The Seeking Alpha article "A 2015 'Nuclear Renaissance' Should Fuel Solid Gains for Uranium Stocks" has more to do with the geopolitical trend and the rise of future uranium spot prices. Putin's move to facilitate a nuclear reactor for Egypt is interesting. What it does is put an end to economic globalization as we know it.
Exxon Mobil (NYSE:XOM) lost a billion dollars in Russian oil and natural gas investments. Now, before investing or trading with other countries, multinational corporations will consider whether or not prospective countries' assets are protected. The Middle Eastern nuclear race is a race to protect oil and oil assets. Saudi Arabia's recent development in building a wall in order for them to secure their assets and disallow conflict that could destabilize their economy is a form of protectionism that the world is presently undergoing. Do multinational corporations view protectionism as a form of growth, or is their philosophy being challenged?
Ronald Reagan may have called the Soviet Union an "evil empire", but it was the multinationals that changed Reagan's opinion that we should partner up with them. This cooperative philosophy was good for business. It allowed companies such as Coca-Cola (NYSE:KO), Pfizer (NYSE:PFE), General Electric (NYSE:GE), and oil conglomerates to create a pipeline for their goods and services everywhere in the world. In fact, Reagan was hailed a hero and also gave a speech on free enterprise as students were looking towards the statue of Vladimir Lenin. What is the net benefit for countries in the Middle East to establish their own nuclear facilities? With Russia, we know that the benefits are huge. It's their nuclear capability, knowledge, and advancements that will propel the nation out of an oil and natural gas-dominated economy.
The nuclear industry is measured in the trillions of dollars. Once the nuclear facility is built, they will receive constant revenue for upgrades, maintenance, waste management, etc. Russia's development to create nuclear revenue was adopted this year because of sanctions. It became a realization that the Russian economy cannot and will not exist by virtue of having oil and natural gas. Literally, what you have is a nation run by an oligopoly, but which has now taken the characteristics of free enterprise. Putin adopted the multinational philosophy of cooperation. He is open to business. However, it's also the attitude he has towards British Petroleum (NYSE:BP), Chevron (NYSE:CVX), Exxon Mobil, etc. that is why his partnerships are valued. What's good for free enterprise is good for Russia.
By 2030, Saudi Arabia plans to build 16 nuclear reactors at costs exceeding $100 billion. In 2013, Saudi Arabia had intentions of buying Type 209 submarines from Germany. The deal failed to hold as the country came to the realization that they were slightly outdated. Saudi Arabia is seeking modern nuclear submarines similar to those currently being built by India. India has successfully acquired the technology to build its own nuclear submarines indigenously. However, the nation is also in talks with Russia to lease a second nuclear-capable fleet of submarines. The simplicity of storing nuclear weapons in nuclear submarines is becoming more popular worldwide. As a result, less nuclear weapon storage is taking place in missile launch facilities. Nuclear submarines give nations the capability to efficiently move nuclear weaponry. This critical feature allows nations to protect their oil assets worldwide, while intimidating opponents. Saudi Arabia may now rely less on the U.S. in protecting oil reserves, a good move on their part. In the near future, oil and natural gas companies may seek this type of protection before deciding to invest in potential assets.
In order to supply nuclear fuel and other services for planned reactors in the United Arab Emirates ENEC, the United Arab Emirates' national nuclear company, signed an estimated $3 billion worth of contracts with Russia's Tenex, France's Areva (OTCPK:ARVCF), and Rio Tinto (NYSE:RIO). Furthermore, Exelon (NYSE:EXC) and Southern Company (NYSE:SO), two U.S. energy companies, are lobbying to ease export restrictions for nuclear technology for American companies. However, it's not in the mind frame that the U.S. government will ease export restrictions on nuclear technology. Their mind frame is primarily on solar energy.
