Speaker 1: Hello everyone, and welcome to the latest episode from the
Speaker 1: midweek edition of the coin Bureau podcast. Every week, I
Speaker 1: pick out two of my favorite videos from coin Bureau's
Speaker 1: YouTube channel to present to you in podcast form. The
Speaker 1: audio you're about to hear is from those videos I've
Speaker 1: chosen this week. Many of you have been in touch
Speaker 1: to ask whether it's possible to listen to our videos
Speaker 1: in podcast format, and so your wish is my command.
Speaker 1: This week, I've selected our videos looking at the tensions
Speaker 1: between China and Taiwan and the oil price crisis that
Speaker 1: likewise threatens global security. When Russia launched its invasion of
Speaker 1: Ukraine back in February, many feared that China could follow
Speaker 1: suit and use the situation as an opportunity to make
Speaker 1: a similar move against its neighbor, Taiwan. China has long
Speaker 1: coveted the island, which it regards as sovereign territory, and
Speaker 1: has ratcheted up its belligerent rhetoric in recent months. Meanwhile,
Speaker 1: the US has pledged to defend Taiwan if it is attacked,
Speaker 1: leading to fears that Chinese aggression could precipitate a wider
Speaker 1: conflict between the world's two superpowers. The matter is further
Speaker 1: complicated by the fact that Taiwan manufactures the vast majority
Speaker 1: of the world semiconductors, meaning an attack on the island
Speaker 1: would paralyze global trade. If the China Taiwan issue isn't
Speaker 1: on your radar yet, well it should be. In the
Speaker 1: first part of today's episode, we look at the likelihood
Speaker 1: of China making a move against its neighbor and what
Speaker 1: such an action could mean for the world. There are
Speaker 1: a number of reasons why China could be seriously weighing
Speaker 1: up such a step, and even though it would likely
Speaker 1: cause global chaos or worse, it unfortunately cannot be discounted.
Speaker 1: Taiwan troubles aside, the global macro economic picture continues to
Speaker 1: get more and more worrying. In the second part of
Speaker 1: this episode, will also look at the issue surrounding oil prices,
Speaker 1: which have a huge effect on all economies. The Organization
Speaker 1: of the Petroleum Exporting Countries or OPEC, recently announced a
Speaker 1: two million barrels per day cut in oil production, a
Speaker 1: move calculated to keep prices high. This at a time
Speaker 1: when rising inflation and continued supply chain issues to name
Speaker 1: but two, are already dragging on the global economy. It's
Speaker 1: a worrying development, but made more so by the fact
Speaker 1: that the United States has been draining its Strategic Petroleum
Speaker 1: Reserve or SPR in order to try and tame inflation
Speaker 1: and keep pump prices low, all with an eye on
Speaker 1: the mid term elections in just a few weeks time. Meanwhile,
Speaker 1: guess which country has been adding to its strategic reserves
Speaker 1: of oil. Have a listen, and all will be revealed.
Speaker 1: I hope you enjoyed listening to these two pieces, and
Speaker 1: I'll be back talking crypto with Mike very soon, So
Speaker 1: be sure to stay tuned, and if you want even
Speaker 1: more content from coin Bureau, be sure to subscribe to
Speaker 1: our YouTube channel and visit us on social media too.
Speaker 1: In less than twenty four hours, the twentieth National Congress
Speaker 1: of the Chinese Communist Party will begin. This one week
Speaker 1: event only happens every five years, and the twentieth edition
Speaker 1: is said to be extra special. That's because Chinese President
Speaker 1: Zi Jingping is expected to be re elected and designated
Speaker 1: as the People's Leader. Now. This title was originally given
Speaker 1: to Mao Zadong, who founded the People's Republic of China.
Speaker 1: This has led to speculation that China could finally do
Speaker 1: the unthinkable and invade Taiwan. So in today's video, I'll
Speaker 1: tell you why this seems more likely than ever and
Speaker 1: the domino effect it could have around the world. Now,
Speaker 1: I want to start by saying that most of what's
Speaker 1: in this video is based on circumstantial evidence. Even though
Speaker 1: this evidence is compelling when it's put together, it doesn't
Speaker 1: mean necessarily that China will invade Taiwan anytime soon. That's
Speaker 1: simply because the CCP has proven over time that it
Speaker 1: plays the long game. If the CCP knows that it
Speaker 1: can take Taiwan without starting a kinetic war, then that's
Speaker 1: the route the CCP will take, regardless of how much
Speaker 1: time it takes. Note that I'm also not an expert
Speaker 1: in geopolitics. I just listened to lots of podcasts and
Speaker 1: read lots of news from a whole slew of sources. Now,
Speaker 1: funnily enough, the first bit of circumstantial evidence that China
Speaker 1: could soon invade Taiwan actually relates to the CCP strategy
Speaker 1: of playing the long game. You see, the CCP can
Speaker 1: play the long game because it's the only political party
Speaker 1: in China. That means it can implement policies that take
Speaker 1: decades to complete without having to worry about interference. There's
Speaker 1: no other political party that can be elected which will
Speaker 1: pause the policy or remove its funding or whatever else.
