a complete redistribution of control of the world's oil reserves). . But even then, the stock market recovered within 2-3 years.

It is noteworthy that Warren Buffett is also a proponent of the strategy of maintaining absolute calm during periods when everything is falling apart. In October 2008, at the height of the financial crisis, he wrote in an op-ed for the New York Times: “In the long run, the stock market will be fine. In the 20th century, the United States endured several difficult and costly military conflicts, the Great Depression, a dozen recessions and financial market panics, oil shocks, influenza epidemics, and the resignation of a compromised president. However, the Dow rose from 66 to 11,497.”

As an additional commentary on the geopolitical topic, it may be recalled that Napoleon defined a “military genius” as “a person who can do ordinary things when everyone around him is losing their minds.” This expression is perfectly applicable to investing.

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Military conflict over North Korea could affect South Korea, Japan and China, disrupting crude oil supplies to these countries, which account for approximately a third (34%) of all seaborne crude oil trade. In addition, these three countries contain about 65% of Asian refining capacity. Because of this, global oil markets will be seriously “suffered” - this was the conclusion made by analysts from the British consulting company Wood Mackenzi.

Half of China's oil production is at risk if tensions between North Korea and its neighbors escalate into open conflict. China has its own oil production, but more than half of its factories will shut down due to rising tensions. According to Wood Mackenzie, about 1.5 million barrels of crude oil out of China's 3.95 million barrels per day comes from the North China Petroleum Basin, with the nearest field located 200 km from the North Korean border. If the conflict escalates, China will start using oil from its strategic reserves for the first time since their creation 3-4 years ago, Wood Mackenzie expert Chris Graham said.

Japan and South Korea could take similar measures - both countries have the necessary reserves to cover oil shortages within 90 days. In addition, Japan may speed up the re-commissioning of nuclear generators to compensate for reduced oil and gas imports.

Oil prices tend to react positively to an increase in the likelihood of large-scale military action. Growing instability in the world leads to an increase in prices for black gold, says Sergei Pigarev, head of the Asset Management Club of the Higher School of Economics and chief financial analyst at the Mangazeya oil company: “In addition, the DPRK is a major exporter of coal. In 2016, the volume of net exports reached 25 million tons, and export revenue amounted to about $1.2 billion. The cessation of export supplies from North Korea can support coal prices on the international market, and also provides an excellent opportunity for Russian coal miners to replace North Korean volumes with their own supplies.”

As for the gas industry, we can expect an increase in purchases of LNG from Japan in the short term to create reserves of blue fuel, as well as an increase in LNG prices when supplied to the area of ​​possible military operations: the size of the “risk premium” will depend on the level of tension in region, the analyst says. “Provided that Russia does not find itself drawn into a direct confrontation with the DPRK, the escalation of confrontation between North Korea and the rest of the world, led by the United States, could have a positive impact on the Russian economy. First of all, we are talking about the energy sector of the Russian economy. Exporters of oil, coal and gas will benefit the most,” says Pigarev.

In the case of the DPRK, the military development of the situation puts two major consumers of energy resources - Japan and South Korea - at risk and at the same time makes the scenario of relations between China and the United States, which also have a colossal influence on the global balance of production and supplies of hydrocarbons, less predictable, states Alexander Ershov, editor-in-chief of commodity markets Thomson Reuters: “Therefore, it is difficult to talk about a significant likelihood of a so-called war premium in the price of oil in the event of a Korean conflict. The behavior of the commodity market will largely be based on the overall impact of this crisis on the global economy, since the direct threat of losing a significant amount of extracted resources is less likely compared, for example, with the Middle East,” Ershov believes.

Wood Mackenzie's forecasts are limited only to the situation of a regional clash between the DPRK and its neighbors. But Donald Trump does not rule out a different scenario: he promised to respond to the DPRK with “force, fury and fire,” which “the world has never seen before.” In response, Pyongyang is ready to launch a missile attack on a US military base on the island of Guam.

Vitaly Ermakov, head of the Center for Energy Policy Analysis at the Institute of Energy at the National Research University Higher School of Economics, warns against this kind of economic analysis, since it creates the illusion that some kind of “regional” conflict around North Korea is possible, which could have some negative economic consequences for regional players: “In fact In fact, a serious military conflict is only possible with the participation of the United States, which can decide that North Korea's nuclear potential must be destroyed, despite the risk of nuclear war. The problem is that some irresponsible politicians believe that the conflict can be limited to Asia. It seems to me that this is a dangerous illusion that could bring the world to the brink of nuclear disaster. In this regard, discussions about the impact of the war with North Korea on oil demand are simply inappropriate. Dead people don’t need oil,” the expert concludes.

So far, commodity markets have reacted restrainedly to the Korean crisis, notes Alexander Ershov. There are several reasons for this. The main thing is still only the political crisis. Threats of exchanging missile strikes are only in the words of the leaders of the DPRK and the United States, but although tensions in the region have increased, the real lever of influence on the commodity markets is the direct threat of disrupting the balance of demand and supply, and this has not yet happened. Hurricane Harvey is now more visible to the market than the Korean threat, the analyst says. Both the EU and the United States talk about the need to put pressure on North Korea and new sanctions, but in reality only China and, to a lesser extent, Russia can influence Pyongyang. And they behave with restraint - so the markets are relatively calm.

But, according to Alexander Ershov, if the situation escalates, one must understand that a fictitious war in Korea (or anywhere else) will not necessarily provoke an increase in commodity prices. We must again proceed from the formation of a global balance of supplies - price movements are possible in any direction: “The same Harvey, having hit oil refining in the United States, freed up the volume of oil for export, thus putting pressure on world prices, although usually during the hurricane season In the Gulf of Mexico, oil prices are rising because production is usually affected by the elements more than the downstream,” concludes the editor-in-chief for commodity markets at Thomson Reuters.

