Geopolitics And Energy Security Drive New Commodity Order As Strategic Resources Gain Global Focus

Smoke rises after an Israeli strike on Beirut's southern suburbs, following an escalation between Hezbollah and Israel amid the US-Israeli conflict with Iran. Image credit: Reuters/Khalil Ashawi

However, natural resource equities account for just c7.6% of the MSCI ACWI index – and only around c6.6% excluding chemicals – despite underpinning energy security, electrification and the AI boom, highlighting a widening gap between the strategic importance of commodities and their representation in global portfolios.

A new commodity order is taking shape, defined by geopolitical fragmentation, electrification, supply constraints, regionalisation of energy and materials markets, and a re-ordering of global supply chains.

The geopolitical impact

Oil markets are increasingly driven by shifting geopolitics rather than pure supply/demand forces.

Sanctions, elections and territorial tensions are influencing flows and pricing, while spare-capacity dynamics have shifted, and strategic stockpiling has increased.

According to Ninety One’s head of global natural resources, Paul Gooden, energy is no longer just an economic input; it is a strategic asset.

“Oil and gas markets are being reshaped by sanctions, regional conflict and the prioritisation of domestic security,” says Gooden.

“Geopolitics is now embedded in pricing, and volatility is likely to remain a structural feature.

“Control of energy supply is becoming central to national resilience and industrial policy.”

Resource reslience

Natural resource equities have historically been among the best-performing asset classes during periods of high inflation, generating positive real returns more consistently than global equities, fixed income or broad commodity indices.

They have also outperformed physical commodities over the long term and demonstrated low to negative correlation to major equity styles and other real assets.

Within the natural resource equity universe, today’s mining sector is characterised by high free cash flow yields, strong shareholder distribution yields and improved balance sheet discipline.

George Cheveley, portfolio manager, global natural resources at Ninety One, says “Mining equities combine valuation support, strong free cash flow and shareholder distributions with structural leverage to improving commodity fundamentals.

“In inflationary and geopolitically stressed environments, they have historically behaved very differently from broader equity markets; in a world of persistent inflation risk and constrained supply growth, exposure to mining and materials is not simply cyclical.

"It is tied to structural demand that is proving more durable than many expect.”

The AI of it all

Electricity demand is entering a new phase.

US on-grid power demand is rising again after years of stagnation, driven by electrification, data centres and AI.

Copper consumption is projected to increase from 27.6 million tonnes today to 42.3 million tonnes by 2050, reflecting the scale of demand from the energy transition, grid expansion and data centre build-out.

“The AI arms race is not just about chips and software; it is about power,” says Gooden.

“It has been said that ‘knowledge is power,’ but for the first time in human history, ‘power is knowledge’.

“Data centres and digital infrastructure require reliable, scalable energy.

“That is driving renewed demand for natural gas and accelerating investment in grid infrastructure.”

Cheveley adds, “Copper sits at the heart of electrification.

“From transmission networks to renewable build-out and data centres, the intensity of copper use is rising; yet supply growth is constrained by geology, permitting and capital discipline.

“Markets may be underestimating how tight supply could become if investment does not keep pace with structural demand.”

Go for gold

Gold has been one of the defining market stories of the past year.

Prices have risen sharply alongside a softer US dollar, while central banks remain sustained net buyers.

Emerging market central bank gold holdings still sit materially below developed market levels, suggesting further scope for larger allocations.

At the same time, higher gold prices have translated directly into expanding margins for producers, with all-in sustaining cost (AISC) margins rising significantly as operational discipline meets stronger pricing.

Cheveley says, “Gold is telling us something important. It is not simply reacting to inflation; it is responding to deeper questions around fiscal sustainability, currency stability and geopolitical fragmentation.

“When central banks are persistent buyers and emerging markets are increasing allocations, that reflects a structural shift in reserve management.”

After a period of margin pressure, gold producers are now generating significant free cash flow at current prices.

Balance sheets are stronger, capital allocation is more disciplined, and shareholder returns have improved materially.

Emerging industries

Beyond energy and mining, agriculture is re-emerging as a strategic focus amid climate volatility, shifting trade flows and food security concerns.

China has recently lost self-sufficiency in corn, underscoring longer-term structural pressures in global food systems.

Ninety One portfolio manager, global natural resources, Dawid Heyl, says, “Agriculture is a vast and often overlooked opportunity set.

“Climate risk, geopolitics and changing consumption patterns are reshaping global food systems; in many regions, self-sufficiency is declining, increasing the strategic importance of reliable supply.

“Agricultural equities can provide diversification within the broader resource complex, particularly during periods when metals and mining face cyclical pressure.”

Regionalising markets

Although natural resources stocks are a relatively small part of the equity universe – making up less than 8% of global equity indices – dispersion within the sector is significant across regions, cost curves, capital allocation frameworks and balance sheet strength.

Commodity markets are increasingly regional, with pricing dynamics diverging across jurisdictions.

Gooden says, “Natural resources are not a homogeneous asset class. Returns are increasingly driven by regional policy, cost positioning and capital allocation.

“This creates meaningful differentiation between companies.

“In a more fragmented world – where commodity markets are regionalising, and supply chains are being reconfigured – stock selection matters.

“Active management allows us to navigate volatility, avoid weaker balance sheets and focus on businesses with resilient cash flows and disciplined capital allocation.”