Speaker 1: This is in stark contrast to basically every democracy in existence.
Speaker 1: What the CCP and political parties in Western countries have
Speaker 1: in common, however, is that their highest ranking officials are
Speaker 1: generally getting on a bit, including their leaders. In the
Speaker 1: CCPs case, Z is sixty nine years old. That means
Speaker 1: that he doesn't have the luxury of playing the long
Speaker 1: game on a personal level. As much as Z is
Speaker 1: committed to the future of the CCP, his actions have
Speaker 1: arguably proven that he's more concerned with cementing himself as
Speaker 1: the most powerful leader that China has ever seen. To
Speaker 1: my mind, taking back Taiwan would be the best way
Speaker 1: to do that, and I reckon Z is hyper aware
Speaker 1: of this as well. That's because being elevated to the
Speaker 1: same level as Chairman Mao within the CCP is almost
Speaker 1: certainly not enough. After all, it's a title there was
Speaker 1: also given to Mao's successor, Huago Feng. It doesn't really
Speaker 1: make the title that special, then, because it's far from
Speaker 1: being one of a kind and therefore could make Z forgettable.
Speaker 1: Being labeled as the man who reunified China. However, now
Speaker 1: that's a title that would make Z immortal within the CCP.
Speaker 1: More importantly, it's a title that nobody else would ever
Speaker 1: be able to hold, at least not unless China and
Speaker 1: Taiwan are split up and then reunited again sometime far
Speaker 1: in the future. Now this ties into the second bit
Speaker 1: of circumstantial evidence, and that's the fact that over the
Speaker 1: last year or so, almost every single major Western economy
Speaker 1: has announced that it will begin creating its own microchip
Speaker 1: manufacturing facilities. For context, the Taiwan Semiconductor Manufacturing Company t
Speaker 1: SMC manufactures most of the world's microchips and manufactures almost
Speaker 1: all the specialized chips that are used in, say, military equipment.
Speaker 1: This is basically why Taiwan is so important to the
Speaker 1: United States and its allies. It's the reason why the
Speaker 1: sudden moves by these countries to establish their own microchip
Speaker 1: manufacturing facilities aren't so significant for starters. Creating domestic microchip
Speaker 1: facilities means that Western countries will be less reliant on
Speaker 1: Taiwanese chips. This, in turn will increase the likelihood that
Speaker 1: Western countries will intervene if China invades Taiwan. If Western
Speaker 1: countries don't need Taiwan's chips, then they won't have a
Speaker 1: reason to intervene militarily. This fact would increase the likelihood
Speaker 1: that China will invade Taiwan since there's no fear of
Speaker 1: a kinetic war. Again, this doesn't necessarily mean China will
Speaker 1: invade Taiwan anytime soon. That's because it's still going to
Speaker 1: be years before all these new microchip facilities are built.
Speaker 1: Even so, it looks like they will all be complete
Speaker 1: within the decade, and at that point China will have
Speaker 1: a clearer path to take Taiwan. Now, I talked about
Speaker 1: the Taiwanese semiconductor industry in much more detail in a
Speaker 1: previous video which will be in the description for you
Speaker 1: and pro tip. If TSMC stock starts to completely collapse,
Speaker 1: then chances are shit is about to hit the fan. Now,
Speaker 1: this relates to the third bit of circumstantial evidence, and
Speaker 1: that's that Taiwan is not part of the North Atlantic
Speaker 1: Treaty Organization or NATO. This means that Western countries are
Speaker 1: under no obligation to defend the country if China attacks. Obviously,
Speaker 1: this doesn't mean that Western countries couldn't help in other ways.
Speaker 1: Ukraine isn't part of NATO either, yet it's received about
Speaker 1: as much support as NATO can give without putting actual
Speaker 1: boots on the ground. The thing is that it's not
Speaker 1: clear just how far NATO would go to defend Taiwan,
Speaker 1: especially once many of its members have set up their
Speaker 1: own microchip manufacturing facilities. Note that the United States and
Speaker 1: others art technically neutral towards Taiwan's affairs. That said, US
Speaker 1: President Joe Biden has mentioned on many occasions that the
Speaker 1: US would respond with military force, but it looks like
Speaker 1: these statements have been walked back by the White House
Speaker 1: every time. That's probably because they know that war with
Speaker 1: China over Taiwan wouldn't be worth it. Now, this pertains
Speaker 1: to the fourth bit of circumstantial evidence, and that is
Speaker 1: the ongoing war in Ukraine. There's no question that China
Speaker 1: has been watching the West's sanctions against Russia very closely.
