E Trump Gives Russia Amazing Leverage Over The Oil Market

Donald Trump has given Russia's increased leverage over the world oil market. His policies towards Iran and Venezuela are putting output at risk. Iran will benefit greatly from higher oil prices as they ramp down production. As the chart below shows, Russia is not producing more oil, either. But the oil being produced is becoming ever more valuable. 

Trump has put the trade war on hold as it pertains to China. But Russia, the EU and Japan are still making trade war noise since Trump not only raised tariffs on Russian steel, but also on Japan, an ally of the United States. So, we have the uncomfortable reality that China gets a break and Japan, an ally, does not.

Russia has the power not only to impose tariffs but also the power to reduce oil production. With the China, Russia oil deal likely falling apart, Russia may find itself linked in this battle with strange bedfellows, Japan and the EU. Still, Russia supplies major contracted oil to China.

Now that Russia and OPEC seem to be getting along, the leverage that Russia has increased. It was not long ago that it was thought that the US was trying to bankrupt Russia with low oil prices. Now it seems, Russia will be the prime beneficiary of high oil prices.

(Click on image to enlarge)

Source:  Organization for Economic Co-operation and Development

Russia has the largest oil reserves in the world. Russia is the largest exporter of natural gas. Giving that nation leverage in a time of oil scarcity could weaken the economic position of the United States. High oil prices cause a slowdown for farmers, who may not be hurt because the China trade war is put on hold, but will be hurt by high oil prices. Retail in America is on shaky ground. Retail and airlines cannot tolerate massive increases in oil pricing.

But Russia has been hurt by low prices, as production has lagged, as has world economic prosperity. The chart of Russia's oil production looks like one of Jeffrey Snider's charts of US economic growth. Yes, the oil production is barely increasing, but has declined in 2018. Before the Great Recession, Russia's oil growth rate was powerful.

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Disclaimer: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice. The ...

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