Tensions with North Korea will Continue

Current tensions between North Korea and the international community, but especially the U.S., South Korea and China are bound to continue and threaten military conflict that could escalate to a previously unthinkable outcome. While oil and gas trade with North Korea is quite small, any threat of military action in the region will impact shipping and lift the price of waterborne goods.

North Korea – Strategic Misperceptions

This morning the Trump Administration indicated that U.S. policy towards North Korea is moving from “strategic patience” to “strategic accountability”. That summary of the current situation seems far less bellicose than recent statements by either side. Moreover, U.S. policy is focused on encouraging China to step in more proactively, which gives the impression that U.S. direct action is still arm’s length away. Yet, as discussed below, misperceptions on both sides could quickly lead either side to escalate from statements to action.

Qatar Crisis Hard to Resolve

This is more than a diplomatic row among GCC members. Perhaps emboldened by President Trump’s visit, Saudi Arabia and its allies have declared if you are with Iran (or specific radical Sunni groups), you are against us. This effort to delineate sides in the region cannot be easily reversed without substantial outside pressure. Expect a geopolitical premium to creep into energy prices as this dispute continues.

Weekend in the Gulf Changes Little

Notwithstanding the pageantry of the U.S. President visiting Saudi Arabia and the enthusiasm of young Iranians hailing their moderate President’s reelection, little changed in terms of the region’s political stability, the battle with ISIS or oil policy this weekend. The clearest signal from the weekend was the public and forceful assertion that the U.S. has allied itself with the Saudis versus Iran, which can only have stoked the age-old rivalry. This should not impact OPEC dealings this week as Iran’s production is near a top, but it is likely to have repercussions down the road when (and if) Iran’s productive capacity rises.

Has OPEC Risen to the Challenge?

The decision by Saudi Arabia, Russia and ostensibly the rest of OPEC to extend the production cut through the first quarter of 2018 is not a surprise, except for the addition of the first quarter of 2018. Extending through early 2018 signals that the producers understand the magnitude of the challenge. Whether they rise to the challenge depends on their success this summer. OPEC needs to do as much as possible now to temper the surplus coming in the first quarter.

French Election is Victory for Europe

In the realm of international relations and U.S. foreign policy, an integrated Europe allied to the U.S. is seen as a plus for concerted action to counteract instability in regions such as the Middle East, North Africa and even the Balkans. The election of independent, centrist, Emmanuel Macron, to the French Presidency over the weekend was a clear victory for Integrated Europe as Macron ran on a pro-Europe platform.