Speaker 1: In fact, there's lots of evidence to suggest that China
Speaker 1: has been funding Russia's war in Ukraine. I mean, how
Speaker 1: else could Russia's economy survive these unprecedented sanctions. This begs
Speaker 1: the question of whether China provided these funding guarantees prior
Speaker 1: to Russia's invasion of Ukraine. The answer must be yes,
Speaker 1: because there's no way Russia would have invaded without China's
Speaker 1: economic support. Call me crazy, but I think Putin is
Speaker 1: sane enough to have made that calculation. Now this begs
Speaker 1: a second question, and that's what China would stand to
Speaker 1: gain by supporting Russia financially. Clearly, whatever China stands to
Speaker 1: gain must be significant, since it's supporting Russia economically would
Speaker 1: result in serious scrutiny from Western countries. In fact, that's
Speaker 1: exactly what's been happening. As a wise man once said,
Speaker 1: if you want to know why something is happening, examine
Speaker 1: who benefits. In this case, there seemed to be four
Speaker 1: big benefits for China, and all of them assist with
Speaker 1: the CCPs vision and end game. The first benefit is
Speaker 1: unrestricted access to Ukraine. Believe it or not, but China
Speaker 1: actually has a strategic interest in Ukraine due to its
Speaker 1: Belt and Road initiative. For those who don't know, the
Speaker 1: Belt and Road initiative is China's global infrastruct your project.
Speaker 1: When it's complete, it will run through most countries in Asia,
Speaker 1: Europe and Africa, and this includes Ukraine. Now, the second
Speaker 1: benefit is the ability to see how the West will
Speaker 1: respond to the invasion of a significant yet non NATO ally.
Speaker 1: To be clear, Ukraine and Taiwan are two different countries
Speaker 1: in two different situations. Even so, the response is likely
Speaker 1: to be similar, at least similar enough to allow for
Speaker 1: a meaningful analysis. Now, the third game for China is
Speaker 1: that many Western countries have sent most and in some
Speaker 1: cases all, their significant military equipment to Ukraine. This leaves
Speaker 1: such countries less equipped to assist with other significant conflicts
Speaker 1: should they arise, be they in Taiwan or elsewhere. The
Speaker 1: fourth gain is perhaps the most important, and that's that
Speaker 1: the West sanctions against Russia are also doing a lot
Speaker 1: of damage to them as well. The most acute effect
Speaker 1: is inflation, which is leading to widespread discontent within these countries.
Speaker 1: In the case of Europe, most of this inflation is
Speaker 1: coming from energy and fuel shortages caused in large part
Speaker 1: by the sanctions against Russia. If these energy and fuel
Speaker 1: shortages are not addressed soon, you can bet that Europeans
Speaker 1: will be overthrowing their governments for continuing to push their
Speaker 1: green agendas. The practical effect of this is that these
Speaker 1: countries will probably not respond if China invades Taiwan. The
Speaker 1: scarier thing to consider is that these countries may not
Speaker 1: even respond if Russia launches a counter offensive against Ukraine
Speaker 1: in the dead of winter. Let's not go there. This
Speaker 1: brings me to the fifth bit of circumstantial evidence, and
Speaker 1: that's the United States. The US midterm elections will happen
Speaker 1: in about a month's time, and it's believed that they're
Speaker 1: going to be the most contentious set of elections to date.
Speaker 1: Case and point, Bill Gates recently said that quote, We're
Speaker 1: going to have a hung election and a civil war,
Speaker 1: straight up. That's what he said. One side will disagree
Speaker 1: with the outcome regardless, and people will take to the
Speaker 1: streets and start fighting each other. And Bill isn't just
Speaker 1: making this stuff up either. Poles show that most American
Speaker 1: voters believe there is a high chance of a civil war.
Speaker 1: This is true regardless of political affiliation. More than the
Speaker 1: third of American voters also believe that it's time for
Speaker 1: the country to be split up into blue states and
Speaker 1: red states. That is some extreme polarization and all the
Speaker 1: inflation that Americans are experiencing is probably making things worse.
Speaker 1: When people don't have enough money to pay for rent
Speaker 1: or food, riots tend to be the outcome, I reckon
Speaker 1: the midterms could provide the perfect spark for these riots.
Speaker 1: As with Europe, a domestic crisis of confidence in the
Speaker 1: United States means it will be much less likely to
Speaker 1: intervene if China invades Taiwan. Some would say that war
Speaker 1: tends to be a great unifier, but I would say
Speaker 1: that in today's information age, people know which wars are
Speaker 1: worth fighting, it turns out most aren't. Now if I'm
Speaker 1: wrong and the United States does somehow ralli at citizens
Speaker 1: around going to war with China, then it could be
Speaker 1: presented with a second issue, and that's the Strategic Petroleum
Speaker 1: Reserve or SPR. If you watched our recent video about
Speaker 1: the SPR, you'll know it's at its lowest level since
Speaker 1: nineteen eighty four. That's because the current administration has been
Speaker 1: dumping the SPR into the domestic economy to keep inflation
Speaker 1: and petrol prices in the United States low. The SPR
Speaker 1: has been draining fast, and OPEC's recent decision to cut
Speaker 1: oil production by two million barrels a day will only
Speaker 1: cause it to drain even faster. Given that the SPR
Speaker 1: is intended for emergencies such as a war, the United
Speaker 1: States might not have the energy resources it needs to
Speaker 1: defend Taiwan if China invades. You can have the most
Speaker 1: powerful military in the world, but if you have no
Speaker 1: fuel for all your jets and ships, then you don't
Speaker 1: really have a military at all. Now. To be honest,
Speaker 1: I actually don't know how important the SPR is for
Speaker 1: the U s military's operations. Based on my research, the
Speaker 1: US military only uses around two hundred and fifty thousand
Speaker 1: barrels of oil per day. This means that the United
Speaker 1: States should theoretically have the capacity to supply its military
Speaker 1: even without the SPR. One thing is for sure, though,
Speaker 1: and that's that the SPR being at a multi year
Speaker 1: low is literally a once in a lifetime opportunity. It's
Speaker 1: unlikely that the United States will be in such a
Speaker 1: vulnerable position energy wise. Ever, Again, you can bet this
Speaker 1: is something that c c P is hyper aware of.
