Episode Details

Some interesting developments in the murky world of geopolitics to report on this week, as the currency wars heat up.

WWIII has already started. So says US economist Pippa Malgrem, who was Special Assistant to US President George Bush for Economic Policy and a former member of the President's Working Group on Financial Markets.

“We are in a hot war in cold places: Space, Cyberspace, Underwater, and high places, including the Arctic, and the Himalayas, and in proxy conflicts in places the media give a cold shoulder to like Africa.” (Not to mention the Pacific).

A cold war in hot places then - as well as a hot war in cold places.

We are also, of course, in a very hot currency war.

Vladimir Putin goes down the bitcoin rabbit hole

This week, with the aim of limiting Russia’s ability to finance its war in Ukraine, the G7 Nations, the European Union and Australia set a price cap of $60 a barrel on Russian crude oil. This follows the EU's embargo on Russian crude imports by sea, with similar pledges from the US, the UK, Canada and Japan.

As you would expect, Russia has said it will not abide by such price caps, even if it has to cut production.

Meanwhile, the world’s largest oil importer, China, seems to be slowly opening back up. Cities are easing COVID-19-related restrictions in the wake of recent protests, and it seems the country is set to further relax curbs as soon as today. 

I think it’s fair to say that if China had not locked down, oil demand would have been a lot higher - and so the oil price would have gone a lot higher. Same goes for metals, in fact most other commodities. 

And then we have another part of the puzzle. Russia’s President Vladimir Putin did his best bitcoin maximalist impression last week, as he called for an international, independent, blockchain-based settlement network. (Spoiler alert: it already exists. It’s called bitcoin).

“The technology of digital currencies and blockchains can be used to create a new system of international settlements that will be much more convenient, absolutely safe for its users and, most importantly, will not depend on banks or interference by third countries,” he said. “I am confident that something like this will certainly be created and will develop because nobody likes the dictate of monopolists, which is harming all parties, including the monopolists themselves.”

Here’s the link to bitcoin.org, Vladimir, in case you have self-googled and are now reading this.

Where is this all going?

I have a few ideas. So does Credit Suisse’s answer to Led Zeppelin, analyst Zoltan Pozsar.

Tell your mates about this amazing article.

You want my oil? Give me your gold.

“The oil market is tight,” he says. The oil price is lower than it might otherwise be not just because of China lockdowns, but because of the US release of its strategic reserves (SPR), as well as from OECD countries. But Saudi Arabia is now low on spare capacity and the SPR is finite. You can’t print oil after all. “Recent releases have brought reserves down to levels we haven’t been at since the 1980s. The 400 million barrels left in it isn’t much: it could help police prices for a year if we released 1 million barrels per day (mbpd), half a year if we released 2 mbpd, and about four months if we released 3 mbpd”.

Short of a sudden new surge in supply (where from?) or a sudden reduction in demand, it would seem then that the oil price is going higher.

Russian crude already sells at a $30 discount relative to Brent, which currently sits at $83, he observes with China and India the main buyers. “In the case of India, it is widely understood that Indian refiners are turning some of the imported oil into diesel for re-export. Buying Russian crude at