Re: Geopolitics/Oil-Conversation With Velina Tchakarova.

I had the pleasure of speaking with Velina today for almost 2 hours about several geopolitical topics, ranging from Russia/Ukraine to China/Taiwan to Oil. I share some important takeaways below.

Russia will NOT stop its current incursion into Ukraine until it has FULL CONTROL of the Donbas region. Then, and only then, will Russia potentially proclaim a unilateral ceasefire to "give itself a break."

Importantly, this will most likely happen on Russia’s terms and NOT because of any demands from the West. She is not seeing any near-term paths to de-escalation and agrees with Peter Zeihan's thesis that Russia will not stop at Ukraine in the LT.

Pivoting to Asia, I asked her if China would make an imminent move on Taiwan in the ST given its dependence on imported Oil and its “Malacca Strait Dilemma.”

Although she thinks such a conflict is inevitable in the LT, she agrees that China has patience and is UNLIKELY to rock the boat in the ST. I agree.

She thinks that China has no reason to do anything now given its vulnerabilities and would likely choose the “Death By 1000 Cuts” approach to gradually assimilating Taiwan. I pointed out my own fear of this scenario:

Re: China/Taiwan-The CCP Propaganda Machine Is Cranking.

I pointed out the importance of the CPEC / Myanmar “Malacca hedges” all going off without a hitch and asked if she had clarity on timing. She did not but added that infrastructure through Afghanistan and Iran would also be required to complete their energy supply chain.

I pointed out that the USD Wrecking Ball further accentuates this dependency. As some of you may know, I pointed out the link between Oil and the USD Wrecking Ball here:

Re: Oil and the USD Wrecking Ball.

She pointed out that the Biden Admin’s return to the Obama era’s “globalist/partnership” approach to China policy may have inadvertently “given China the break it was hoping for” after the Trump era’s more hawkish stance.

I can’t help but think about what Nixon said to Kissinger about China 5 decades ago.

Although she thinks that China’s Zero Covid lockdowns were mainly a reaction to poor vaccine efficacy, she thinks it may have also been a calculated attempt to further disrupt Western supply chains.

She agrees with me that it was NOT some “3D Chess Move” to curtail commodity demand as some in FinTwit had postulated.

Pivoting to Oil, I asked her if she thought BLOCKADES of Russian Oil would ever come to pass given that Oil is at the heart of Russia’s economic engine and that current sanctions have been toothless.

In recent weeks, I've worried that $120-$130 Oil had far outstripped the “Goldilocks” $85/$65 forward curve I espoused a few months back and that the price might have been discounting supply destruction WITHOUT demand destruction. Opposite has happened.

Velina does NOT think that OIL BLOCKADES happen (at least in the Black Sea) because of the tit-for-tat FOOD BLOCKADES that would ensue. She mentioned Turkey’s symbolic-but- toothless blockade of ONE Russian ship as a tell.

Velina thinks that one of Putin’s realpolitik goals of the Ukraine invasion was to launch a power competition between the US/China – one in which a commodity-thirsty China would most assuredly choose Russia as its ally.

Paraphrasing Velina: “Putin has had 8 years to plan this, and Russian GAS will be the main lever for pain for the EU.” She cited that in Austria (where she is based), for example, certain industries are “wholly dependent” on Russia for its gas. “THERE IS NO PLAN B.”

Russian OIL, however, would be relatively easy to source “under a different flag,” as we have seen in practice. This is why I think that BLOCKADES are the ONLY way to truly disrupt Russian Oil flows, however unlikely/escalatory that would be.

Tying this all together, I arrive at some bone-chilling conclusions:

-OIL is at the heart of Russia’s economic engine, BUT
-Can’t choke off Russian OIL without also choking off FOOD
-YET Russia has EU over a barrel (sorry for misplaced pun) on Russian GAS

I end this thread with a question:

If Russia can bring EU to its knees by withholding GAS without fear of reprisal on its OIL, does it surprise you that the Fed, in the name of fighting inflation, has declared war on OIL DEMAND? Is DEMAND DESTRUCTION the only weapon left?

I’m starting to think Fed policy is increasingly a geopolitical weapon masked by a convenient excuse to fight inflation. Multiple birds; one big-ass stone.

Talk about multiple birds...

Coming soon to a DM country near you!