Speaker 1: Oh and did you know that before and during the
Speaker 1: Ukrainian invasion the Chinese have been filling up their strategic
Speaker 1: reserves with a lot of Russian oil mm hmm. Speaking
Speaker 1: of interesting energy issues. The sixth bit of circumstantial evidence
Speaker 1: relates to China's pandemic policy, It's peculiar actions during the pandemic,
Speaker 1: it's economic situation, and its demographics. A lot to break
Speaker 1: down here, so bear with me. As many of you
Speaker 1: will know, China has had a strict zero COVID policy
Speaker 1: since the start of the pandemic. Now, there are many
Speaker 1: theories as to why this is. One is that the
Speaker 1: CCP wants to prove it can handle a pandemic better
Speaker 1: than the West. This theory is questionable, given China could
Speaker 1: very easily fudge the numbers. That's why the theory that
Speaker 1: the CCP wants to cause inflation in the West by
Speaker 1: locking down its supply chains has been the more popular
Speaker 1: one over the last year. From what I've seen and heard,
Speaker 1: it's been taken as a fact among macro analysts at
Speaker 1: this point. Still, maybe the c c P really just
Speaker 1: is that crazy. The thing about these theories is that
Speaker 1: they're not mutually exclusive, and I reckon the sum truth
Speaker 1: to both. It's also true that the CCP cannot continue
Speaker 1: its zero COVID policy indefinitely. At some point it will
Speaker 1: have to stop, and the speculation that this will happen
Speaker 1: during or after the twentieth c CP Congress. Once this happens,
Speaker 1: then all of China's manufacturing will come back online. This
Speaker 1: will create a surge in oil demand at a time
Speaker 1: when there are energy shortages around the world. Recall that
Speaker 1: OPEQ just cut its output and Europe is already running
Speaker 1: dangerously low on oil and gas. Logically, this will only
Speaker 1: add to inflation. On the flip side, there are many
Speaker 1: who believe that China is intent on continuing its zero
Speaker 1: pandemic policy indefinitely. Their evidence for this is that China
Speaker 1: continues to build isolation for abilities and continue stockpiling record
Speaker 1: levels of food, which is also adding to inflation around
Speaker 1: the world. But what if these isolation facilities are not
Speaker 1: intended for those who test positive in the future, And
Speaker 1: what if the primary purpose of stockpiling all this food
Speaker 1: isn't to cause inflation without the pandemic. These actions look
Speaker 1: like a country that's preparing for a serious war. Prisons
Speaker 1: for dissenters, food for the army. Then there's the economic element.
Speaker 1: In case you missed the memo, China's economy is kind
Speaker 1: of in the toilet. It's housing market is falling apart.
Speaker 1: People are getting locked out of their bank accounts, institutions
Speaker 1: aren't investing, and those pandemic restrictions are doing serious economic
Speaker 1: damage as well. If you watched one of our older
Speaker 1: videos about how to prepare for a bear market, you
Speaker 1: might recall that one of the ways to get out
Speaker 1: of a crappy economic situation is to start a war.
Speaker 1: What's annoying is that only the CCP knows whether China's
Speaker 1: economic situation is bad enough to justify this kind of solution.
Speaker 1: What we do know is that China has at least
Speaker 1: thirty five million more extra men than women. This is
Speaker 1: because of China's infamous one child policy, which resulted in
Speaker 1: families choosing to have boys over girls. China's gender imbalance
Speaker 1: has since become a big problem, and it's going to
Speaker 1: become an even bigger problem. That's because young and middle
Speaker 1: aged men tend to be the ones who start riots
Speaker 1: and revolutions. With the c c P constantly on a
Speaker 1: shaky footing, having such a large portion of the population
Speaker 1: that's willing and able to fight is not ideal. An
Speaker 1: easy way to get rid of all these men would
Speaker 1: be to send them all to war. On that note,
Speaker 1: the seventh bit of circumstantial evidence relates to what would
Speaker 1: happen between other countries if China invaded Taiwan. While China
Speaker 1: has a large number of extra men, it's actually in
Speaker 1: second place. The first placed country in this contest is India,
Speaker 1: with over fifty five million more extra men. As it
Speaker 1: so happens, India has some territorial disputes of its own,
Speaker 1: Although the most well known of these involved Pakistan, India
Speaker 1: actually has a few territorial disputes with China as well.
