Eurasia Energy War?

    Trump has just opened a Pandora box by attacking Iran. We could get a world war, although at this stage, it is still unlikely considering the fact that the West is not ready to wage war. But what we WILL get without a doubt is a major re-balance of power which inevitably means a drastic reduction of the relative importance of Western countries and the corollary of a very significant reduction of the purchasing power both in the US but especially in Europe. 

   How bad will it be? 

   The first hint is that the financial markets have not yet factored in the risk. When they do, any time now, the decline will be significant. Financial authorities will immediately intervene with limitless funds to prevent a meltdown which conversely guaranties that inflation will rise significantly. What is essential to understand is that inflation of products and deflation of income can actually strike paradoxically at the same time, resulting in a significant crash of purchasing power without triggering hyperinflation, which I think is what we will get this time.    

   What is absolutely certain is that we're in for a very rough ride in the coming months. The recession which did not materialized over the last few years will be swept aside by a depression which will completely transform the current paradigm. 

   It is hard to imagine being more wrong than Fukuyama, who 34 years ago, in 1992 wrote his book titled: "The end of History" just as a new chapter was on the verge of being written.   

Eurasia Energy War?

As analysts and traders continue to assess the Gulf energy shock and its implications for the global economy, another alarming development has emerged across the energy sector: Ukrainian kamikaze drone strikes have reportedly disrupted a significant portion of Russia's oil export capacity, according to Reuters.

Reuters calculates that recent Ukrainian drone strikes on Russia's oil and fuel export infrastructure, including attacks on all three of Russia's major western oil export ports, Novorossiysk on the Black Sea and Primorsk and Ust-Luga on the Baltic Sea, have eliminated 40% of Russia's oil export capacity, or around 2 million barrels per day, in just a matter of weeks.

Taken together, the twin disruptions of Gulf and Russian energy flows (in Eurasia) materially tighten the global energy supply outlook in the coming weeks and months.

The convergence of these shocks suggests crude prices are likely to remain elevated as traders price in a sustained geopolitical risk premium and reduced global spare capacity.

Kiev has also targeted pumping stations and refineries as part of its effort to squeeze Moscow's oil revenue, which funds a quarter of Russia's state budget and its war machine.

This month's attacks on Russia's oil and fuel export infrastructure have forced Moscow to divert more flows to eastern export supply channels.

Flows to China via the Skovorodino-Mohe and Atasu-Alashankou pipelines, plus ESPO Blend shipments from Kozmino, remain solid at 1.9 million barrels per day.

Russia is also still exporting around 250,000 barrels per day from Sakhalin and sending roughly 300,000 barrels per day to Belarusian refineries.

When two separate conflicts involving major powers begin to degrade energy infrastructure across Eurasia, we are left with one very big and unsettling question: At what point do both of these conflicts start to look less regional and more like the early stages of a world already at war?

Who wins? Well, Gulf of America, so far.