Starting a trade war is like dropping a bomb, you never know what’s going to blow up. From Tom Luongo at tomluongo.me:
I’ve told you that once you start down the Trade War path forever will it dominate your destiny.
Well here we are. Trump slaps big tariffs on aluminum and steel in a bid to leverage Gary Cohn’s ICE Wall plan to control the metals and oils futures markets. I’m not sure how much of this stuff I believe but it is clear that the futures price for most strategically important commodities are divorced from the real world.
Alistair Crooke also noted the importance of Trump’s ‘energy dominance’ policy recently, which I suggest strongly you read.
But today’s edition of “As the Trade War Churns” is about China and their willingness to shift their energy purchases away from U.S. producers. Irina Slav at Oilprice.com has the good bits.
The latest escalation in the tariff exchange, however, is a little bit different than all the others so far. It’s different because it came after Beijing said it intends to slap tariffs on U.S. oil, gas, and coal imports.
China’s was a retaliatory move to impose tariffs on US$50 billion worth of U.S. goods, which followed Trump’s earlier announcement that another US$50 billion in goods would be subjected to a 25-percent tariff starting July 6.
It’s unclear as to what form this will take but there’s also this report from the New York Times which talks about the China/U.S. energy trade.
Things could get worse if the United States and China ratchet up their actions [counter-tariffs]. Mr. Trump has already promised more tariffs in response to China’s retaliation. China, in turn, is likely to back away from an agreement to buy $70 billion worth of American agricultural and energy products — a deal that was conditional on the United States lifting its threat of tariffs.
“China’s proportionate and targeted tariffs on U.S. imports are meant to send a strong signal that it will not capitulate to U.S. demands,” said Eswar Prasad, a professor of international trade at Cornell University. “It will be challenging for both sides to find a way to de-escalate these tensions.”
But as Ms. Slav points out, China has enjoyed taking advantage of the glut of U.S. oil as shale drillers flood the market with cheap oil. The West Texas Intermediate/Brent Spread has widened out to more than $10 at times.
By slapping counter tariffs on U.S. oil, that would more than overcome the current WTIC/Brent spread and send Chinese refiners looking for new markets.
Hey, do you know whose oil is sold at a discount to Brent on a regular basis?
Iran’s. That’s whose.
To continue reading: China’s Oil Trade Retaliation is Iran’s Gain
The Obama administration may have lied about enforcing financial sanctions on Iran after the Iranian Nuclear Agreement, which wouldn’t be surprising. From Tyler Durden at zerohedge.com:
Seemingly not satisfied with airlifting billions in US taxpayer cash on pallets to Tehran, AP reports that the Obama administration secretly sought to give Iran access to the U.S. financial system by sidestepping sanctions kept in place after the 2015 nuclear deal, despite repeatedly telling Congress and the public it had no plans to do so.
An investigation by Senate Republicans released Wednesday that exposes the Obama administration’s politically-motivated actions to secretly offer help to Iran while withholding the truth from the American taxpayers about the extent of Washington’s handouts to Tehran. As AP reports,
The report by the Senate Permanent Subcommittee on Investigations revealed that under President Barack Obama, the Treasury Department issued a license in February 2016, never previously disclosed, that would have allowed Iran to convert $5.7 billion it held at a bank in Oman from Omani rials into euros by exchanging them first into U.S. dollars. If the Omani bank had allowed the exchange without such a license, it would have violated sanctions that bar Iran from transactions that touch the U.S. financial system.
While issuing the license was not illegal, AP reports that it still went above and beyond what the Obama administration was required to do under the terms of the nuclear agreement.
Under that deal, the U.S. and world powers gave Iran billions of dollars in sanctions relief in exchange for curbing its nuclear program. Last month, President Donald Trump declared the U.S. was pulling out of what he described as a “disastrous deal.”
The license issued to Bank Muscat stood in stark contrast to repeated public statements from the Obama White House, the Treasury and the State Department, all of which denied that the administration was contemplating allowing Iran access to the U.S. financial system.
