MacroVoices #551 Michael Every: Decoding The Global Geopolitical Puzzle

Michael Every (0:00)

The joke at the moment is if you're an interest rate trader, an FX trader at the moment, you have to be an oil trader. You've got to look at that to understand what bond yields are gonna do.

Erik Townsend (0:09)

That was Michael Every. I'm Erik Townsend. This is Macro Voices, and boy, this episode's gonna be a doozy. We're gonna talk about the entire world of geopolitics, all the way from what's going on with Iran to what just happened with this escalation in the Ukraine conflict and the strikes on the Russian diesel refineries, and what happens if we have a diesel crisis, diesel exports from the United States, China, Greenland, Denmark, stable coins, and much more. So put your seatbelt on and stay tuned at the end of this interview for a special announcement that you're really gonna love because we've been listening to listener feedback, and we're gonna do a format change to make sure you get a double dose of Michael Every this week on Macro Voices.

Patrick Ceresna (0:56)

And I'm Patrick Ceresna. Let's dive straight into this interview.

Erik Townsend (1:01)

Joining me now is Michael Every, Global Strategist in Economics and Markets for Rabobank, or Rabobank, or something like that depends on which language you're speaking. Michael, it's great to get you back. Boy, geopolitics is your specialty. There's no shortage of that. So let's dive in. The Iran conflict is probably first on people's minds. Something that is surprising to me in the news flow and just other people I talk to, seems so clear to me that a major escalation campaign. You started with Trump saying that he was making threats, then Iran says we're not going to escalate symmetrically anymore, and then you see East-West Pipeline, then you see Yanbu, then you see Bab el-Mandeb.

Wait a minute. When the first airplane hit the World Trade Center, you weren't sure what happened. When the second one hit, the question was how many more planes are coming?

It seems to me like we're beginning a big escalation, but oil straight down because of why again? Because it's like 38th time that we're declaring victory. I'm not buying it. What do you think?

Michael Every (2:04)

The movement in oil in the last day and a bit has a couple of different drivers. But I think hope, which is not justified by the reality around us, is one of them yet again. To add my two cents worth to what you just said, I'd argued that when you looked at the economic blockade that the US was imposing on Iran, finally, after having experimented with other formats, if it worked, Iran's incentive would be to escalate militarily elsewhere. That's exactly what you're seeing, or whether it's either direct or whether it's via proxies, with an element of deniability, but we all know who is really behind it. Boy, has it worked. If you see the kerfuffle around the Red Sea, the Houthis in Yemen, that East-West pipeline, Yambu, etc.

Oil was up to 110 bucks, Brent, for a while on the back of that. But I think the really important point is what you just made clear, that we now have a situation where Yambu can be attacked all the time, Riyadh can be attacked all the time, Aramco can be attacked all the time, and that East-West pipeline having already been hit is imminently hittable. What makes anyone think that can't be repeated again and again and again? So unless we are now pricing for peace in our time, which is as true in the Middle East as it is in Russia with Ukraine, unless you have discrete and distinct knowledge of when these wars will end, you are just hoping if you're going to try to start to price in the fact that everything is going to get better.

Erik Townsend (3:38)

Now, we recorded this interview before markets up on a Wednesday, so day and a half or so before our listeners will hear it. The latest thing from the Trump administration was, look, it's pretty darn clear after meeting with Iran that they're going to agree to a peace agreement right after the US election because it would be foolish of them not to and it only makes sense.

I'm missing the logic, Michael. It apparently makes sense after the US election, but not before it. Help me with the math here.

Michael Every (4:06)

I think what we are seeing there is that the American administration is finally starting to understand how to mirror the Iranians in the absolute BS that they come out with internationally. Because that doesn't make any sense whatsoever. Our view or my view specifically has been the complete opposite that once the election is out of the way, if Trump's won, fantastic. If Trump's lost, well, then he still has to escalate anyway, whether it's via executive orders at home or military action abroad. That is our base case that you will see escalation once the election is out of the way. Of course, if Iran escalates more in the interim, you can see the US have to strike back even before then. If diesel prices are going to be where they are right now, you could even argue the distraction of saying, well, at least we're bombing them, might play better with some voters than saying we're doing nothing. But we promise you there'll be a peace deal like five weeks from now when you've just been suffering at the Bowser for the past five weeks. It doesn't make any sense. It isn't what we expect. That doesn't mean that there's zero possibility of suddenly some miraculous deal being struck. But if you look what the starting position and what the finishing position of both the US and Iran are, we are still where we were in the very early days of this, which is saying that they're two irreconcilable positions.