Analysis | The Warren Buffett way to profit from the energy crisis

When the Deepwater Horizon drilling rig exploded in the Gulf of Mexico in 2010, causing the largest-ever oil spill in the US, all eyes were on BP Plc, the British company behind the drilling. But BP was not alone in the project. One of the partners was the Japanese Mitsui & Co., which had a 10% interest. Little known outside the natural resources industry, Mitsui is part of a group of five Japanese companies investing in energy and resource projects around the world. They are the trading arm of Japan Inc. with interests in everything from coal mines in Australia to oil fields in Oman and wheat silos in Canada. For years it has been a monotonous activity that received little attention. But now, thanks to a years-long period of skyrocketing commodity prices, Japanese traders are squeezing more money than ever from those projects and are among the biggest – albeit under-the-radar – winners of the 2022 inflation boom. Add the profits from buying and selling of raw materials is increasing, and net income is at a record level. The Japanese traders may be largely unknown, but one of their main investors – and beneficiaries – is quite prominent: Warren Buffett. The Oracle of Omaha is a two-year-old bet on the five companies — known collectively as the sogo shosha, or general trading companies — in gold, recently upping the ante by raising its stake in each. Today, Buffett is Mitsui’s third largest shareholder and a leading investor in his compatriots Mitsubishi Corp., Itochu Corp., Sumitomo Corp. and Marubeni Corp. resource projects, trade the resources they produce and use the money to slowly diversify. Berkshire Hathaway Inc., Buffett’s investment vehicle, first disclosed its investment in the sogo shosha in August 2020, with 5% stakes in each worth a total of $6 billion at the exchange rate of the day. Those positions are up more than 50%, even taking into account the depreciation of the yen against the dollar. Two months ago, Berkshire announced the purchase of more shares, bringing its stake to about 6.5%, or about $12 billion at current exchange rates.