Speaker 1: The idea that India would make a move in the
Speaker 1: southeast could be a part of why the CCP hasn't
Speaker 1: moved on Taiwan just yet. It's not just China or
Speaker 1: India either. There are dozens of countries with disputed territories.
Speaker 1: All these countries are facing their own sets of internal
Speaker 1: issues that their politicians know they could solve by going
Speaker 1: to war with their enemies next door. The only thing
Speaker 1: stopping them is the World Police a k a. The West.
Speaker 1: But as I mentioned a few moments ago, Europe is
Speaker 1: more or less guaranteed to be in crisis, and it's
Speaker 1: more than likely that the United States will experience some
Speaker 1: internal strife in the next month or so. Does this
Speaker 1: mean we will see more territorial conflicts emerge. Possibly, but
Speaker 1: that would be guaranteed if China invades Taiwan. That's because
Speaker 1: all the other countries with disputed territories will know, or
Speaker 1: rather assume that the United States will focus its military
Speaker 1: attention on Taiwan. If China invades, as such, it will
Speaker 1: make it the perfect time for all these countries to
Speaker 1: go to war with their neighbors. Now, the reason I
Speaker 1: say assume is because there's a very real possibility the
Speaker 1: United States would focus its military attention on another ally
Speaker 1: if all hell breaks loose. Israel is the elephant in
Speaker 1: the room, and it looks like the U s intelligence
Speaker 1: agencies are already at work to undermine Iran so that
Speaker 1: it doesn't attack Israel. That's because the US military knows
Speaker 1: damn well that it would not be a world war
Speaker 1: where it's East versus West. It will be a series
Speaker 1: of long held territorial disputes evolving into kinetic war. That's
Speaker 1: just because the information age has once again made this
Speaker 1: kind of two sided global war impossible. Going to war
Speaker 1: against a hated neighbor. However, that's still possible in the
Speaker 1: information age, and that's what the next world war will
Speaker 1: look like. The question is which hat will be the
Speaker 1: first to drop. Will it be China versus Taiwan, or
Speaker 1: will there be another significant conflict that comes first to
Speaker 1: light the spark. To my mind, it's only a matter
Speaker 1: of time before one of these sparks comes around. China
Speaker 1: versus Taiwan will then be one of many conflicts, and
Speaker 1: there would be no way for anyone to stop them all.
Speaker 1: What happens after that is anyone's guess. For what it's worth,
Speaker 1: we probably won't see many, if any, nukes get used
Speaker 1: in local conflicts in some then it's arguably not a
Speaker 1: question of if China invades Taiwan on But when circumstances
Speaker 1: are about as favorable as they could be for the CCP,
Speaker 1: the next few weeks will present the perfect opportunity to
Speaker 1: take advantage of these circumstances, as most of them will
Speaker 1: be reaching their apex. For Z, it will be the
Speaker 1: only opportunity. Oil is a country's lifeblood. It's what powers
Speaker 1: the economy, and those with limited supplies of it are
Speaker 1: at a strategic and material disadvantage. This is why the
Speaker 1: United States has the Strategic Petroleum Reserve or SPR. However,
Speaker 1: in recent weeks the SPR has been at dangerously low levels,
Speaker 1: levels not seen since. It's gotten so low that there
Speaker 1: are many wondering if it could threaten America's security. This
Speaker 1: is exactly what I'm going to cover in this video today,
Speaker 1: So don't go anywhere. Okay, before we go any further,
Speaker 1: we need a bit of an intro into the SPR.
Speaker 1: Back in the nineteen seventies, there was an oil price crisis,
Speaker 1: unlike any scene before. This was caused by the Organization
Speaker 1: of the Petroleum Exporting Countries or OPEC, deciding to cut
Speaker 1: off supplies to all those countries that supported Israel during
Speaker 1: the Yom Kippur War. This played out in nineteen seventy three,
Speaker 1: when the price of oil tripled in less than a year.
Speaker 1: It got so bad that in November President Richard Nixon
Speaker 1: asked citizens to lower their thermostats, refrain from driving on Sundays,
Speaker 1: and go easy on their Christmas light displays, not too
Speaker 1: dissimilar from some of the policies being suggested in Europe
Speaker 1: right now. Any who. The result of this crisis was
Speaker 1: that the US embarked on a strategy of energy independence,
Speaker 1: and part of that initiative was the creation of the
Speaker 1: Strategic Petroleum Reserve. The SPR consists of federally controlled oil
Speaker 1: stocks that are stored in huge underground salt cabins at
Speaker 1: four sites along the coastline of the Gulf of Mexico.
