EconVue Energy Spotlight
posted by Lyric Hughes Hale on July 22, 2018 - 12:00am
It’s official, things are topsy turvy. The Republicans are sponsoring climate legislation, and the Democrats are now free traders. Florida Republican Congressman Carlos Curbelo has introduced carbon tax legislation, something that not even Canada has been able to accomplish. His idea is to abolish federal gas taxes, and replace them with hefty carbon taxes and local fuel levies. The Republican guard immediately passed a resolution against any type of carbon tax, but conservative pundits such as Reihan Salam, editor of the National Review, are taking note of his idea. Curbelo, like Salam is also 38, and might be in the vanguard of future policymakers who cross party lines going forward. My parenthetical prediction is that while the Democrats and Republicans struggle to rebuild an identity, generational politics could become a stronger tribal force than old party loyalties.
For a longer view of energy markets, there are two annual reports published each summer. The first is the 67th edition of the BP Statistical Review of World Energy which finds that carbon emissions have been increasing for the past three years. It is a treasure trove of data, and a look at the world we live in today through an energy lens. The second is the investment report from the Paris-based International Energy Agency, which warns that investment in energy has been declining for three years. These complementary trends coincide with a period when oil prices breached levels not seen since the Global Financial Crisis. Now that oil prices are increasing, it could be that investment in the energy sector will rise as well. The trick is finding the sweet spot where prices allow both economic growth and investment to create abundant, clean energy.
The oil price has declined a bit over the last few weeks. But increasing tensions in the Strait of Hormuz, the 12-mile wide passage for 30% of seaborne oil, could change all of that. According to the International Crisis Group this waterway is a particular flashpoint, because it could be the scene of an uncontrolled direct confrontation between Iran and the United States. The Trump Administration has asked all nations to stop importing Iranian oil by November 4th. The Iranian response from the head of the Revolutionary Guard: “We will make the enemy understand that either everyone can use the Strait of Hormuz or no one”.
In spite of taking a tilt at the Ayatollah, President Trump seems determined to keep oil prices down, bargaining with the Saudis, even if this means using strategic oil reserves. Like many of his generation, he remembers the 70’s when OPEC ruled the oil seas, leading to a devastating fall in global economic growth. I believe that a key to NAFTA’s revival will be a North American energy policy that will create a frictionless exchange between the US, Canada and Mexico. Is this also a focus of the Trump-Putin summits that is ignored by the media? There is now “NOPEC” legislation in Congress to allow antitrust actions against OPEC. One thing is certain-OPEC’s limitation of oil production in 1978 allowed the development of oil reserves and technologies throughout the non-OPEC world.
Bumpy seas for energy prices are likely to continue. EconVue expert Karim Pakravan holds out hope that the impact of the Iranian oil embargo will be softened. You can read his commentary below.
RESEARCH BY ECONVUE EXPERTS
Oil prices have fallen, recently, with WTI under $70/bbl. The U.S. is also considering releasing some oil supplies from the Strategic Petroleum Reserve. Faced with these realities, the more reasonable voices in the Trump administration seem to be pulling back from the maximalist position, with Secretary of State Pompeo hinting at some flexibility in providing waivers to some importers of Iranian oil.
The Trump 'Trade Wars' Timelines
The critical question remains when (and how) will the trade wars end? FMI still believes that the end will come fairly soon, e.g., with Trump anteing up a mass of tariffs in September, China officials will realize that his hand is stronger than theirs.
By the large, payments topics remain the most popular in terms of the most-often clicked on links. It will be no surprise to learn that all things crypto come in second.
America has historically separated healthcare and wellness. This is a mistake. Fixing healthcare (right care, right time, right place, right price) without addressing the country’s exploding chronic disease is suicidal.
STORIES IN OUR SPOTLIGHT
Carlos Curbelo Carbon Tax Proposal Deserves Credit
Reihan Salam 7/20/18 National Review
To my surprise, Curbelo has come up with a pretty politically attractive proposal. For one, it abolishes the federal tax on motor-vehicle fuels. With a few tweaks, it could gain a head of steam.
Emissions, Energy, and Economic Implications of the Curbelo Carbon Tax Proposal
Noah Kaufman, John Larsen, Shashank Mohan, Whitney Herndon, Peter Marsters, John Diamond, and George Zodrow 7/19/2018 Rhodium Group
The growth of China’s energy demand in 2017 was still significantly slower than its 10-year average, and its rate of decline in energy intensity was more than twice the global average. Two steps forward, one step back.
Investment in the energy sector has fallen for the third consecutive year. Will rising prices share this trend? The IEA has just issued a new report on global energy investment. Another key finding: governments are stepping in as private industry has stepped back.
Iran threatens to block Strait of Hormuz over US oil sanctions
Saeed Kamali Dehghan 7/5/2018 The Guardian
President signals Tehran could disrupt shipments, prompting warning from US military.
U.S. pullout of Iran nuclear deal: What next for oil, business?