Forecast in connection with the war in North Korea.

Dear readers! Many of us are following the developments in the situation around Syria and North Korea.

As you know, on April 7, 2017, two US Navy ships attacked a Syrian air base with 59 Tomahawk cruise missiles on the clearly far-fetched accusation of a chemical attack on civilians. At the same time, according to the Russian Ministry of Defense, only 23 missiles reached the base. The objective damage to the base is very small, partly due to the fact that the Russian military was warned by the Americans about the attack 2 hours before the attack and warned the Syrians about it, but even taking this factor into account, the damage is objectively extremely small, even the runways were not damaged.

The strike on the Syrian airbase was carried out during the Chinese leader’s stay in America, which is clearly not an accident. At the same time, enormous pressure is being put on Russia to force it to abandon its defense of Syria.

At the same time, dramatic events are developing around North Korea. Trump is threatening to use military force against North Korea if it does not give up its nuclear weapons. Aircraft carriers, submarines and other US forces are moving into the Korean area. At the same time, North Korea is not going to give up nuclear weapons; moreover, on April 15, on the birthday of Kim Jong Im, North Korea is going to conduct another nuclear weapons test.

This, in a nutshell, is the current situation around Syria and North Korea.

Now I turn to expressing my thoughts on the current situation around Syria and North Korea. Namely, regarding the future plans of the Americans.

As for Syria, America’s main task here is to get Russia out of the way. In this case, Syria will be defeated, and Russia will suffer colossal damage to its reputation as a cowardly country and an unreliable partner. Or intimidate Russia in such a way as to guarantee the non-interference of its troops located in Syria during a massive American attack on Syria, with the same result - the defeat of Syria and even greater shame for Russia. However, the Russian leadership does not seem to be breaking, which creates an unacceptable risk of nuclear war with it in an attack on Syria. Therefore, new provocations and strikes against Syria are possible, with the goal of gradually breaking Russia’s determination to defend Syria, but carried out on a small scale and with an attempt to prevent losses among Russian military personnel in order to minimize the risk of nuclear war. In the event of Russia’s adamant position, it is possible that an order will be given to Ukraine to launch a massive offensive on Donbass, so that Russia will get bogged down in a war with Ukraine and be forced to abandon the operation in Syria.

But no one is defending North Korea. This country itself is a very tough nut to crack for a country of its size, but still wars with it are much less dangerous than with Russia. In addition, if North Korea is attacked, this country, unlike Syria, will almost certainly strike back, which will lead to a full-scale war.

And what is very important, the date of the nuclear test in North Korea is very close - the 15th. This will be the reason for an attack on North Korea.

Considering all of the above, it is most likely that the next big war will begin in Korea just the other day.

I will try to briefly suggest America's plan related to the war with North Korea.

April 15, 2017 North Korea conducts nuclear tests. This becomes a reason for an American attack on North Korea. In response, North Korea retaliates against American fleets and bases. A war begins between America and North Korea, in which South Korea enters on America's side. Japan is trying to maintain neutrality, but American provocations and pressure are aimed at dragging Japan into the war. America seizes air supremacy, North Korea is trying to respond with missile and artillery attacks on the fleet and bases of America and the territory of South Korea. North Korea has no chance of winning, but it is also difficult for America to break North Korea. North Korea has a large, motivated and trained ground army, although it has poor aviation and air defense, a large coastal fleet, and a huge number of underground shelters, warehouses and factories. America dominates the air; on the ground, South Korea bears the brunt of the war. The war is becoming protracted, since it is impossible to occupy or force North Korea to capitulate.

And here we come to the main events of the war. At some point, the Americans launch a massive nuclear strike on Japan and South Korea with submarines from positions near North Korea, blame North Korea for it, and immediately launch a massive nuclear strike on North Korea so that the dead North Koreans cannot tell the truth. I understand that this seems monstrous and impossible, but the American elite has a complete lack of conscience, but there is more than enough arrogance and deceit.

In addition, America accuses China of supporting North Korea and imposes a ban on exports from China.

The war is used as an excellent excuse for the collapse of a giant bubble in the American stock market, which relieves the elites of responsibility for this, and allows pre-informed oligarchs to profit from the ruin of the suckers.

In America, new restrictions on rights and freedoms are being introduced, and the police regime is being strengthened.

In order to collapse markets and limit rights, a single nuclear attack could be organized on some locality in America.

A large number of refugees are trying to escape from North Korea. On the border with China, Chinese troops are trying to stop refugees, but on a small section of the Russian border, Russian border guards do not dare to shoot at refugees. As a result, part of the flow of refugees penetrates both China and Russia.

Thus, America's goals in the war are as follows:

1. Launching a nuclear strike against political allies but economic competitors of Japan and South Korea under the North Korean flag, further weakening and subjugating these countries.
2. Expulsion of Chinese goods from the American market.
3. A reason for the collapse of the stock bubble and restrictions on rights.
4. Elimination of an independent North Korean state
5. Creating a migration crisis in China and Russia.

America's strategy can also lead to negative consequences for America:

1. North Korea, or China and Russia under the North Korean flag, could launch a nuclear attack on the United States.

2. Industrial enterprises owned by Americans in China may be nationalized by China if serious sanctions are imposed against China.

3. The alliance between Russia and China will strengthen.

I invite everyone to discuss my thoughts outlined above.