Daily Memo: Oil Prices Spike, Australia and Russia Court India, Auto Workers Strike

What's geopolitically important today.

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Oil prices spike. Oil prices surged by nearly 20 percent Monday morning before settling at a 9 percent increase as of the time of this writing. The cause of the spike was the Houthi attack on two key Saudi oil installations on Saturday, which decreased Saudi output by 5.7 million barrels per day, roughly half of Saudi Arabia’s normal daily output. While the U.S. authorized the release of oil from the U.S. Strategic Petroleum Reserve on Sunday, Saudi Arabia and Russia downplayed the incident’s overall impact. The OPEC secretary-general said there would be no need for an emergency meeting, and Russia’s energy minister told Interfax that urgent measures were not necessary because of a “fairly large amount of reserves in the world.” Indeed, Saudi Arabia seems more worried about loss of market share than a prolonged disruption or spike in demand that could outstrip supply. The most important question – if and how the U.S. and Saudi Arabia will respond to the attack – remains open. It’s hard to imagine Saudi Arabia doing much on its own considering the kingdom can’t even pacify Yemen after over four years of fighting, and harder still to imagine the U.S. is willing to commit the military force necessary to achieve more than a slap on the wrist.

Courting India. It looks like India’s defense minister will have some deals to sign on an official visit to Australia in November. Citing a diplomatic source, The Hindu newspaper reported that Australia and India are on the cusp of finalizing a logistics support agreement and a maritime cooperation agreement as the two sides continue to strengthen their “strategic partnership.” Meanwhile, the CEO of Russian state-run company Rostec said in an interview with Russian broadcaster RBK that Moscow was considering moving production of S-400 anti-air missile systems to India. India inked a roughly $5 billion deal to purchase the S-400 – the same system that has caused a rift in U.S.-Turkey relations – from Russia last October. The big story here is not stronger India-Australia relations or an India-Russia arms deal. It is that those directly involved in the region are all looking to boost ties with New Delhi.

Will the union make them strong? The United Auto Workers labor union instructed its almost 46,000 members working at 31 General Motors plants to go on strike this morning. Representatives of the UAW and GM are set to continue negotiations today, but considering the UAW’s strike fund totals $750 million, it may not be looking for a quick resolution. The autoworkers are upset over the closure of four GM factories in the U.S. last November, despite the company posting an $11.8 billion operating profit in North America last year. This, combined with the continued pressure globalization is putting on U.S. manufacturing jobs and the potential political consequences, makes this showdown potentially more important than other labor strikes we’ve seen in the past. U.S. President Donald Trump isn’t exactly pleased with GM either – last November, he suggested GM should pay back U.S. taxpayers for its 2009 bailout if it was not willing to keep the four plants open. It is entirely possible that this is simply a passing labor dispute – but even so, it is yet another example of the imbalances plaguing the U.S. economy.

Germany takes on climate change. Germany may not be willing to bow to European Union pressure to stimulate its economy with deficit spending or to increase military spending to 2 percent of gross domestic product, but it does appear that the governing coalition has hammered out the beginnings of a compromise on an initiative to combat climate change. The German government will unveil on Friday a new climate package that will cost, according to Welt am Sonntag, over 40 billion euros ($44 billion) over the next four years. It will focus on cutting greenhouse emissions by 55 percent compared to 1990 levels by 2030, among other things. There are still a number of issues to work out, chief among them the price for a ton of carbon dioxide, and naysayers are already doubting just how effective the moves will be, but the numbers and goals are more ambitious than those of most other plans.

Honorable Mentions

  • Mexico’s president submitted a draft law to Congress that would grant amnesty to those convicted of low-level drug offenses and other minor crimes.
  • Uzbekistan officially joined the Cooperation Council of Turkic Speaking States.
  • Turkish President Recep Tayyip Erdogan will meet separately with Russian President Vladimir Putin and Iranian President Hassan Rouhani ahead of yet another summit on Syria’s future.
  • Bloomberg reports that the Dutch government is planning on embracing fiscal stimulus instead of debt reduction in its 2020 budget.
  • Eritrea’s president was in Sudan over the weekend and discussed potential bilateral cooperation between the two countries on weapons production.
  • Spain may be headed for its fourth election in four years after acting Prime Minister Pedro Sanchez rejected a potential coalition agreement with the Podemos party.
  • South Korean President Moon Jae-in said North Korea and the United States would resume working-level talks “soon.”
  • China has told Hong Kong, which saw another round of protests this weekend, not to look to the West for support and instead to pin its hopes on the economic opportunities afforded by the mainland to help combat underlying socio-economic problems.
  • The Solomon Islands officially established diplomatic ties with China.
  • The EU began a rule of law review for Hungary on Monday.
  • The U.S. and Iraq agreed that the attacks on Saudi oil installations on Saturday did not originate in Iraq.