Bluford Putnam 7/13/2018 Bloomberg
The repeal of the U.S. ban on oil exports has allowed excess U.S. shale oil production to be loaded on ships and sold to Europe and Asia. U.S. exports are now 2 million barrels a day and rising. (The U.S. remains a big oil importer.) The ability of the U.S. to export oil strengthens the connections with other oil benchmark around the world, based in part on spot shipping costs.
Imagine a World Without OPEC
Julian Lee 7/22/18 Bloomberg
Don't ignore Donald Trump's message
Paul Sheard 7/16/2018 Financial Review
First rate analysis of America’s changing global role from the Australian viewpoint by the former global economist for Standard & Poors.
A debt crisis is on the horizon
Michael J. Boskin, John H. Cochrane, John F. Cogan, George P. Shultz and John B. Taylor 3/27/2018 Washington Post
As interest rates rise remember this: If rates were to rise to 5%, instead of just under 3.5%, interest alone on the projected $20T of public debt would total $1T. More than 1/2 of all personal income taxes would be needed to pay US treasury bondholders.
Nixon and De Gaulle
Chris Barber 3/11/2014
For history buffs: This thread is a discussion of Charles De Gaulle, who opposed NATO and the EU, supported a free Quebec, criticized US intervention in Vietnam, and granted independence to Algeria. All this was after he led the French Resistance. His world view was decentralization.
Trump Rushes to Build a Special Russo-US Relationship
Robert E. Kelly 7/16/2018 Twitter
Why bother with Russia? Most people don’t realize that Russia is 1.8 times as big as the US, and is in fact the largest country in the world, 9th largest in population, 6th largest economy in PPP terms, world’s largest energy and mineral reserves, and shares a border with North Korea.
What’s holding Mexico’s economy back
Tyler Cowen 7/9/2018 Bloomberg
Two issues hold down growth in the Mexican economy-Educational incentives can’t compete with higher wages in the North. And PYME’s-small & medium size enterprises- represent 99% of Mexican firms and are more resistant to improvements in productivity.
Europe could suffer collateral damage in US-China trade war
David McHugh 7/4/2018 AP News
When the world’s two largest economies engage in tit for tat trade, no one will emerge unscathed.
Ethiopia: The new China?
Al Jazeera News 7/15/2018
No, it has better demographics.
Pakistan seeks more loans from China to avert currency crisis
Farhan Bokhari and Kiran Stacey 7/5/2018 Financial Times
Absent intervention from China or the IMF, Pakistan is on the brink of a currency and debt crisis. Is this a forerunner to other problems percolating along the Silk Road?
The end game begins
Wajahat S Khan 7/14/2018 India Today
Election drama in Pakistan. Here's a killer statistic, literally. Pakistan's never voted an incumbent back to power. By hook or crook, by bombing or ballot, by coup or craft, Pakistan doesn't vote, nor allows its leaders, back into consecutive terms.
In Modi's India, bright mood masks danger to democracy
Ben Heubl, 7/1/2018 Nikkei Asian Review
India’s quiet retreat from democracy.
America’s moment of truth With North Korea is coming
Uri Friedman 7/10/2018 The Atlantic
Would peace with a nuclear armed North Korea be an acceptable middle stage step for the Korean Peninsula? @devintstewart Excellent question.
The US-DPRK Summit and the future of North Korea (Q & A)
Stephan M. Haggard 7/2/2018
If you really care about what is going on in the aftermath of the US-DPRK Summit, invest 13 mins and listen to this excellent, thoughtful interview with UCSD's Stephan Haggard. Peace will be a long, complicated process.
Seoul Mayor Park to move into rooftop home in rundown neighborhood
Yonhap News 7/15/2018
Taking a page from the book of Chicago Mayor Jane Byrne, who moved to Cabrini Green, a public housing project in 1981.
Belt and Road reality check: How to assess China’s investment in Eastern Europe
Thomas S. Eder, Jacob Mardell 7/10/2018 Merics
How much is China really investing in Belt & Road projects?
China exposes rampant data fraud in provinces
Michael Lelyveld 7/9/2018 Radio Free Asia
The next time you see analysts agonizing over 100 bps changes in Chinese GDP figures, remember this.
China to reimburse tariffs for state reserve soybeans
If China reimburses importers for its 25% tariff on soybeans, what does this mean for US farmers?
Fed Chair: Cryptocurrencies are 'great' for money laundering
Madeline Meng Shi 7/18/2018 Coin Desk
Cash is much better medium of exchange for criminals than cryptocurrencies which are mostly traceable. Only Monero is a true privacy coin.
Bitmain plans Hong Kong IPO, new funding round for USD15 billion valuation
Dou Shicong7/17/2018 Yicai Global
Hangzhou Canaan Information Technologies, another well-known China miner, submitted an IPO application to the Hong Kong bourse on May 15 and is set to become the first blockchain company to list in the Chinese autonomous region.
‘This is not a passing fad’: CFA exam adds crypto, blockchain topics
Michael Patterson and Andrea Tan 7/16/2018 Bloomberg
Cryptocurrency questions added to the CFA exam. Regulators getting ahead of fintech innovation and more widespread adoption.
The first EVER blockchain lawsuit in China
Katherine Wu 6/29/2018 Twitter
Blockchain evidence validated by a Chinese court.