Natural resource and economic superpowers such as Russia and China are not expanding their influence by way of diplomacy; they're doing so by force.

Below is an excerpt from a May 12th article, written by Carl Thayer of the Diplomat, titled, China's Oil Rig Gambit: South China Sea Game-Changer?

"China's placement of the giant state-owned oil rig HD-981 in Block 143 inside Vietnam's Exclusive Economic Zone (EEZ) on May 2 was unexpected, provocative and illegal.

China's deployment of the rig was provocative because the oil rig was accompanied by as many as 80 ships, including seven People's Liberation Army Navy warships. When Vietnam dispatched Coast Guard vessels to defend its sovereign jurisdiction, China responded by ordering its ships to use water cannons and to deliberately ram the Vietnamese vessels. These actions were not only highly dangerous, but caused injuries to the Vietnamese crew."

Click here to read the entire article written by Carl Thayer.


Key Fact: The EIA estimates that the South China Sea contains approximately 11 billion barrels of oil and 190 trillion cubic feet of natural gas in proved and probable reserves.

source: http://www.eia.gov/countries/regions-topics.cfm?fips=scs

Below is an excerpt from one of Pinnacle's most recent Weekly Volumes which predicted with great accuracy the hostile event that is now unfolding in the South China Sea:

However, what is not so obvious is the message America is sending to the rest of the world... will this embolden China to take Tibet? How about Vietnam?

There's a reason China has been increasing its military assertiveness in the Pacific Ocean. There is a treasure trove of oil in the South China Sea. Currently it is largely controlled by Vietnam, but China disputes that ownership. Business Insider reported in an article titled, Why A War Between China and Vietnam Is Inevitable that,

"The fragile Vietnamese economy hugely depends on the South China Sea oil production, which accounts for 30% of its GDP. Vietnamese economy will collapse if it loses its oil assets in the region."

From China's perspective, given all the geopolitical distractions the West is dealing with, there may never be a better time to test its strength and push the boundaries. The effectiveness of the US putting significant sanctions in place against China, if it were to attempt similar annexations as Russia, would be limited. Additionally, any potential sanctions against the world's second largest economy would hurt the US as much, if not more, than China.

Click here to read April 13th's Weekly Volume A Prelude to Global Economic War.


China's Chief of General Staff of the PLA (People's Liberation Army) visited Washington DC on May 16th for meetings with Chairman of the Joint Chiefs of Staff General Martin Dempsey.


While much was discussed, including the Senkaku/Diaoyu Islands dispute which is ongoing with Japan and various counterterrorism issues, the main focus was of the dispute with Vietnam in the South China Sea.

Fang was all business in Washington Friday and made some bold comments in the face of waning international pressure. Below is an excerpt from an article written by Shannon Tiezzi of The Diplomat:

On territorial issues, Fang said, China "will not give an inch" and he warned that China has the means to back up its words with actions. On the oil rig, Fang promised that "we will make sure this well is successfully drilled" without interference from the outside.

Click here to read all about this critical meeting - article from The Diplomat.


At the moment, Vietnam's government has quietly stepped aside and opted to not retaliate or initiate violence of any kind. But the Vietnamese people are angered with the Chinese as tension between the two nations goes back to the Seventies when they were at war with each other.

In light of China's recent move, riots broke out across Vietnam as its citizens destroyed and set fire to Taiwanese businesses.

Vietnam is not a pushover and has a modern maritime fleet. However, it doesn't stand a chance against China's military force.

China has been claiming for years that it owns almost the entire South China Sea. And it has repeatedly rejected rival claims to parts of it from Vietnam, the Philippines, Taiwan, Malaysia and Brunei. China also has an ongoing maritime dispute with Japan. This latest display of intimidation is the kind of behaviour that highlights China's desperate need to secure long-term sources of essential commodities, such as oil. (click here to read a previous volume we wrote about China's commodity hunt in Africa)

China's timing

China's bold move in the South China Sea came amidst much global unrest, from Syria to Ukraine and even Nigeria. More importantly, it came a few days after President Obama left Asia and 8 days prior to the 24th Association of Southeast Asian Nations Summit in Naypyitaw, Myanmar. As the ASEAN heads of government met to discuss all things influencing their region of the world, countries that share the South China Sea, including the Philippines, Singapore, Malaysia and Indonesia, expressed their deep concern over China's actions.


