The oil market is currently cashing in on the countless geopolitical “lottery tickets” it has on hand.
Last week, Brent and West Texas Intermediate (WTI) both topped $66 a barrel in the wake of a “fever-pitch” rally to prices we haven’t seen in over three years.
The takeaway is dead simple: This proves once and for all our thesis that geopolitics is once again setting the energy agenda.
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As we speak, three crises are emerging around the world that will have an inordinate impact on energy prices going forward.
Now, the Syria-Russia-Iran nexus is still a factor, but in the wake of allied airstrikes on Bashar al-Assad’s government, the formalities of protest and other diplomatic tough talk and face-saving measures have served to deescalate tensions somewhat.
Rather, it’s what’s not on the news right now that should have the broadest impact on your money…
Global Crisis No. 1: The South China Sea
The ongoing spat in the South China Sea might not be a new development, but it’s a tenuous situation that is going from bad to worse.
For years, China has tried to stake its claim on the zone, ignoring outright the claims of neighboring nations and even the ruling of an international court.
“China is attempting to assert de facto sovereignty over disputed maritime features by further militarizing its manmade bases,” U.S. Pacific Command Admiral Harry Harris testified in a congressional hearing yesterday, according to a report by The Economic Times, of India.
SYRIA STRIKE: Allies resolved to act should chemical weapons be used again. Government insiders have been swarming this defense stock…
While downplaying his country’s geopolitical ambitions, China’s foreign minister, Wang Yi, still couldn’t resist plugging the party line.
“Beijing’s resolve to protect the peace and the stability of the South China Sea cannot be shaken,” Wang said, adding that the problems in the region are due to “foreign forces” which “have sent fully armed warships and fighters to the South China Sea to flaunt their military might.”
His reference to so-called “foreign forces” include increased freedom of navigation voyages by the U.S. Navy in the South China Sea, which is, for all intent and purposes, a UN-mandated international waterway.
Recently, the situation has gotten so dire that the United States and Vietnam – the two countries who have defied China the most – joined forces, marking the first time the U.S. military has had a physical presence in Vietnam since the 1970s.
Like most of the countries involved in this ongoing dispute, Vietnam is vying to keep these waters open for ships. Vietnam has pursued the creation of an official code of conduct in the South China Sea – one that would rein in China’s island-building and warship-posturing.
And in its persistence, Hanoi has made an enemy of Beijing – which just became more threatening than ever. Disturbing satellite images prove the Chinese have developed a new superweapon called “Sha Shou Jian.” In English, this means “The Assassin’s Mace.”
Its purpose is to annihilate the U.S. Seventh Fleet in the Western Pacific.
This appalling satellite footage proves that the Chinese have a new and stronger aggression toward the United States.
For its part, the Pentagon is racing to funnel millions to a small $6 defense contractor with a mind-blowing new technology to stop China in its tracks.
Which brings us to the next potential conflict…
Global Crisis No. 2: Saudi Arabia
The situation in Saudi Arabia is quickly starting to look like a Middle Eastern “Fight Club.” Last week, news broke that this de facto OPEC leader intercepted at least three ballistic missiles fired at Riyadh and Najran by Yemen.
Since coming into power, Saudi Crown Prince Mohammad bin Salman, the youngest defense minister in the world, has done nothing to lessen acrimony between the two countries, in addition to the smoldering situation he faces with Syria and Bahrain. He’s also dialed up the rhetoric against his regional rival, Iran – costly skirmishes that the oil-rich nation is now struggling to afford.
DISTURBING: Satellite images confirm Pentagon fears. Click here for footage.
As the Saudi government spends increasingly more money, especially on defense for its war in Yemen and supporting rebels in Syria, the world’s second-largest oil producer is hemorrhaging cash faster than it can make it. And that has it turning to the “mother of all solutions” to fight off its economic time bomb. And that’s where the Aramco IPO comes in.
We’ve been talking at great length about this windfall game-changer from the kingdom recently. And for a good reason. Not only because this company – the world’s most valuable firm – will open its vast energy riches to investors for the first time in 85 years…
But also because it means oil prices will skyrocket to $100 a barrel.
Based on my estimation, the Saudi Aramco IPO will make approximately a million dollars for every single dollar the price of oil goes up. That means it’s got to get oil back to $100 a barrel – possibly higher – if it wants any chance of floating its economy for much longer.
Global Crisis No. 3: Venezuela
For some time now, I’ve been telling you about the sinking ship that is Venezuela.
With hyperinflation over 4,000%, a corrupt government, declining oil production, and many desperate attempts to rectify the situation, it’s clear that Venezuela’s economic topple isn’t a matter of if, but when.
And now the tides have turned, once again, for the floundering country…
One of Venezuela’s key allies – and creditors – is no longer trusting the country with repayments.
China has sent around $50 billion to Venezuela over the years, which was repaid slowly with oil shipments.
However, with Venezuela’s oil rapidly declining in quality and quantity, China has been slowly backing away from any more financial deals.
Although China has allowed more lenient repayment terms for the past few years – allowing Venezuela to pay only interest on its debt – it is no longer lending the socialist country any new money.
Chinese officials are now putting President Maduro in the same category as Robert Mugabe, the president of Zimbabwe, who was forced out of power after four decades of dictatorship.
In other words, as a source in Beijing stated, “China looks at Venezuela as another Zimbabwe: a poor return on their investment.”
Venezuela still owes its backer $19.3 billion.
The Venezuelan crisis is an important cog in the oil wheel, and it is having an effect on what direction oil is turning in 2018.
You see, with the largest oil reserves in the world, Venezuela’s continued collapse could send oil prices through the roof…
And select oil plays could make smart investors lots of money as a result.
The bottom line here is, each of these four factors testifies to the interdependence of oil prices and global events.
These developments are no longer outliers.
They are endemic to the process.
Investors can no longer regard them as one-offs, and I can guarantee that each one is being factored into the current oil rally.
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