Speaker 1: The total storage limit of the SPR is over seven
Speaker 1: hundred and fourteen million barrels, and because of its location
Speaker 1: near big US refineries, the SPR can ship up to
Speaker 1: four point four million barrels per day. By some estimates,
Speaker 1: it can take only thirteen days from a presidential say
Speaker 1: so for the first oil to enter the US market. Now,
Speaker 1: in terms of the mechanics of how it all works,
Speaker 1: the Energy Department usually holds an online auction in which
Speaker 1: energy companies will bid on the oil. There are also
Speaker 1: separate swap agreements where oil companies will take the crude,
Speaker 1: but they are required to return at plus interest. The
Speaker 1: SPR was originally conceived to address supply shortages, but it
Speaker 1: has increasingly been used as a price suppression tool. Oil
Speaker 1: has been released from the SPR on three previous occasions.
Speaker 1: These were in ninety one during the First Gulf War
Speaker 1: two thousand and five in the wake of Hurricane Katrina
Speaker 1: and twenty eleven during the war in Libya. I should
Speaker 1: also note that the United States is not alone in
Speaker 1: its storage of strategic oil. Other members of the i
Speaker 1: e A or International Energy Agency, such as Britain, German, EA, Japan,
Speaker 1: and Australia, are required to hold ninety days worth of
Speaker 1: net oil imports in reserve. China, the world's second largest
Speaker 1: oil consumer, also created its SPR fifteen years ago, Speaking
Speaker 1: of which, China has been filling up its reserves at
Speaker 1: an increasingly frenetic pace. It may interest you to know
Speaker 1: that back in February of this year, just before the
Speaker 1: invasion of Ukraine, the Chinese were doing exactly this at
Speaker 1: a time when the rest of the world was frantically
Speaker 1: releasing its stocks in order to stave off rising prices. Now,
Speaker 1: moves like this are generally coordinated between countries, but not
Speaker 1: this time so effectively. We had a situation in which
Speaker 1: China was buying while the rest of the world was selling,
Speaker 1: almost as if they knew something the rest of us
Speaker 1: didn't m HM. So that brings us to late March.
Speaker 1: With the war in Ukraine by now in full swing,
Speaker 1: the price of oil was skyrocketing and even breached the
Speaker 1: one and thirty dollars a barrel level. Not only that,
Speaker 1: but the sanctions being rolled out against Russia were leading
Speaker 1: to even further disruptions in the oil market, as countries
Speaker 1: in Europe were severely restricted from buying Russian oil. More
Speaker 1: about that in the description. The impact of these higher
Speaker 1: oil prices was that consumers around the world started feeling
Speaker 1: the pinch at the pump, and global leaders started needing
Speaker 1: to come up with solutions. The quickest and easiest option was,
Speaker 1: of course, to turn to their strategic oil reserves, and
Speaker 1: that is exactly what they did. The White House announced
Speaker 1: that it would release one million barrels a day for
Speaker 1: a period of over six months. According to the press
Speaker 1: release from the White House at the time, quote, the
Speaker 1: scale of this release is unprecedented. The world has never
Speaker 1: had a release of oil reserves at this one million
Speaker 1: per day rate for this length of time. This record
Speaker 1: release will provide a historic amount of supply to serve
Speaker 1: as a bridge until the end of the year when
Speaker 1: domestic production ramps up. This wasn't just bluster by the
Speaker 1: White House either, It was indeed an unprecedented release of reserves.
Speaker 1: The release had a notable impact on the price of oil,
Speaker 1: yet fell by almost five percent on the day as
Speaker 1: the markets digested the exact impact the White House's decision
Speaker 1: would have going forward. The thing is that this was
Speaker 1: supposed to be a temporary release that would hold the
Speaker 1: country over for the next six months, as noted by
Speaker 1: Goldman Sacks though quote this would remain, however, a release
Speaker 1: of oil infantries, not a persistent of supply for coming years.
Speaker 1: Such a release would therefore not resolve the structural supply
Speaker 1: deficit years in the making. So, quite simply, there were
Speaker 1: structural issues in US supply that wouldn't be able to
Speaker 1: make up for the shortfall in the longer term. Why
Speaker 1: is that exactly, Well, it's the result of a combination
Speaker 1: of factors which mostly come down to either market dynamics
Speaker 1: or politics. From the market dynamics perspective, during the COVID pandemic,
Speaker 1: oil demand was completely crushed, which sent prices through the floor.
Speaker 1: And I mean that quite literally. There was a point
Speaker 1: at which the price of oil actually went negative for
Speaker 1: a period of time. Many energy companies went under as
Speaker 1: a result of this, while many more decided to completely
Speaker 1: curtail any further investment in new energy supply. This meant
Speaker 1: that US oil production had fallen to below ten million
Speaker 1: barrels a day, and there was no incentive to source
Speaker 1: new supply. So that was the impact on demand from
Speaker 1: the pandemic. But then, of course you also had the
Speaker 1: political slant. There is no doubt that the new US
Speaker 1: administration wasn't in favor of policies that would boost fossil
Speaker 1: fuel production. With climate change in mind, sustainable energy initiatives
Speaker 1: were pursued at the expense of the oil and gas industry.
