Date: 04/25/22
Author: Kent Moors, Ph.D.
TV talking heads these days spend time describing how the Russian invasion of Ukraine has altered global investment prospects. The war is certainly the most visible manifestation of how a geopolitical crisis can affect wider concerns.
Nonetheless, my activity on the private consulting side has been spread into wider areas of late, extending well before tanks rumbled across the Ukrainian border. The “wild card” of geopolitics is again having a broader impact than what we witness daily in Eastern Ukraine.
Some have suggested that it has been quite some time since geopolitics has played as pivotal a role in global money flows as it does now. It is not just the presence of so many tension points. Rather, those points bear a direct relationship to fundamental international considerations.
Well, such comments are more an indication of how closed-minded such views usually are.
Geopolitics impacts both from actual events and from heightened levels of uncertainty. Absent outright cross-border hostilities (you know, Putin getting up on the wrong side of the bed and…), the latter usually has the more pronounced effect. Markets hate uncertainty. Unfortunately, that seems the primary environment these days. Only this time around, that uncertainty is augmented by actual tanks and genuine shelling.
At basis, the main concern I have these days arises from the change taking place in how crises are met.
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Which has made the past several months so personally disconcerting. Because I find myself once again drawn back to memories from a life in the world of Cold War intelligence.
Then, the stature of nations in large measure resulted from the ability to stare down an adversary in a high-stakes game of brinksmanship. For some four decades, my “other job” demanded that much of my attention was addressed to a daily contest with a known opponent. It certainly heightened the meaning of what one was doing and the importance of doing it well.
Every morning I’d wake up knowing what the focus of my attention was that day and the consequences if I fell short. Most of the time, despite the outside rhetoric, you learned to live with it.
There were, of course, a couple of dangerous events that could have triggered massive destruction. The Cuban Missile Crisis (before my time in the profession) was certainly one of those seminal fixtures. Some episodes during the Vietnam War (where I was introduced to “The Great Game” as a counterintelligence, or “CI,” officer) risked triggering much larger conflicts.
And then there were a few international episodes still classified that could have spiraled out of control. Usually, accepted parameters dictating how competing intel officers conducted themselves would generally limit damage and spillovers when matters went south.
In short, the “normal” became tolerable…for the most part.
Most often, back channels would limit unintended consequences. Each side could contact the other. Trades of information in places like Vienna (reserved as the “open city” for such matters) or people on bridges in places like Berlin would return a tenuous balance. (I discussed one early in this series, see “A Firestorm in Vienna,” Classified Intelligence Brief, November 18, 2020.)
Americans and Soviets would protect sources and methods; playing surrogates against each other in an ever-changing global chess match. Occasionally, there would be a collapse in the “understanding.” And in such cases, there was active fire and offices fell on both sides.
However, despite the tension, an unquiet equilibrium would emerge.
These days such a tenuous balance is under assault. The intel forces continue to perform their functions, even if the board has been altered. But competitors are no longer merely nation-states.
In the process, what has served as the essential gravamen for keeping conflict from spiraling into another world war is eroding. And that is the main ingredient in the rising uncertainty pervading markets.
What comprises the “glue” that has kept the system from unraveling is systemic diplomacy. This is not summit conferences between heads of state but the daily formal and informal contacts among professional ambassadors and staff.
Summits may generate headiness. But the skills required for ascension to national political leadership are almost always the worst upon which to base foreign policy.
Especially these days.
The problem is not simply what drives the headlines (Ukraine’s resistance to Russian aggression). The wider picture is more nuanced and providing less cause for optimism.
Despite what has happened over the past two months, few believe that Moscow is more than a regional menace, at least in the medium-term. Yes, the Kremlin does have plenty of nuclear weapons and the despot ensconced within it has intimated in thinly veiled threats a penchant to use at least tactical versions in the current fight.
But as difficult as it may be these days, take Ukraine out of your focus for a bit. Syria is still there but on the back burner. Prospects for a return to some negotiated agreement with Iran has altered public views of the Persian Gulf status. Even the challenge over a changing perception on the Continent is tempered somewhat by the French electoral decision yesterday.
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Now some players are still rattling for attention in a geopolitical “Me too, me too” exercise. Yet, despite all the conversation centering about North Korea after its latest tests of longer-range delivery systems, few genuinely believe that the saber rattling heard from Washington and Pyongyang is likely to end up engulfing the Korean Peninsula in another war.