It's no coincidence that Saudi Arabia's King Salman recently stated his undying love for Egypt as a partner they could rely on. It's also no coincidence that Putin struck a deal with Egypt. As a result, the Russian delegation was well received in Egypt with a red carpet and a lavish ceremony in honor of them. Russia's sphere of influence will not only include Egypt, but also a pipeline to Saudi Arabia. King Salman's words to Obama - and remember he was a defense minister - were" "Do not let Iran get the bomb".
King Salman has also allowed Israel to use their airspace whenever they want. His skepticism is now fueled with anger. The U.S. is becoming less reliant on Saudi oil, and King Salman is well aware that even if drillers and oil companies cut capital expenditures, the revolving door will continue with higher and lower oil prices. The $700 billion reserve of Saudi Arabia is not enough to build a state-of-the-art nuclear facility. Iran's capital expenditures on its nuclear facility are over $100 billion, and that's still not enough to get it going with respect to the intentions that they have for it.
Aside from North Korea, which has nuclear weaponry, all other countries that have nuclear capabilities enjoy the status and economic benefits to trade with fellow powerhouse nations. There is a positive correlation between gross national product and countries possessing nuclear capability. More than half of nuclear power plant construction worldwide is being exclusively built by China and Russia. However, nuclear activity isn't solely domestic. Both Russia and China are eager and active in financing, building, and attempting to sell domestic nuclear technologies to other countries. This nuclear renaissance will increase uranium prices, resulting in industries, including Cameco (NYSE:CCJ), increasing its valuation three-fold.
Cameco is strategically positioned in supplying uranium to China and Russia. Russia's purchase of Canadian uranium company Uranium One still doesn't give them enough supply to meet their needs. Pakistan is not an ideal partner for Saudi Arabia's nuclear initiative. China sold Pakistan outdated 1970s nuclear technology with approval from the International Atomic Energy Agency (IAEA). Saudi Arabia's agreement to allow South Korea to build SR7.5 billion worth of nuclear reactors in Saudi Arabia has put Pakistan as a secondary source in their nuclear development initiative. It's interesting how this global order is changing right before our eyes. This global order will have its own vision from Saudi Arabia to China and Russia. The global order simply can't exist on U.S. utilitarianism.
Why is the Iran deal so contentious for Israel and Saudi Arabia? First of all, they have a powerful military. They have the most extensive intelligence network, and have a national commitment to hide advanced nuclear equipment from the rest of the world. Are we to suggest that this exclusive membership should include North Korea and not Iran? There's a widespread sentiment that the IAEA was sleeping on the job when it came to Iran. Additionally, it was China and Russia that helped Iran with their nuclear program. These two nations on the one hand agree with the United States, but they also have their hand on the money. China and Russia's partnership is to supply nuclear facilities to any country that has money. India's advancement as a nuclear country couldn't have happened without China and Russia. When India was sanctioned by the United States because of their nuclear ambition, it was China and Russia that rode the cavalry to help them.
It is China's goal to become the greatest power in the world, not a junior player to Western economic thinking. Do multinationals believe that China and Russia should be a threat to be contained or accommodated? Any foreign policies that believe that one must contain economic engines becomes incompatible in how multinationals think. It threatens their livelihood, investors, and eventually their cooperative mode to grow as a citizen of foreign countries. CEOs of multinationals are keenly aware that a militaristic trend is pushing nations to protect their assets and growth engines. The world is building military economic engines governed by the proliferation of nuclear weaponry.
Japan has been voicing worries over Chinese military budget growth, which they believe may cause instability within the region due to territorial disputes. John Kerry, the US Secretary of State, stated that preventing Japan from developing nuclear weapons is one of the key points of American diplomacy. Japan has a large stock of weapon grade nuclear material. The nuclear race is pushing Japan's Prime Minister Shinzo Abe to get the policy on the table and promote nuclear power, and to restart the Fukushima nuclear plant. Japan's motive to repeal Article 9 from their Constitution is fuelled by their desire to counteract China's staggering $188 billion per year defense spending. Japan does not want to depend upon the United States for their own security, and they will actively seek out nuclear capability. It is regional conflict that is playing a dominant role in the Japanese psychological frame of mind. An arms race is needed to prevent any strike capabilities on their territories.