Speaker 1: For example, producers claim that limits on fracking by states
Speaker 1: and the closing of certain coastlines such as Alaska and California,
Speaker 1: have also impeded their ability to drill new wells. Not
Speaker 1: only that, but the Biden administration froze new oil and
Speaker 1: gas leases earlier this year. This amid a legal battle
Speaker 1: over the cost of climate change. The crux of the
Speaker 1: issue was the quote social cost of carbon, a metric
Speaker 1: that uses economic models to put a value on each
Speaker 1: ton of carbon dioxide emitted. Speaking of which you can
Speaker 1: watch our video on individual carbon credits, which will be
Speaker 1: linked to in the description for you any who. The
Speaker 1: goal of this measure was to quantify the economic harm
Speaker 1: caused by the climate crisis from the likes of sea
Speaker 1: level rise, more destructive hurricanes, extreme wildfire seasons, and flooding.
Speaker 1: The only issue was that a federal judge found this
Speaker 1: tool to be illegal and issued an injunction. As a
Speaker 1: result of that, the administration decided to freeze the issuance
Speaker 1: until there was clarity around the measure. This all took
Speaker 1: place in early February, just a few weeks before Russia
Speaker 1: invaded Ukraine. Talk about bad timing. Then, of course, there's
Speaker 1: the much larger, more pressing question of the infamous Keystone Pipeline.
Speaker 1: For those unfamiliar, the Keystone Pipeline was a nine billion
Speaker 1: dollar project that was expected to bring at least nine
Speaker 1: hundred thousand barrels a day from Alberta to Nebraska, of
Speaker 1: the amount released from the strategic reserves earlier this year.
Speaker 1: By the way, this has been a hot political issue
Speaker 1: for almost twelve years and was constantly delayed on environmental grounds. However,
Speaker 1: matters reached fever pitch last year when Biden officially canceled
Speaker 1: a key permit. Many had expected this, given that he'd
Speaker 1: made it a key campaign promise. However, once it was done,
Speaker 1: there were many who pointed out how this could threaten
Speaker 1: energy security. That's because, according to the US State Department,
Speaker 1: back in America's energy system had a need for more
Speaker 1: heavy crude from Canada to replace declining volumes from Mexico
Speaker 1: and Venezuela, the latter not a country you want to
Speaker 1: have to rely on for oil imports, and paradoxically, that
Speaker 1: oil coming from Canada has to be brought down to
Speaker 1: the refineries using either trucks or rail, which cause a
Speaker 1: fair bit of environmental harm themselves. I'll leave a link
Speaker 1: to this Forbes article in the description, which goes into
Speaker 1: it all in a lot more detail. Now, I don't
Speaker 1: want to get into the politics of all this. My
Speaker 1: point is that US domestic energy production and imports have
Speaker 1: not been able to keep up with demand, which means
Speaker 1: that the administration has had to tap that strategic reserve
Speaker 1: more often than absolutely needed. The latest release from the
Speaker 1: SPR came last week when OPEC announced that they would
Speaker 1: be cutting oil production by two million barrels per day
Speaker 1: from November. This was the largest supply cut since and
Speaker 1: is equivalent to about two per cent of global supply. Now,
Speaker 1: the White House pushed hard to prevent the OPEC cut.
Speaker 1: For example, three months ago, Biden made his first official
Speaker 1: visit to Saudi Arabia and was seen fist bumping the
Speaker 1: crown Prince pretty awkward. But more recently there has been
Speaker 1: intense lobbying by the US government behind the scenes to
Speaker 1: try and prevent the cut. Officials from across the administration
Speaker 1: were involved in reaching out to OPEC members. Even Janet
Speaker 1: Yellen herself made the case for not cutting oil production,
Speaker 1: explaining that it could be damaging to the global economy.
Speaker 1: Of course, one can't dismiss the ulterior motives here. The
Speaker 1: U S is about to head into a midterm election
Speaker 1: and high gas prices don't sit well with the voting public.
Speaker 1: The U S administration is also trying to reduce Russia's revenue,
Speaker 1: so Biden and co. Weren't too happy with OPEX move,
Speaker 1: and it could further strain relations between the White House
Speaker 1: and Saudi Arabia's royal family. Indeed, given the Biden visited
Speaker 1: the kingdom in July, it could have been seen as
Speaker 1: a personal slight. Now, whatever the politics behind the move,
Speaker 1: the cut happened, and that sent oil prices up on
Speaker 1: the day and at a local level. In the US,
Speaker 1: gas prices were already starting to creep up in a
Speaker 1: number of states. For example, last week, the national average
Speaker 1: breached three dollars eight year gallon, the second straight week
Speaker 1: of increases. This, of course, prompt to the government to
Speaker 1: dip into those savings again. On Friday last week, Biden
Speaker 1: said that he would release another ten million barrels from
Speaker 1: the SPR. Here you can see a graph of the
Speaker 1: SPR releases over the past thirty five years. As you
Speaker 1: can see, twenty two has been a bumper year for
Speaker 1: releases and has seen almost two hundred million barrels drained,
Speaker 1: and based on the current trajectory, it's possible that the
Speaker 1: SPR could be completely drained by November three. Crazy that's
Speaker 1: also assuming that there aren't even larger releases later this year.
