No one, including investors, is immune to recency and present bias. Humans tend to place more weight on current events than on past ones, or to settle for immediate rewards rather than wait for larger ones in the future. The former can cloud our judgment and impede rational decision-making, while the latter, called time-inconsistent preference in economic terms, can be viewed as a plausible synonym for headline trading.

The latest example of these cognitive biases emerged yesterday when oil prices rallied on the news that the US, for the first time, had sanctioned Russian oil companies. Meanwhile, President Trump’s ostensible fondness for Vladimir Putin, so often expressed in the past, seems to have been forgotten, and the potential consequences of prolonged high oil prices a year before the US midterm elections appear to have been ignored.

Politics, whether foreign or domestic, is usually a matter of priorities: defence or healthcare? Protection or cooperation? Fossil fuels or renewables? Once these priorities are established, the future can be envisaged accordingly. However, when priorities are inconsistent and frequently shift, anticipating the future becomes cumbersome. With that in mind, what can be expected from these newly imposed sanctions on Russia?

On this topic, it also seems sensible to consider the other two major conflicts currently engulfing the globe; the Israel–Hamas confrontation and the US–China trade war. After all, they are interconnected, and developments on one front may well influence decisions on the others.

The Ukrainian War

The significance of Wednesday night’s decision to impose sanctions on two Russian oil companies cannot be overstated. It marks the first time the US has cut Russian entities off the international payment system. The importance of the move grows as it aligns with recent and existing measures by the EU, the UK, and the G7. It must be noted that combined Russian crude oil and product exports exceed 7 mbpd, meaning that the impact of increasing international isolation could easily be amplified.

Of course, sanctions on producers are most effective when pressure on consumers increases as well. India’s pledge to reduce its Russian crude oil purchases (1.7 mbpd in January–September) falls into this category, but the decisive blow would undoubtedly come from China. The resulting disruption could reignite inflationary pressures and drive up US retail gasoline prices, an outcome the administration can ill afford, and renewed pressure could be mounted on OPEC to make up for the shortfall.

Are these latest US measures a sign of genuine change in attitude, or merely another charade? Some argue that President Trump might back down, claiming that Vladimir Putin holds leverage over him due to alleged past real estate dealings. These claims remain unsubstantiated, but it is possible that the US could soften its punitive stance if Russian nuclear threats were to be elevated. With continued Chinese backing, Russia will keep insisting that peace talks proceed only if the conflict’s “root causes” (i.e., its territorial demands) are addressed. In other words, efforts to circumvent sanctions by using the shadow fleet and obscure middlemen may persist, and the initial and justified reaction to the US measures will probably be short-lived.

Middle East Tensions

What President Trump achieved two weeks ago was unprecedented: he brokered a truce, or at least a ceasefire, between Israel and the Palestinian militant group Hamas. Curiously, the agreement resembled one proposed by the previous administration, but kudos to Donald Trump: only the incumbent president was able to push it across the finish line.

The first phase of the peace deal has been, or is being, implemented. Hostages have been released. Nonetheless, the process is far from frictionless. Mutual accusations of violations are flying: Hamas stands accused of executing Israeli collaborators, while Israel has reportedly obstructed the flow of humanitarian aid into Gaza.

There is no better way to put it, concerns are mounting over the sustainability of the deal and the implementation of the less spectacular but more crucial second phase: the disarmament of Hamas, the full withdrawal of Israeli forces, the establishment of a transitional government with international assistance, and, more broadly, the rebuilding of Gaza.

President Trump was correct when he noted in his address to the Israeli parliament that the conflict is 3,000 years old. It is this perpetual animosity that makes any prospect of imminent, long-term, and comprehensive peace and the realisation of a two-state solution highly implausible. The likely consequences are Iran’s continued isolation and the re-ignition of regional tensions. The geopolitical risk premium may have declined, but it is far from gone.
The US–China Trade War
The standoff between the world’s two largest economies is the zeitgeist of the Trump era. The defining features are reciprocal tariffs and daily bouts of finger-pointing. The US currently imposes a 58% tariff on Chinese imports, while China has retaliated with an average 33% excise duty. One nation holds the upper hand in critical minerals, the other in the technology sector.

It is against this backdrop that the two leaders are expected to meet next week in South Korea. The US president has recently expressed optimism, stating his belief that a deal is possible. “Deal,” however, is a vague term; it could mean anything from an exhaustive trade agreement (unlikely) to a symbolic commitment (our preferred interpretation).

For our market, it will be intriguing, and perhaps critical, to see whether President Trump pressures his Chinese counterpart to curb Russian oil purchases. Reports emerged yesterday that Chinese refiners have halted the purchase of Russian oil. It would, nonetheless, be naïve to believe that the move is due to the threat of secondary sanctions.  Putin might not have personal leverage over Trump, but China has economic leverage over the US. The view here is that China will play a pivotal role in shaping Russian oil exports, and its benevolent attitude towards its ally will be maintained. Of course, this is just one of the many possible outcomes and could prove far off the mark. What is certain is that rumours and denials will remain the signature traits of oil trading.

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