To continue reading: Senate Probe Exposes Obama’s Secret Iran Deal To Sidestep US Sanctions
President Trump is hoping to squeeze Iran into either returning to the negotiating table or regime change with lower oil prices. From Tom Luongo at tomluongo.me:
President Trump is stepping up his attack on Iran. He’s now planning the long-game for maximum pressure. The news that Trump quietly asked Saudi Arabia to ramp up output by 1 million barrels a day is the key.
From the analysis at Oilprice.com:
Saudi Arabia and some of its close Arab allies in the Gulf, as well as the leader of the non-OPEC nations taking part in the production cut deal—Russia—are the only producers that have the spare capacity to increase production. So, in case of increased production from OPEC and allies, the potentially lower oil prices would hurt the other OPEC members that don’t have the spare capacity to boost output.
The point here is to begin dropping oil prices now that the U.S. has blown out Turkey’s finances and helped Saudi Arabia improve its fiscal position for the rest of the year with high oil prices.
Turkey is a net energy importer and $75+ per barrel oil is a huge drain on its finances at a time when its currency and bond markets are under serious pressure from a strengthening U.S. dollar. Don’t think for a second the Turkish lira wasn’t helped in its fall. This is a classic hybrid war attack on a country not playing by U.S. rules.
But, now that Trump’s U.S. economy is threatened by high energy costs, he’s looking to improve that situation while also putting a strain on Iran’s finances through the double whammy of losing not only up to 1 million barrels of production per day but also getting $20-25 less per barrel.
And right on target, oil shorts are piling on because that’s what happens when the markets are told which way policy is heading. The Saudis, never ones to miss out on an opportunity to abuse its customers, just set its monthly tender price at the highest markup over benchmark across all its grades in four years.
To continue reading: Next Stage of Pressure on Iran – Lower Oil Prices
China and Russia aren’t the only Eurasian countries who would like to move away from the US unipolar vision. From Pepe Escobar at atimes.com:
It’s not just about oil – there’s a complex interconnection of geopolitics and geoeconomics between the two countries
Slowly but surely, US unipolarity is fading. Iran sanctions will probably hasten the fade. From Christopher Wood at grizzle.com:
Amid current news headlines about North Korea and related nuclear issues, it is important not to ignore the potential schism that could occur in the G7 world as a consequence of the practical fallout from Donald Trump’s decision on May 8 to exit the 2015 Iran nuclear deal.
WHAT WILL HAPPEN TO EUROPEAN INVESTMENTS IN IRAN?
One practical issue is what is going to happen to European investments in Iran. The most high profile example is French energy company Total’s investment in a giant Iran gasfield. Total said this month it would pull out of Iran and its development of the giant South Pars gasfield unless it is specifically protected from US penalties and related sanctions (see Financial Times article “Total threat to pull out of Iran dents EU hopes of saving accord”, May 17, 2018).
Obviously, some form of compromise may be negotiated. But if Washington takes a hard line, such as claiming US jurisdiction as regards dollar transfers between two sovereign countries as was the case in 2014 with the US$9 billion fine levied on French bank BNP, then a confrontation is seemingly inevitable and, as a result, a growing questioning of the US hegemony implied by the US dollar paper standard, a concern which has long been shared by both China and Russia.
QUESTIONING THE US’ ROLE AS THE “ECONOMIC POLICEMAN OF THE PLANET”
French finance minister Bruno Le Maire says it’s not acceptable for the US to be the “economic policeman of the planet”.
In this respect, the most interesting reaction to the Iran issue since Donald Trump made his announcement on May 8 was that of the French finance minister Bruno Le Maire when he said on May 9 that it was not acceptable for the US to be the “economic policeman of the planet”.
In this respect, France is the European country to watch since it has a history of being willing to stand up to Washington in the post-1945 world. That cannot really be said of Germany and certainly not of Britain.
To continue reading: US Sanctions on Iran: The Unraveling of Pax Americana
Could it be? Could the rest of the world be learning how to ignore the US? We can only hope. From Ron Paul at ronpaulinstitute.com:
Just two weeks after President Trump pulled the US from the Iran nuclear agreement, his Secretary of State, Mike Pompeo, issued 12 demands to Iran that could never be satisfied. Pompeo knew his demands would be impossible to meet. They were designed that way. Just like Austria-Hungary’s ultimatum to Serbia in July, 1914, that led to the beginning of World War I. And just like the impossible demands made of Milosevic in 1999 and of Saddam Hussein in 1991 and 2003, and so many other times when Washington wanted war. These impossible demands are tools of war rather than steps toward peace.
