Geopolitics and Markets Review 1st August 2022:

Welcome to August and congrats to The Lionesses on their Euros win yesterday. Glad one team is bringing it home!

Nancy Pelosi set off on her tour of Asia on Saturday. It appears the US tested the water by teasing a potential Taiwan visit. All their actions achieved was to anger the Chinese, with tensions rising even further between the world’s two largest superpowers. Nancy Pelosi will visit Singapore, Malaysia, South Korea, and Japan.

Taiwan wants independence. China continues to follow its “One China” idea, and they include Taiwan in that. If China did invade Taiwan, the level of US involvement would be brought into question.

Oil is still a major topic, and I haven’t discussed it in a while. Supply is shrinking. Rapidly. It turns out pulling a million barrels a day out of your strategic reserve, gives you less room to be strategic. The government will need a major drop in demand which could come with a recession. If this demand doesn’t drop, they have fewer reserves to act with which puts them in a weaker position if geopolitical tensions rise. Prices could skyrocket in the futures market as the physical market is stretched. Biden’s trip to Saudi Arabia was him begging for more oil. The Saudis agreed to raise production by 1 million barrels. This fills the gaps pulled from the SPR every day but does nothing to refill the reserves. Saudi Arabia is also importing Russian oil, and then sending it to the EU. It seems that this is counterintuitive to western sanctions on Russia, which need to be reconsidered to have a larger negative impact. The ruble is one of the strongest performing currencies of the year. Trade has turned East. New infrastructure is being built, connecting Iran and Russia through the Caspian Sea. This includes India also.

Pulling from the SPR has never worked before. It is supposed to be used for crude oil emergency supply, which this isn’t. This is rising prices caused by inflation. The SPR is at its lowest level since 1987 and once the government realizes it won’t work to lower gasoline prices, how will they replenish the reserve?