China is expanding its reach and doing what it believes is necessary to secure the future growth and energy demands of its nation.

US Strengthens Alliance With Ukraine

Zerohedge.com reported Tuesday morning that, R. Hunter Biden, Vice President Joe Biden's son, has joined the Board of Directors of Ukraine's largest private gas producer. Hunter Biden will be in charge of the Holdings' legal unit and will provide support for the Company among international organizations.

R. Hunter Biden is a director for the U.S. Global Leadership Coalition, The Center for National Policy, and the Chairman's Advisory Board for the National Democratic Institute. Following his appointment he commented that, "Burisma's track record of innovations and industry leadership in the field of natural gas means that it can be a strong driver of a strong economy in Ukraine. As a new member of the Board, I believe that my assistance in consulting the Company on matters of transparency, corporate governance and responsibility, international expansion and other priorities will contribute to the economy and benefit the people of Ukraine."

Click here to read about this story from Zerohedge.


Biden's appointment came one day after pro-Russian insurgents in Ukraine's Donetsk region claimed independence and asked to join Russia. The two eastern regions of Ukraine that took part in the vote make up 6.5 million people and a third of Ukraine's economic output.

Headline from the Daily Mail:

Russians cry 'colonialism' and complain of 'America's dark side' after Joe Biden's son joins the board of Ukraine's largest private gas company

Likely in retaliation for Ukraine's deepening ties to the West, most importantly America, Putin stated this week that starting next month Russia will only supply Ukraine with gas if it pays in cash. All credit facilities to the Ukraine provided by Russia, which helps Ukrainian people heat their homes, will be cut off. No cash, no gas, according to Putin. Bear in mind that Ukraine already owes Russia near $4 billion from gas debt.


With escalating tensions between Russia and virtually the entire Western World, China is confident it can keep its illegal intimidation of Vietnam a regional territorial dispute, without much international interference.


The global economic war, which we first discussed on April 13th, is heating up faster than anyone expected. Global tensions increase demand and the importance of commodities, particularly the essential ones such as oil, copper, iron ore and other industrial metals. Rare earths and precious metals should also perform well during periods of economic unrest when there is a potential for war or destabilizing events such as a currency crisis.


War, in any form, is expensive and leads to money printing. The expansion of the money supply is, by definition, inflationary. One way to hedge inflation is to own hard assets, such as commodities, which perform well when currencies weaken. Throughout history, exposure to commodities during periods of unrest has proven profitable. It's as simple as that.


Below is a quote from the May 1997 Elliott Wave Theorist:

"I contend that major commodity price rises, while similar in profile, do not qualify as manias. The engine of a commodity boom is usually fear (of shortage, war, inflation, etc.), not hope and greed, so the entire phenomenon is fundamentally different. Commodity booms do not necessarily follow long periods of jagged advance, either, but sometimes emerge suddenly from lengthy doldrums."

source: http://www.socionomics.net/2011/05/a-socionomic-view-of-war-stocks-and-commodities/#axzz31uw2KW8z

An article originally published by Alan Hall in the October 2008 Global Market Perspective, titled A Socionomic View of War, Stocks and Commodities shined light on the relationship between war and commodity values. Below is a short excerpt.

"The current boom in the CRB index emerged from a 21-year bear market that began in 1980 and ended in 2001, just before the war in Iraq got underway, and during a widespread surge in fear of terrorism and climate change. Did the terrorist attacks in 2001 cause commodity prices to rise? A cursory glance at the CRB Index in Figure 2 might make you assume so, but there is more to the story."

Click here to read Alan Hall's full article on this subject.

The reasons to have exposure to the world's key commodities are almost innumerable in these volatile times - especially when you consider how long in the tooth the current rally in US equities is.


Remember, wars lead to money printing, which leads to inflation and higher prices. While the United States is in no fiscal position to fight an economic war, its counterpart in Asia, soon to become the largest economy in the world, definitely is.


All the best with your investments,