Russia agreed to build twenty nuclear reactors in India. They developed a joint vision for nuclear energy, and they will expand uranium mining fabrication and the supply of nuclear fuel. Also, Xi Jinping revived the 2000-year old Silk Road. They plan to invest $79 billion in the Silk Road infrastructure that will encompass Central Asia, South Asia, and the Pacific region. The sea route will link Chinese ports to European ports, such as Antwerp in Belgium. These are economic tentacles spreading that will mark a significant change in economic landscapes in Europe and Asia.
If one seeks oil, one must first go through China. If one seeks access to Chinese markets, one must pay them for it. The change from rural to urban workers of the middle class in China is highly significant for multinational companies seeking business. China will reform the one-child policy to increase their population. The country's key economic policy is not determined by economic cycles. It's determined by 20-30 year policies that come to fruition economically.
Just recently, TASS reported that Chinese investors will acquire more than 50 percent stakes in strategic Russian oil and gas fields. This will have great significance in the future, because it allows China to compete actively in the Asia-Pacific region, Latin Region, Europe, and Africa. They also have their sights focused on the Arctic Sea. By 2020, an expected 15% of Chinese foreign trade is expected to pass through this Arctic route. That is why Chinese capital expenditures in the military sector have been increasing yearly.
Russia paved the way for the China National Petroleum Company (CNPC) and the Sinopec Group to own and develop natural resources in Russia. Nuclear and military buildup is the only way to protect those assets. Countries that trade with Russia and China will also be handsomely rewarded through joint ventures that build nuclear reactors.
The World Nuclear Association (WNA) indicated that at least 180 nuclear reactors are planned and proposed internationally. Iran was the catalyst. The IAEA does not have the authority to have inspectors' access foreign nations' nuclear facilities. Israel has learned this from history because of its non-compliance of giving inspectors access to its nuclear facility in Dimona. The non-proliferation treaty rights are limited to the transparency of what a nuclear nation is willing to give the IAEA access to. Iran's scathing attack on Henry Kissinger alluded to the fact that Brazil, Argentina, Egypt, South Korea, and Taiwan did not notify the IAEA in dismantling their nuclear initiative and continually upgrading their program. Henry Kissinger's statement stands solid, "It is a move from preventing proliferation to managing it". If it's unfair competition, Iran knows that the deal is limited to what others do and what they see fit in the context of the situation. That means they could very well do the same.
China and Russia are working on both sides of the street. China is not shipping anything to Iran because the Ayatollahs have everything they need to make the bomb, including the neutron initiators to trigger nuclear weapons. China is behind the nuclear program in Iran and every other rogue nation. China's ties with Russia will integrate this program, allowing them to become world leaders in nuclear development. Russia has signed multiple cooperative agreements, particularly in the oil and gas industry, for the supply of machinery, equipment, and agricultural products. The contract also stipulates that a new nuclear reactor will be built in Bushehr, Iran.
How do I know that a uranium renaissance is beginning to take place? Simple. The Centre for Strategic and International Studies, which received no press from any mainstream media, indicated that Moscow's decision to withdraw from the 2016 Nuclear Security Summit NSS was a major setback for global efforts to manage nuclear security. Moscow's decisions undermined over two decades of successful US-Russian cooperation aimed at ensuring that loose nuclear weapons will not fall into the wrong hands. It will also diminish the NSS process, which has enhanced worldwide nuclear security since it was launched in 2010.
How can you profit from this? The Global X Uranium ETF (NYSEARCA:URA) is going for $11. We all know the hike in interest rates may take place between June and September. We have a strong US dollar. These factors may push down the uranium spot price to $25 per pound and the URA to $7.33 this summer, before an uptrend emerges leading to a long-run uranium bull market. There is minimal risk for investors at this price. Cameco CEO Tim Gitzel indicated that, on average, utilities enter the market three to five years before they require supply. However, over the past two years, long-term utility contracts have been under half of the annual average contract. This indicates the fact that utilities have not been successful in securing future supply. Gitzel added, "In our view, not long from now the market will be calling for more uranium at a time when it could be difficult for primary supply to keep up. The result is a supply story that over the long term is as equally compelling as the demand story". This temporary drop consolidates the new low, which reignites the bull market over the long run.
