This post is opinion only. See full disclaimer below.
As I indicated in my last post a while ago one of the most important macro-political questions right now continues to be will Trump force the Europeans, Chinese and Indians to go off of Russian Oil. In the case of China and India this would be through direct tariffs tied to this issue. With Europe its more of the form of a deal where they agree to get off of Russian oil and he agrees to impose further sanctions on those other countries. What he has made quite clear is he won’t burden the US without Europe also being willing to pay a price in order to increase the pressure on Russia. There are those who argue this is just a delaying tactic on Trump’s part, but it woud bea. mistake to think he is not serious about all this.
Here are the two higher level issues on this question. First, I have written elsewhere that Soros’s breaking the British central bank in his billion dollar trade hinged on the political calculus that even though the bank had theoretically as a central bank the deepest of pockets the political situation would force them to capitulate which is what in fact occurred. Here the question is whether the EU or at least key countries in the EU can resist the pressure Trump is now applying. Now the EU as with all bureaucracies is a master of stalling—but that as they learned with tariffs doesn’t really work with Trump. More importantly, while there are signs the EU given AI’s energy needs is jettisoning its clean energy agenda, the anti Russian ideology which is at the core of the institutions involved given the continued sway in the bureaucracies of the Cold War era will make it hard to not go along with his demands.
The second key higher level issue is that there are those who argue that the fall of the Soviet Union was precipitated to a great extent by the US getting the Saudis to so drastically cut the oil price that Russia with the loss in oil revenue could no longer fund their debts. If that is the case Russia’s efforts here to reconstitute something of its former empire will encounter if the sanctions go on a similar situation to that of the 80’s. In this case not through a decreased oil price but simply a cessation in demand through a more serious sanction regime. The question is how would the leadership of Russia react to this situation given its deeper historical meaning. Would they quickly bring the war to an end to avoid a similar fate or vow to do things differently this time and resist to an unprecedented extent. In any case all these political machinations are crucial potentially for oil markets. Are investors and traders paying attention?
In addition to this key macro-political issue is the upcoming risk in the next week or so of the US government shutting down. The democrats are desperately trying to use a shutdown to get certain items back in a funding stream like certain social welfare funding for illegal immigrants. They seem willing to shut things down and dampen if nothing else a surging economy with a GDP growing north of 3.5 per cent. But Trump has already told its agency heads that if the shutdown occurs mass firings will occur something the right no doubt would welcome and the left certainly fears. It could get very interesting for the markets depending how this goes?
The third key macro-political event is that South Korea’s new left wing president is facing pressure not to accept the terms of the tariff deal agreed to but not yet signed to avert higher tariffs. Luttnick it has been reported is askng South Korea to accept Japan’s deal which they are insisting that they cannot do unless the US supplies at a minimum swap lines like Japan has to insure continued liquidity given the large amounts of cash involved. They are also balking at US demands that the investment number required in the US its been reported needs to go from the mid 300 billion to a mid 500 billion dollar number. Will the political situation domestically in South Korea allow a deal to be signed and is the US ultimately unlikely to change its terms. If this goes badly tariffs on South Korea could quickly go back to 25 per cent from the current 15 per cent amount and the tariff situation would become once more front and center for markets.
Definitely keep your attention on these three issues over the next month. Each has the potential to move key markets showing yet again how important as this site keeps pointing out politics are for markets.
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