The Geopolitical Energy and Risk Monitoring Report

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Welcome to The GERM Report by Dan Graeber, a commentary on the intersection between geopolitical events and the price of oil. GERM stands for Geopolitical Energy and Risk Monitoring. Our indicator is based on the expected price volatility by the end of the current trading week.

Risk level: ORANGE

RED: Severe (+/- 4%) ORANGE: High (+/- 2%) YELLOW: Elevated (+/- 1%) BLUE: Guarded (+/- ½%)


  • For the US, the death of the ISIS leader is a symbolic win.
  • Trump suggests the door to Syrian oil is open.
  • Russia notches a victory a century in the making.

US President Donald Trump is taking a victory lap with the reported death of Islamic State leader Abu Bakr al-Baghdadi, though this would be at least the fifth time such a claim was made. Trump has faced blistering criticism for his decision to pull US forces out of Syria from friend and foe alike, deciding later to leave a small force in place to protect Syrian oil fields. The death of Baghdadi is a symbolic victory for Trump, but does little to regain the loss of confidence that came from ceding situational control to Turkey and Russia. It was left to Russian President Vladimir Putin and his Turkish counterpart, Recep Tayyip Erdogan, to sign a memorandum of understanding last week in Sochi that defines the terms of joint control over the Turkish-Syrian border. Russian interests in the region date back to at least the early 1900s when it sought to advance its belt of influence into the receding Ottoman Empire. Anchoring its current-day position firmly with energy infrastructure in Turkey and trade ties to Syria gives the Kremlin a win that’s at least a century in the making. Western objectives in the Middle East have prioritized Russian containment within its traditional sphere. Though Washington continues to wield some degree of regional clout, the Kremlin has gained ground in terms of real geopolitical influence.  While the United States is arguably the world leader in terms of oil production, Russia’s close ties with OPEC and its influence in the Middle East gives it considerable leverage in shaping the global oil market.

A draw on US crude oil and products inventories, along with talk of OPEC+ tightening production even further, helped drive oil prices higher on the week. Algorithmic trading models triggered by the latest news headlines helped drive the surge. Brent finished the week up 4.4 percent, closing the day Friday at $61.73 per barrel.

The Trump administration has scored a symbolic victory in the fight against global terrorism, though recent US strategic decisions in the Middle East suggest a symbolic win is as good as it gets. While a Western knife carved up the states that make up the greater Middle East, Russia too has long sought to expand its sphere of influence beyond the Crimean Peninsula to the Mediterranean Sea. The Russian Empire’s expansion upset the regional balance of power with the Russo-Turkish War in the late 1700s. In the mid-1800s, Russia had embraced a policy of continuous expansion in order to protect its borders and trade relations. By the early 1900s, Western powers were pushing back. Arthur Limpus, the head of the British Naval Mission to the Ottoman Empire, said in 1912 that policy should be to “make it hazardous for the Russians to move troops across the Black Sea.”

Fast forward a century, and Russia’s military is planted firmly in the region. In announcing the death of Baghdadi on Sunday, the US president said it was Russia, among others, that extended a certain level of support for the mission. Trump insisted, however, that US policy in the region was a success, adding that US military forces in Syria had “secured the oil.” Prior to the outbreak of civil war in Syria, the government in Damascus pegged the oil economy to the Baniyas refinery on the coast of the Mediterranean, which runs on both light and heavy grades of crude oil. Iran is the primary supplier to Baniyas. Trump argued Sunday that US companies could be situated to make a move on the Syrian oil sector, though US influence in Damascus largely ended when embassy operations were closed in February 2012.

Before the war, it was members of the European Union that were among Syria’s top trading partners with about a quarter of the country’s total imports. Turkey, China and Russia were close behind. Among the handful of foreign companies working in the Syrian oilfields as of 2011, none of them were American. A Chatham House report on the Syrian economy found the state-run Syrian Petroleum Company was churning out about 195,000 bpd in part from Raqqa, once claimed as the capital of the Islamic State caliphate. And indicative of the European interest in the region, subsidiaries of Royal Dutch Shell, Total and London-based Gulfsands Petroleum were among the top Syrian oil producers. Russia’s Tatneft, the sixth-largest oil company in Russia, was producing oil in Syria too, albeit it a paltry 2,000 bpd.

A Trump administration drawing foreign policy from the self-help playbook of realism, the political doctrine that prioritizes self interest above all else, means alliances and direction can change with the wind. That works for short-term victories, but does little to instill trust. Russia, however, has been consistent with its regional interests and alliances. Meanwhile, Syrian President Bashar Assad remains in power, propped up by Moscow and Tehran. While a major counter-terrorism success, the political victors are not in Washington. In theory, reconstructing the pipelines, oilfields and refineries in Syria could serve as a bridge that averts the Persian Gulf, though a US role would require regime change in Damascus, something that’s eluded the United States for nearly a decade.

The Baghdadi thread was unable to trigger any sort of enthusiastic bounce in Monday trading. It is earnings season and British supermajor BP will certainly make an impact when it releases its third quarter report on Tuesday. In the economy, pay attention to German data on Wednesday for further signs of recessionary strains, a reading of US GDP and a rate decision from the US Federal Reserve. A slight dip is expected Thursday in the US PCE price index. The week ends not only with manufacturing data from North American economies, but also earnings from Exxon and Chevron. Expect a lot of ups and downs this week, particularly as traders and algorithms react to the latest earnings reports. An Orange alert is in place, with the price for Brent expected to move by at least plus or minus 2 percent.