So many geopolitical moving parts now

So many geopolitical moving parts this morning.

First, front page of the FT, that Saudi is abandoning its $100 oil price target as it is confident that: a) it can win the oil production war with competitors; and b) it has alternative funding sources, particularly debt and capital markets. The latter is true, but surely by announcing a willingness to let oil prices go lower and to issue more debt that will just increase its overall borrowing costs.

https://www.ft.com/content/1d186f62-5941-4f9e-aef1-7d93a8a696cd

Some have doubted the veracity of the FT story - was the Saudi $100 oil price target realities anyway, has it long been targeting something lower? But assuming it is true it raises lots of questions as to why now, why is Saudi doing this - someone is putting those stories out there. So therein some thoughts;

* Is this a Saudi gift to the Harris ticket, aiming to help drive gas prices at the pump in the US lower? But gas prices are already close to $3 a barrel, down from nearer $5, so does Harris need the help? Guess everything helps in a tight election race.

* Has there been a back room security deal with the US, given broader instability in the region? Has Saudi got the Biden administration to sign up to a new peace effort in the region, forcused now on Lebanon, after the failure of the Gaza effort? Over the past 24h we saw the joint Western/Gulf call at the UN for a Lebanon ceasefire which plays to that narrative.

* Is Saudi then signalling to Iran to do more to support the peace process and to reign Hezbollah in, and if it does not play ball then expect much lower oil prices and a disastrous economic outlook then for Iran?

* Perhaps a similar message to Russia, that oil prices are going lower, and now is the time to cut a peace deal in Ukraine. Perhaps Saudi then is also helping the US by putting pressure on Iran to stop providing drones and munitions to Russia, again extending the war in Ukraine.

Second, and on the crisis in the Middle East, a key decision time for Israel as to whether it will pullback from the brink in Lebanon, as Hezbollah and Iran appear to first blink. Many in Israel, and particularly on the far right will argue that Israel has Iran and Hezbollah on back feet as they clearly do not want an all out war, and that this is exactly the time for Israel to use its escalation domination and follow thru with its ambition to clear southern Lebanon of the threat from Hezbollah. The success of its pager/walkey talkey and air campaign thus far sugggests that Israel actually has a huge technological advantage over Iran and Hezbollah and that actually the results of a further push into Lebanon this time might be different to the disastrous 2006 campaign. As noted above there is though huge pressure now on Netanyahu from the West and the Gulf to back down, but does he care? The question is whether Netanyahu really wants peace or an extended war just suits his own personal agenda given the challenges he faces on the political and judicial fronts. And he might just prefer to stall everything (drag the war on) until a US election and the prospect then of an even more Israel friendly Trump administration.

Third, in the war in Ukraine, Putin coming up with warnings that he might change Russia’s nuclear doctrine to include first use against a non nuclear power, which is backed by a nuclear power, where the homeland is threatened.

Obviously this is meant to head off Western countries pushing the US to green light Ukrainian use of long range missiles supplied by the West against Russia. Putin is trying to paint a new red line. But notable within this is an incredible admission by Putin, that he cannot win a conventional war against Ukraine. That is an incredible admission for a supposed great power - or that is what Putin would have us believe. Meanwhile, in making these threats Putin is sticking two fingers up at President Xi and the global south both of which have implored him not to resort to first nuclear use. I think his comments will strain relations with those supposed friends.

Fourth, and now in the US another remarkable development with US House Speaker Johnson “demanding” the resignation of Ukraine’s highly regarded ambassador to the U.S, Markarova, for what he deems is a politically partisan trip by Zelensky to a munitions factory in Scranton, PA, where no GOP politicians were present. Trump also appears to have gone full Putin, in making incredibly disparaging remarks about Ukraine’s prospects of winning the war and over Zelensky himself. Zelensky had hoped to present his peace plan this week to Biden and Trump, albeit any chance of a meeting now with Trump this week has surely gone out of the window.

All this presents a dilemma for Zelensky as Markarova has been a superb and really effective ambassador and firing her would surely be a PR gift now to Trump. Does he want to give Trump that win, and ultimately undermine the Harris campaign. Ultimately Zelensky knows that Ukraine’s defence is best served by a Harris win, and if this all ends up in negotiations his position will be strongest if backstopped by a Harris, not stabbed in the back by Trump presidency.

But the spat has I think laid bare the huge challenges which would present Ukraine in the event of a Trump presidency, which seems hostile to Ukraine and favourably inclined towards a Putin regime.

Fifth, and finally China, with Xi finally trying to call a stop to the dismal negative economic confidence loop which China has found itself in, by announcing new fiscal and monetary stimuli. The problem is that China’s crisis of confidence is such now - and created by Xi - that Xi needs to pull out a bazooka to deal with it. It’s kind of one of those Draghi, “whatever it takes moments”. The problem is that one has to understand the core of why China is in the current economic malaise. I would argue that it is all about “Fortress China” economic policy settings - therein China learned from Russian experience of sanctions, that if you expect a future conflict with the West, reduce vulnerabilities (deleverage) and build up defences (reserves and balance sheet). China expects a future conflict with the West and hence feels for national security it has to run Uber cautious, orthodox economic policies. It has the bazooka, even a huge multi barrelled one, but is simply unwilling to use it while it puts economic security as the number one policy priority. So it will always be a case of too little too late to turn around confidence and especially when Xi has sown doubts in investors minds over support for capitalism, and while the market sees new US/Western tariffs in China as an inevitability. Xi is caught between a rock and hard place. And matters are not helped by the concentration of power around Xi, which means there are fewer checks and balances, and much more chance therefore of policy errors.