Westinghouse Electric LLC is building four nuclear reactors for China. However, the AP1000 reactor is plagued with safety standards, delays, and flawed designs. Russia is the world leader in fast neutron reactor technology, and they are implicitly saying to China that they are a reliable supplier and perhaps need to change their contracts with them. It was on December 19, 2012 that Russia signed a landmark nuclear cooperation agreement with the United Arab Emirates. Russia's Tenex is supplying uranium enrichment services to UAE nuclear programs.
Russian diplomacy is working to unravel a $12 billion deal supplying fighter jets to India from Dassault Aviation (OTCPK:DASTY). India will not turn its back on Russia. The country indicated that Russia is a trusted partner and a well-tried weapons supplier to India. When the US imposed sanctions on India because of their nuclear program, it was Russia that provided the economic muscle for them to exist and thrive as a nation. The bargaining chips have changed, which is why India simply won't throw this away. India knows that being punished is not the right diplomatic course of action for a superpower. They are also aware of the fact that Putin and the Russian people only want respect, similar to what India wanted. India is fully aware of Russia's strategic position in protecting its borders, and that included Crimea as a buffer to NATO's expansion.
Jeffrey Saut's Seeking Alpha article 'From Russia With Love?' stated that Russia is plagued with a corrupt regime, which I agree with. However, it's an economically viable economy that seeks trade and expansion internationally even without the United States. It is the reduction of Middle Eastern oil that is undermining the United States to shape events in the Middle East, Europe, and Asia. This calculated shift in global energy policy to punish Iran and Russia has shifted the global economic power to China. It is a shift of economic power from traditional growth engines like the US and Europe to the Asia-Pacific region that has established a strong military trend.
The possible decision to disconnect Russia from SWIFT, an international financial message system, led to outcries in Europe, particularly Poland. Recently, at a joint press conference with US, Foreign Secretary Philip Hammond in Warsaw, Polish Foreign Minister Grzegorz Schetyna stated, "If we speak about sanctions, this is an atomic weapon, an extreme measure. There is still a long list of sanctions that can be used before that. But it should be borne in mind that this weapon acts in both ways and can strike against all of us." What Schetyna means is that there is a certain sensibility that the European community has with respect to Russia. Europe may not tolerate a one-upmanship foreign policy and the bragging rights in having a nation kneel before them. This will push the BRICs nations into an irreversible course of action to retaliate. It will push military spending, military export, and nuclear exports to unimaginable heights.
Any great power has to have an instrument to project that it's capable of having its borders respected and to influence regional order. China expanded their arsenal in recent years, and already possesses more operational warships, tanks, and warplanes than Russia. Beijing's military expansion is directed primarily towards the United States rather than Russia. Even though China prospered because of American ingenuity and having American corporations set up shop in their country, they also feel that the US is not consistent in regards to their foreign policies in the international arena. If they are unable to get their way, they punish nations with sanctions.
This American phenomenon is contrary to what China believes is necessary to establish a profitable world economic order. The People's Republic of China is fully inculcated with the fact that perhaps one day sanctions will be imposed on them. That is why Russia quickly ratified the BRICS New Development Bank to finance infrastructure in BRICs countries and developing countries. The first president of this bank will be an Indian individual headquartered in Shanghai, China. The bank was set up to compete with the International Monetary Fund and the World Bank. The world order has reinvented itself in terms of military expansion and nuclear proliferation. The protection of oil and natural gas assets has become paramount in sustaining economic engines in the future. Nuclear proliferation has become a primary goal in protecting these assets, leading to higher prices in oil, natural gas, and uranium spot price. They are all integrated because of the military expansion trend presently taking place.
I'd like to dearly thank my colleague Fiorenzo Arcadi for contributing his insight into this article.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.