The Chinese posturing may well have a greater direct pressure on worldwide crisis estimates. As the main trading partner and international intermediary, Beijing certainly has something to say about how far North Korean realistically can push the ravings of the spoiled child heading up the Hermit Kingdom. And then its demands over Taiwan and the South China Sea extend the sphere of uncertainty in Asia.
The current situation (and not just in North Korea) mitigating against stable and competent leadership certainly increases the angst.
The South China Sea controversy has a more direct impact on energy matters. There, a conflict over potentially huge offshore oil and natural gas reserves has brought China into direct clash with neighbors, ushered in the threat of military action, and has placed American naval power in the crosshairs of new Chinese weaponry.
It also results in some curious personal events that could hardly have been anticipated only a few years ago. I left Vietnam in 1971 after conducting CI operations in actual theater combat. I have recently returned as an advisor – with US State Department (DOS) support – to Petrovietnam, the Vietnamese state oi company, in its ongoing fight with China over offshore deposits. An unusual shift to say the least.
Elsewhere, Venezuela continues its descent into paralysis, civil war, and dictatorship. There, oil is the national lifeblood. It occasioned US threats to attack that lifeline (and the national oil company overseeing it), threatening to bring the country to its knees. However, these days we are reassessing access to Caracas and its oil in the face of sanctions against Russia.
There is also another element at play here. Russia and China rushed in to acquire Venezuelan oil assets (Moscow) and control over the revenue flow from international oil sales (Beijing) as the infrastructure there collapsed. Washington must now adjust to that development as well.
Then there is the Persian Gulf, perhaps that place in which unrest has the most immediate effect on the market’s energy view, laboring under two pressures.
The first is the ongoing Saudi-Iranian discord, augmented by the Trump Administration’s decision to scuttle the nuclear accord and the Biden approach seeking to keep Riyadh at arm’s length. Now I expect a conflict there that will center on employing other “cutout” nations to fight proxy battles, prompting my recollection of similar strategies during the Cold War.
Any increase of military confrontation in the Persian Gulf has a much larger ripple effect than the event itself. Recent increase in tensions between Iranian and American naval craft has certainly not helped matters any.
The second is a serious rift between Qatar on the one hand and a coalition lead by Saudi Arabia on the other. This one involves charges that Doha has sponsored terrorism (a curious claim from the Saudis given the predilections of several royal members in Riyadh and Jeddah).
A main objective in this disagreement remains below the surface of the reports circulating in the press. It involves the usage of Qatari banking and fiduciary connections in the expansion of Iranian access to international finance. The target here is a liquified natural gas (LNG) connection between the world’s leading supplier (Qatar) and a nation relying on LNG and natural gas development to resurrect an economy (Iran).
I will have much more to say about this over the next several weeks.
Internal civil unrest in places like Libya and Nigeria provides more localized pressures on energy estimates.
Throughout all such hot spots, normal reliance on diplomatic support is strained. In the US, DOS is still recovering from being gutted and foreign policy objectives defined only through politicized channels. Increasing reliance on military solutions (or at least military rhetoric) has replaced the career practitioners of pursuing national objectives by other means.
The US must now rely on other nations’ abilities to negotiate. Unfortunately, the current American penchant to threaten bullets is now more prominently reflected in the approach of others.
I began in a division of DOS, albeit in CI and in a war zone (Vietnam). The military solution may have to be employed upon occasion. But it is never the first option. If I hope there has been one lesson learned from the Trump years, it is this: foreign policy cannot be run on 140-character tweets.
Until the undergirding of negotiations returns, however, don’t expect market volatility in general, and unrest directed toward energy matters in particular, to lighten up anytime soon. It has taken some time to arrive at this international quagmire; it will take some time to relearn the art of strategic discussion.
Dr. Kent Moors
This is an installment of Classified Intelligence Brief, your guide to what’s really happening behind the headlines… and how to profit from it. Dr. Kent Moors served the United States for 30 years as one of the most highly decorated intelligence operatives alive today (including THREE Presidential commendations).
After moving through the inner circles of royalty, oligarchs, billionaires, and the uber-rich, he discovered some of the most important secrets regarding finance, geo-politics, and business. As a result, he built one of the most impressive rolodexes in the world. His insights and network of contacts took him from a Vietnam veteran to becoming one of the globe’s most sought after consultants, with clients including six of the largest energy companies and the United States government.
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