Secretary Pompeo raged at Iran. The mainstream news media raged at Iran. Trump raged at Iran. But then a strange thing happened: nothing. The Iranians announced that they remained committed to diplomacy and would continue to uphold their end of the nuclear agreement if the Europeans and other partners were willing to do the same. Iranian and European officials then sought out contacts in defiance of Washington in hopes of preserving mutually-beneficial emerging commercial relations.
Washington responded to the European snub by threatening secondary sanctions on European companies that continued doing business with an Iran that had repeatedly been found in compliance with its end of the bargain. Any independent European relationship with Iran would be punished, Washington threatened. But then, again, very little happened.
Rather than jump on Washington’s bandwagon, German Chancellor Angela Merkel made two trips to Russia in May seeking closer ties and a way forward on Iran.
Russia and China were named as our prime enemies in the latest National Security Strategy for the United States, but both countries stand to benefit from the unilateral US withdrawal from the Iran deal. When the French oil company Total got spooked by Washington threats and pulled out of Iran, a Chinese firm eagerly took its place.
It seems the world has grown tired of neocon threats from Washington. Ironically the “communist” Chinese seem to understand better than the US that in capitalism you do not threaten your customers. While the US is threatening and sanctioning and forbidding economic relations, its adversaries overseas are busy reaping the benefits of America’s real isolationism.
To continue reading: America’s Incredible Shrinking Influence
Iran and Israel may be negotiating an arrangement in Syria. From Tyler Durden at zerohedge.com:
After continuing escalation in Syria last week in which Syria accused both the US and Israel of conducting two separate airstrikes on pro-government forces, there are new reports of unprecedented indirect talks being held between Iran and Israel. And related unconfirmed reports suggest the Syrian government may have asked Iranian forces to withdraw their presence from key bases previously targeted in Israeli airstrikes.
Though neither side has yet to confirm the events first reported in Saudi media and subsequently picked up in some Israeli media outlets (and are likely not going to), it could constitute the closest the two longtime Middle East enemies have come to engaging in diplomatic dealings over the crisis in Syria.
Israeli military personnel look from the Golan Heights over southwest Syria, November 2017. Image source: Reuters via EA Worldview
The news also comes after the May 10 massive exchange of missiles between Israel and Syria in what was described as the “most direct confrontation between Israel and Iran in decades,” and after Putin told Assad there is a need to withdraw “all foreign forces” from Syria, though it was unclear at the time whether the Russian president meant foreign jihadists and Western forces like the United States, or (as most US outlets reported) Iran’s heavy troop presence in Syria.
The Saudi-owned news site Elaph first revealed that the indirect Iran-Israel talks took place this weekend at a hotel in Amman. Elaph has lately become known for gaining a surprising level of access to Israeli officials, giving it a reputation as a news source Israel uses to communicate its message across the Arab world.
Middle East Eye summarizes the Arabic language story as follows:
Iran reportedly pledged to stay out of fighting in southwest Syria between Syrian forces and rebel groups while Israel said it will not intervene in battles near the Israeli-occupied Golan Heights or the Israel-Jordan border so long as Hezbollah and Iranian-backed militias are not involved.
For the negotiations, Iran’s ambassador to Jordan, Mostafa Moslehzadeh, stayed in a hotel room with Iranian security personnel next door to a room of senior Israeli security officials, including the deputy head of Mossad, Elaph reported.
Jordanian officials served as mediator, shuttling messages between the two rooms, according to the report.
Apparently, the two sides did come to some agreement of terms. Middle East eye continues:
One participant told Elaph that the Iranians “arrived at a quick agreement” that its forces would not intervene in fighting near the Golan Heights and the Israel-Jordan border, surprising the Israeli representatives.
To continue reading: Iran And Israel In Unprecedented Indirect Talks Over Syria: Report