Short-Term Diesel Shortages
Sanctions on Russian oil exports are creating concerns over diesel shortages. These shortages would impact European nations the most as many European vehicles are fueled by Diesel. US Diesel prices have climbed 164% over the past year while gas prices have increased 148% over the same period. If the Russia-Ukraine conflict continues, gas stations could regularly run out of diesel. Countries may ration diesel in response and supply chains will face further disruptions increasing shipping and transportation costs.

Oil Prices May Drop Mid-to-Late 2022
There are growing indications that the Russia-Ukraine conflict is in the early stages of de-escalation. If the conflict can be resolved over the next few months, and sanctions on Russian oil exports are lifted, this would provide rapid relief in oil prices. It should be noted however that the war is not the only cause of higher oil prices, which were increasing before the conflict began.

Expansion of US oil production is another option, but unfortunately this option takes many months to years to have a significant impact. Additionally, current political leaders have no interest in expanding US oil production and refining.

Food Shortages and Destabilization
Russia and Ukraine are two of the world’s top producers of grain. The ongoing Russia-Ukraine war is disrupting production and shipments of many products including fertilizers and grain. The United States is not heavily reliant on Ukrainian or Russian grain exports, but these countries are: Egypt, Indonesia, Bangladesh, Pakistan, Turkey, Morocco, Tunisia, Lebanon, Yemen and the Philippines. These disruptions could lead to food shortages in many already troubled nations, resulting in civil unrest, authoritarian government crackdowns on protestors and rioters, food rationing, and even complete destabilization. Turkey in particular is on the path to complete destabilization as it struggles with runaway inflation. Food shortages could easily push the country over the edge.

Food Prices Going Higher Into 2023
There are four major factors currently driving higher food prices.

  1. The Western United States is experiencing drought conditions due to lower-than-expected rainfall. Without more rain soon water shortages could lead to rationing and decreased farm production across a huge portion of the US, leading to higher food prices through 2022.
  2. The Ukraine-Russia conflict is disrupting grain production and shipping. While the US is not heavily reliant on these grain exports, this global impact will have a tendency to drive up prices. Further, the US may ship grain to impacted nations.
  3. Modern farms run on diesel. Higher diesel prices and diesel shortages will continue to drive higher food prices in 2022. Hopefully gas prices will have some relief later this year if the Ukraine-Russia war winds down.
  4. The Ukraine-Russia war has severely impacted fertilizer production driving fertilizer prices to more than double. US farmers are heavily reliant on fertilizer exports and either have to try to pass the costs onto consumers or switch from fertilizer-heavy crops like corn, to alternatives like soybeans. Fertilizer is purchased well in advance of use, so higher fertilizer prices today will impact food prices all the way into early 2023.

Recession / Depression Incoming
As prices climb higher the economy is slowing. Indicators from cars to housing to the stock market to bonds all show we are heading for a major downturn. This means we are likely to experience major price corrections across the market. Stocks and bonds will be some of the first asset classes to get hit.

This will have a tremendous impact on American retirement accounts. Individuals heavily invested in tech stocks will be hit especially hard. Many pension funds across the US are already structurally bankrupt. A significant downturn would make these funds insolvent without a major bailout.

Cryptocurrencies will experience tremendous short-term losses as institutions and individuals sell their crypto holdings to cover their cash losses.

We will see mass business closures and layoffs as economic activity declines and the market is cleansed of poor-performing zombie companies and trendy but unprofitable tech companies.

Housing prices will eventually fall, though the housing market typically moves much slower than the stock market.

The economic destruction will put tremendous pressure on politicians to provide relief. Expect the biggest bailout in history and a big push for universal basic income combined with the rollout of the digital dollar. This could very well be the trigger that starts the hyperinflation death spiral as our government attempts to print its way out of economic reality.

This is unprecedented. Stagflation results from flat economic activity (GDP doesn’t increase or decrease significantly) while prices increase. We are heading into a time where GDP may decrease while prices increase for potentially several months until recessionary forces finally bring down prices.