MacroVoices #551 Michael Every: Decoding The Global Geopolitical Puzzle

Key Points

• The episode discusses escalating geopolitical tensions, focusing on Iran and the Ukraine-Russia conflict, and their impact on global oil and diesel markets.
• Michael Every argues that oil prices are not reflecting the true risk of escalation, with markets overly optimistic about peace deals in the Middle East and Ukraine.
• The US economic blockade on Iran is seen as a driver for Iranian military escalation via proxies, affecting key oil infrastructure like the East-West Pipeline and Saudi facilities.
• There is speculation that Trump's enemies globally have incentives to keep oil prices high through the US election to harm his political prospects.
• Ukraine's strikes on Russian diesel refineries, reportedly defying Trump's warnings, have raised concerns about a global diesel crisis due to reduced refining capacity.
• The possibility of the US halting diesel exports is discussed, with potential severe consequences for Europe and pressure on Ukraine to de-escalate.
• The hosts and guest emphasize that both the Middle East and Ukraine conflicts are interconnected and closer to escalation than peace, with significant risks to global energy security.
• The episode touches on other topics like stablecoins, Greenland, and Denmark, but the main focus is on energy and geopolitics.
• A format change for the podcast is announced, promising more content from Michael Every.
• The discussion highlights the need for oil traders to understand geopolitics and for policymakers to react appropriately to avoid a diesel crisis.

Summary

In this episode of Macro Voices, host Eric Townsend and guest Michael Every, a global strategist at Rabobank, delve into the complex interplay between geopolitics and global energy markets. The conversation begins with a focus on the escalating tensions with Iran, where Every argues that the US economic blockade has incentivized Iran to escalate militarily through proxies, targeting critical oil infrastructure such as the East-West Pipeline and Saudi facilities. Despite these risks, oil prices have not surged, which Every attributes to unfounded market optimism about potential peace deals. He contends that both the Iran situation and the Ukraine-Russia conflict are far from resolution and are, in fact, converging into a broader conflagration.

The discussion then shifts to the Ukraine-Russia war, particularly Ukraine's strikes on Russian diesel refineries, which reportedly defied direct warnings from President Trump. This has sparked fears of a global diesel crisis, as diesel is crucial for transportation, agriculture, and supply chains. Every notes that a diesel shortage could lead to rationing and economic stress worldwide. The possibility of the US ceasing diesel exports is also explored, with Every suggesting it could force Europe to pressure Ukraine to de-escalate, as Europe would bear the brunt of the shortage. He also mentions the irony of potential arbitrage where refined products still flow from Europe to Russia.

Throughout the interview, Every emphasizes the need to look beyond first-order headlines and consider second- and third-order effects. He points out that both the Middle East and Ukraine conflicts are closer to escalation than peace, and that they are essentially the same war fought by different actors. This interconnectedness means that a diesel crisis could have far-reaching consequences, affecting political stability and economic conditions globally. Every also touches on other geopolitical issues, such as Greenland and Denmark, where initial fears of conflict have subsided after a security agreement was signed.

The episode concludes with a discussion on the implications for central banks and policymakers, who must react to these geopolitical developments. Every stresses that understanding geopolitics is now essential for oil traders and financial markets alike. The hosts announce a format change for the podcast, promising more frequent appearances by Michael Every. Overall, the episode paints a sobering picture of a world on the brink of multiple escalations, with energy markets at the heart of the storm, and warns that a diesel crisis could be the next major shock to the global economy.