Speaker 1: Note that the Russian oil price cap has officially been
Speaker 1: signed off, Essentially, any country that buys Russian oil above
Speaker 1: the cap risks being sanctioned. Of course, Russia isn't going
Speaker 1: to take that well and has threatened to restrict supply
Speaker 1: to any country that engages with the cap. Less supply
Speaker 1: higher prices, more strategic leases from a rapidly depleting reserve
Speaker 1: the picture doesn't look good. Why is that? Well, the
Speaker 1: world is becoming seemingly more dangerous by the day. Russia
Speaker 1: has threatened to use nuclear weapons in Ukraine, while China
Speaker 1: is adopting an increasingly aggressive stance towards Taiwan. This latter
Speaker 1: point is particularly concerning because of China's own stockpiling of
Speaker 1: oil and fun fact, some Chinese companies have also bought
Speaker 1: oil from the US Strategic Reserve. This caused political uproar
Speaker 1: in the States, and some Republican politicians introduced a bill
Speaker 1: to stop the administration from selling oil to foreign enemies.
Speaker 1: There's also the broader question of whether using the Strategic
Speaker 1: Reserve as a method of price control is a wise one.
Speaker 1: That's because the sprs original intent was to address shortages
Speaker 1: that threatened energy security. However, by using the SPR to
Speaker 1: drive down prices are effectively meddling with the free markets
Speaker 1: allocation of resources. For example, shale oil drillers and other
Speaker 1: companies in the US are less incentivized to drill for
Speaker 1: new supply if the price is artificially controlled. The end
Speaker 1: result is a more precarious longer term position, especially if
Speaker 1: the SPR runs out under investment brings the supply down
Speaker 1: still further supply that would be sorely needed if, for instance,
Speaker 1: a war were to break out. So the lesson here
Speaker 1: is clear. Don't raid the rainy day fund because you
Speaker 1: never know when a thunderstorm may hit. Okay, time for
Speaker 1: some of my personal thoughts on this. If there's one
Speaker 1: thing that the past few months has taught us is
Speaker 1: that energy security should be paramount. Europe is learning that
Speaker 1: the hard way, and other countries should sit up and
Speaker 1: take note when it comes to the United States, and
Speaker 1: under investment in oil exploration and transportation means that it
Speaker 1: could be held hostage by OPEC. Indeed, the intense lobbying
Speaker 1: actions of the Biden administration prior to the cut are
Speaker 1: proof that they desperately needed to avoid these cuts, especially
Speaker 1: with the midterms around the corner. Now that OPEC has
Speaker 1: snubbed the US government, those spr reserves are being tapped
Speaker 1: once again. However, it's only a finite supply and it's
Speaker 1: at risk of eventually running dry. The nation's energy security
Speaker 1: should not be compromised by using an emergency tool to
Speaker 1: lower gas prices, especially if the ends are potential votes
Speaker 1: in an election. Not only that, but the price suppression
Speaker 1: caused by tapping the spr could lead to further under
Speaker 1: investment at a time when that is sorely needed. The
Speaker 1: world has become an increasingly dangerous place, and America's enemies
Speaker 1: have been working to secure their own oil supplies. They
Speaker 1: have no issue buying Russian oil and stockpiling it in
Speaker 1: their own reserves. In a time of war, any oil
Speaker 1: will be a scarce commodity, and whether that came from
Speaker 1: a sanctioned country or not won't be of concern. So
Speaker 1: then what do we do Well, It's a tricky one.
Speaker 1: OPEC still wields an outsize control on the global oil markets,
Speaker 1: and investment into sourcing new supply takes time. However, there
Speaker 1: is no time like the present. Perhaps they should once
Speaker 1: again consider the potential merits of the Keystone pipeline. Is
Speaker 1: shelving that project really in America's best interests at a
Speaker 1: time like this. I also think that politicians should allow
Speaker 1: the dynamics of supply and demand to address supply shortages.
Speaker 1: Price increases are unpalatable, yes, but they are a necessary
Speaker 1: evil to source new supply. In the longer term, we
Speaker 1: could have a situation whereby more sustainable prices are possible
Speaker 1: without having to rely on the goodwill of OPEC. Those
Speaker 1: are just my opinions, though you may think otherwise. Thank
Speaker 1: you so much for listening to the coin Bureau podcast.
Speaker 1: If you'd like to learn more about cryptocurrency, you can
Speaker 1: visit our YouTube channel at YouTube dot com forward slash
Speaker 1: coin Bureau. You can also go to coin bureau dot
Speaker 1: com for loads more information about all things crypto. You
Speaker 1: can follow me on Twitter at at coin burea or
Speaker 1: one word, and I'm also active on TikTok and Instagram too.