Jim Rickards thinks that US relations with Russia will improve, and he maps out some financial implications. From Rickards at dailyreckoning.com:
With the U.S. preparing to confront China and go to war with North Korea, Russia is an indispensable ally for the U.S.
There are huge implications on capital markets as these hegemonic powers continue to edge toward war.
Here’s an overview of some of the financial implications of improved relations with Russia…
1: The End of OPEC and the Rise of the Tripartite Alliance
On energy, a new producer alliance is being created to replace the old OPEC model. This new alliance will be far more powerful than OPEC ever was because it involves the three largest energy producers in the world — the U.S., Russia, and Saudi Arabia. This Tripartite Alliance is being engineered by former CEO of Exxon and Secretary of State Rex Tillerson, with support from Trump, Putin and the new Crown Prince of Saudi Arabia, Mohammad bin Salman.
This alliance is perfectly positioned to enforce both a price cap ($60 per barrel to discourage fracking) and a price floor ($40 per barrel to mitigate the revenue impact on producers). Supply cheating by outsiders, including Iran and Nigeria, can be discouraged by directing order flow to the alliance members, which denies the cheaters of any revenue.
As a result, energy will trade in the range described. Traders can profit by buying energy plays when prices are in the low 40s and selling when prices hit the mid-to-high 50s.
2: Improved U.S. Relations with Russia and Sanctions Relief
Following Russia’s annexation of Crimea and intervention in eastern Ukraine, President Obama imposed stringent economic sanctions on Russia, its major banks and corporations, and certain political figures and oligarchs. The EU joined these sanctions at the behest of the U.S. Russia responded by imposing its own sanctions on Europe and the U.S. in the form of banning certain imports.
The sanctions have been a failure. They have had no impact on Russian behavior at all. Russia still acts freely in Crimea, eastern Ukraine, and in other spheres of influence such as Syria.
This failure was predictable. Russian culture thrives on adversity. Russians understand that their culture is distinctly non-western and has its roots in Slavic ethnicity and the Eastern Orthodox religion.
The benefits to Europe from sanctions relief would amplify what is already solid growth and monetary policy normalization there. This paints a bullish picture for the euro and the ruble as trade and financial ties expand beginning in 2018.
To continue reading: 4 Financial Components to Improved Russian Relations