Geopolitical Risks Loom Large Over Oil Markets

While optimistic inflation data slightly buoyed oil earlier this week, with the Fed indicating one rate cut before the end of this year, and more to follow in 2025 and 2026, a cocktail of global events is just as likely to sway crude prices in the coming weeks. 

In a flanking movement, Russia is trying to secure its position off the coast of Libya on the Mediterranean (within easy reach of Italy, and really anywhere in Western Europe), as Russian warships, including one a nuclear-powered sub, arrive in Havana Bay, Cuba, just off the Gulf of Mexico, for military exercises. Tensions are noticeably rising since NATO took on new members and new aid began flowing to Ukraine, with (limited) U.S. permission to fire on Russian territory. Washington is also granting Kyiv access to F-16s, which is likely more of a long-term move that will not be an immediate game-changer on the frontline. Both Washington and Brussels also slapped hundreds of new sanctions on Russia, including on its oil-shipping giant, Sovcomflot. 

At the G7 summit in Italy this week, the US and Ukraine signed a security deal, which is also essentially a preliminary phase to joining NATO, as suggested in the text of the document. While the deal fell short of the “red line” of deploying U.S. troops, combined with a $50 billion G7 loan to Kyiv, recent events require a response from Moscow, as well. That response we find, for now, in Cuba, where military exercises included the use of dummy nuclear warheads. 

Back in the Middle East, Iran will hold snap presidential elections on June 28 following the death of President Ebrahim Raisi in a helicopter crash last month. Raisi was expected to succeed Ayatollah Ali Khamenei as Supreme Leader, instead of Khamenei’s son. There is now speculation from some corners that Khamenei’s son may be justified in taking the spot, though the Supreme Leader has always been against hereditary succession. The Islamic Revolutionary Guards Corp (IRGC) will have to be appeased with the next choice for Supreme Leader, or there could be another coup. Among the six presidential candidates now registered, the one Khamenei is said to favor is a relative (and former military commander), who is not likely to become the next Supreme Leader because he is not a cleric. (Khamenei was also president before he became Supreme Leader). While there is no indication in the media that the situation in Theran is chaotic, things are being kept under wraps, and observers should make no mistake: What happens on June 28 could have far-reaching ripple effects. 

On the Israel-Hamas war front, ceasefire negotiations have stalled and Israel continues to bombard Rafah, with a full invasion potentially still on the books, depending on what happens over the next few days with ceasefire talks. 

In the southern hemisphere, Venezuelan elections will add further fuel to geopolitical fires, pushing the Biden administration to act, which may or may not be symbolic. Venezuelan presidential elections will take place on July 28, exactly a month after Iran’s, and it’s a very precarious time for Maduro. Some polls (which can only be taken with a grain of salt) now show opposition candidate Edmundo Gonzalez Urrutia (campaigning alongside banned candidate Maria Corina Machado with a 50% lead over Maduro, who could still move to block his candidacy if he fears losing.