2022 predictions revisited: where we are now

This past December, I challenged myself to make some predictions for the new year — including how the global economy might respond to some brimming international tensions. As we get close to mid-year, I’m circling back to see how those predictions have aged.

My prediction: China seeking retribution after Olympic boycotts.

Where we are: A lot of bark, but no bite. Ultimately, eight other countries (the UK, Canada, Australia, Lithuania, Kosovo, Belgium, Denmark, and Estonia) joined the diplomatic boycott of the 2022 Winter Olympics. All nine countries sent qualifying athletes, but no ministers or government officials joined those delegations–taking a public stance on the issue without invoking any real economic penalties. China opted to match that soft-handed approach in their response–focusing on the themes and imagery of the game’s opening ceremony to make their own policy case.

What’s next: Relations between the US and China remain strained. One thing that was on clear display during the games was the alliance between China and Russia, with Russian President Vladimir Putin and Chinese President Xi Jinping releasing a joint statement that, “friendship between the two States has no limits, [and] there are no ‘forbidden’ areas of cooperation.” Since the invasion of Ukraine, China has yet to condemn the actions of Putin and has abstained from voting in the UN Security Council’s official response efforts.

My prediction: Belarus threatens to freeze Europe.

Where we are: Actively evolving, but not great. A quick reminder — Europe gets about 40% of its natural gas from Russia (carried by pipelines that snake through Belarus). It also purchases more than 50% of the five million barrels of oil Russia exports daily. With that in mind, it’s no surprise the invasion of Ukraine had an immediate effect on the international energy market. The US, EU, and UK have been quick to increase restrictions on Russian imports — with a keen focus on oil, gas, and coal. Western consumers are already seeing those costs passed along at both the pump and in their heating/gas bills. And that will likely hold true for the foreseeable future.

What’s next: Just this week, Russian energy company, Gazprom, halted service to both Poland and Bulgaria (both NATO countries) after they refused to pay their bill in rubles. Both countries already had proactive measures underway to wean their dependency, and neither will feel the hit as acutely as they could. Nevertheless, the cut-off is a warning shot to the EU — especially countries like Germany and Italy which are highly dependent on Russian natural gas. And it might be working. Germany announced today that it would work with the EU to find a way to meet Russia’s ruble ultimatum without compromising sanctions. Will others follow suit? The only certainty seems to be Putin’s unpredictability. Over the last couple days, he has shown the West he’s willing to take a hit to deliver a blow.

My prediction: Iran building nuclear capabilities.

Where we are: Unchanged. While negotiations haven’t been officially abandoned, they have essentially hit pause. And the primary pain point is actually a little more abstract with Iran reviving an earlier demand that the US lift a terrorist designation against the Iranian Revolutionary Guard Corps (IRGC).

What’s next: While negotiations remain static, Iran’s nuclear program hasn’t slowed its efforts. It’s now estimated they have successfully streamlined a production model for creating bomb-grade uranium. Where this process to create these weapons previously took about a year, it is now down to only one or two weeks. It’s hard to say what comes next, but many politicians across the aisle remain strongly opposed to entering any kind of agreement with Iran.

My prediction: Russia invading Ukraine.

Where we are: It happened. It’s happening. And we can only speculate what comes next. Russia invaded Ukraine on February 24th, with a focus on the capital city of Kyiv. Now, in what many are referring to as “Phase 2,” Putin has begun concentrating his troops along the country’s southeast border. As the conflict continues, the west has steadily increased sanctions to target both government officials and private businessmen directly. Intended to damage the Russian economy and penalize Putin’s inner circle, these policies aren’t without ripple effects to the Western countries enforcing them. The most obvious of which might be at the pump where gas prices have sharply increased. Both the US and European governments are now working to stabilize pricing–with President Biden planning to dip into reserves to release one million barrels per day.

What’s next: Fuel might be the most immediate economic repercussion of the invasion, but it won’t be the only hit to the global economy. As the war in Ukraine continues, the West is also very likely to see a sharp rise in food pricing. The US market is already combating a variety of challenges including worker shortages, lingering supply chain issues, a new avian flu outbreak, California’s ongoing drought, and blocks at the US/ Mexican border. The invasion of Ukraine adds a new layer of complexity to the mix as Russia is one of the highest exporters of fertilizer–used heavily for both US crop and livestock cultivation. The long-term effects don’t bode well for farmers’ ability to keep pace, much less match pre-pandemic output. And less product means higher price tags.

In a nutshell.

While we have a better vantage of these intricate exchanges, all four remain live wires. It is difficult to predict what comes next, but it’s safe to say that Russia’s continued invasion of Ukraine will do a great deal to steer each outcome, and the western world should brace themselves–or more accurately, their pocketbooks for things to get worse before they get better.

Danilo Diazgranados is an independent investor in the global food and wine, financial services, real estate, and the hospitality sectors.