The Daily Dose; Commodities are Exposed to Risk.

-There’s more to it than vaccines and stimulus hopes

-Commodity markets are inextricably tied to geopolitical issues

The headlines in the financial press on Tuesday attributed the rise in the price of oil and gains in the equities markets to hopes for a fading pandemic and signs of improved demand. That deserves a deeper look. Gains could be attributed more to geopolitical tensions than economic developments, particularly when betting on positive news from the United States. For commodities, those tensions are apparent today, however, but in natural gas, not oil. And from Chicago to Belarus, social frustrations are boiling over. So much so that a think tank run by a former FBI agent is warning the United States is becoming a “tinderbox” of dysfunction.

The price for Brent crude oil is on a serious bull run. The global benchmark is up 10% since the start of July and looks to be breaking new territory above the $45 per barrel range. Brent was up 1.25% as of 8 a.m. ET to trade at $45.55 per barrel.

“World stocks rise, markets bet on U.S. Congress stimulus deal,” reads the headline from the Reuters news service. “Brent Oil Edges Above $45 on Signs of Slowing U.S. Covid Cases,” is how the Bloomberg news service paints it.

If you’re betting on the US Congress to make a breakthrough, I’ve got a bridge to sell you. And if you want to be the first one to try a Russian vaccine for the coronavirus, have at it. It’s more likely that civil and political tensions, like major wars, are behind some of the rise in equities. Tensions like these put major infrastructure at risk, while on the global scale, the battle for control over that infrastructure presents a similar threat.

On Monday, US President Donald Trump was whisked away from an afternoon press conference on reports of shots fired near the White House. In Chicago, city authorities put the central downtown area on lockdown, raising the drawbridges over the Chicago River to prevent violence and looting. Declarations of riot in the western city of Portland, Ore., are a common occurrence. Commentary from The Soufan Center, run by former FBI Agent Ali Soufan, warns the civil and political climate in the United States suggests the country is an accident waiting to happen.

“There is nothing innocuous or benign about this looming threat,” the commentary reads. “With the presidential political campaign entering full-swing as the calendar inches closer to November, the country feels like a tinderbox, with armed civilians, rampant disinformation, a health crisis, and accusations of vote rigging forming a combustible combination.”

Scenes of burning police vehicles and violent protests are all too common in the United States. The complacency may help explain why tensions in Belarus are glossed over by much of the US media. Alexander Lukashenko, one of the few remaining authoritarian figureheads in the Russian sphere of influence, claimed another term as president. Dictatorships, however, do not hold free and fair elections. The opposition leader there fled to Lithuania and more than 2,000 people were put under arrest.

Tensions like these matter to oil and gas because they easily spill over to threaten energy infrastructure. Much of the current state of affairs in Ukraine stems from monetary disputes over the natural gas that traverses the country’s Soviet-era pipelines feeding Europe. Parts of Europe now are counting on extra gas from Russia’s Nord Stream natural gas network that runs through the Baltic Sea to Germany. The first leg was seen as a boon to European energy security because it avoided sensitive territory in Ukraine. The second leg, however, is a geopolitical hotspot. Late Monday, US natural gas company Sempra Energy announced its liquefied natural gas export terminal in Louisiana was in full service. With the United States looking to gain a market share in the European gas sector with LNG, Nord Stream is now seen as a threat. And that threat rests clearly on geopolitical fault lines, escalating tensions not only with Russia, but with legacy allies such as Germany. Three years ago, the head of German energy company Wintershall, which has an interest in Nord Stream, told me that “Europe must not let itself become a geopolitical football.” On Tuesday, German Foreign Minister Heiko Maas said at a news conference alongside Russia’s Sergei Lavrov that German will do what it wants.

“No country has the right to dictate Europe’s energy policy with threats,” he said in response to the latest US sanction threats. “That won’t be successful.”

Geopolitical tensions in the Persian Gulf, like the Iranian seizure of British vessels in the Persian Gulf, were buffered by the increase in US oil supplies on the market. But the oil price crash into negativity this year put several US oil companies on the sidelines. Demand destruction in the quarantine economy does little to help either. With rising protectionism, questions about legacy alliances and a shifting balance of power on the international stage, there are other issues apart from market fundamentals, vaccine claims and hopes for US political progress that warrant consideration. With economies around the globe on decline, but balanced by dwindling supplies, commodities are increasingly exposed to geopolitical risk.

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