Although the tension between Israel and Hamas escalated yesterday investors remained admirably calm, at least compared to the understandably nervous session on Monday.  The Israeli military have reportedly carried out strikes on 1,300 targets in Gaza, shelled south Lebanon and is preparing for a ground offensive. Yet, both WTI and Brent retreated yesterday as concerns of a sudden and unexpected supply disruption have been swept aside for now. Distillates, on the other hand, continues their journey north as Chevron halted the export of natural gas from Israel to Egypt through the East Mediterranean Gas pipeline. Adding to the geopolitical risk premium, the Balticconnector gas pipeline that runs under the Baltic Sea between Finland and Estonia was damaged in what was described as “outside activity” by the Finnish President. The threat of the strike of Australian LNG workers has not abated either. European natural gas prices rallied more than 20% in the last two days providing support for ICE Gasoil and indirectly to CME Heating Oil.

A sense of calm has also been re-installed in the equity markets. Focus, at least for the time being, shifted back to the inflation battle. Fed officials struck a dovish tone yesterday with the Atlanta Fed President claiming that no more rate hike is necessary, and recession will be avoided. A relief rally in the bond market pushed yields lower and equities had a stellar day, nonetheless it would be audacious to conclude that the outbreak of the latest conflict in the Middle East will not have profound impacts on investor’s sentiment in the coming days and weeks.
 

 The Importance of Ukraine Aid

Strikes are sweeping across developed countries from the US to the UK and France. In the world’s biggest economy Hollywood’s writers, health workers and car makers are fighting for better pay. Altogether nearly 500,000 people have been involved. Those of us living in London know all too well that sometimes it is impossible and even pointless to book a hospital appointment because trains do not run, and health care workers are out in the streets en masse. In France, where unions are traditionally strong industrial actions are almost everyday occurrences. The common ground is the collective demand for better pay as the rise in wages fails to keep up with the increase in prices. The troubling aspect of this phenomenon is that whilst naturally governments and employers are the ones taking the blame for deteriorating living conditions the root of the problem is Russia’s aggression against Ukraine, which considerably aggravated the inflationary pressure caused by the Covid crisis. For this reason, the sooner the conflict ends the easier it will be to rein in inflation. The path towards the ultimate success leads via ensuring full military and financial support for Ukraine. Judging by recent developments, this road, unfortunately, is paved with malign intensions.

Aid is a crucial tool in Ukraine’s fight against Russia. The unity and commitment of the western allies to help Ukraine was almost heart-warming in the immediate aftermath of the invasion but the initial enthusiasm is evidently evaporating. The recent and almost comical charade in the US Congress foreshadows a significant setback of Ukraine’s effort to overcome the invader. A handful and unconditional servants of the Republican party’s presidential nominee, Donald Trump, last week ousted the Speaker of the House of Representatives, whose major crime was to help Democrats to avoid the government shutdown and the consequent economic mini crisis. The stop-gap deal that keeps the US government open until the middle of November did not include any new financial help for Ukraine. Albeit the US President rushed to re-assure western allies of his commitment to provide as much help as necessary for Ukraine, support from inward-looking Republicans is perceptibly on the decline. To put numbers on it, there is about $5 billion left to send weapons to Ukraine whilst US military aid has averaged around $2.7 billion per month. The setback caused by political horse trading comes at a time when the Ukrainian counteroffensive, which started during the summer seems to be losing momentum.

The outlook for helping Ukraine is almost equally grim in Europe. In one of the country’s neighbours, Slovakia, Robert Fico, the former prime minister renowned for his anti-Ukrainian stance, is in the position to form a coalition government after the elections more than a week ago.  He has openly opposed sanctions against Russia and has been firmly against NATO support claiming it undermines national sovereignty. His Hungarian counterpart, Viktor Orban, welcomed the result of the Slovakian elections by saying that it is “always good to work together with a patriot”. You could almost hear the corks popping in the Kremlin. The EU’s financial backing of Ukraine has always been a divisive issue and Orban is using it as a leverage to get access to billions of euros of funding that was frozen because of non-compliance with protecting human rights and the rule of law. As part of the deal Hungary might approve the next round of aids but make no mistakes, it will do everything it can to make future help as difficult as possible.

Another one of Ukraine’s neighbours, Poland, its former staunchest ally, halted or at least scaled back its supply of weapons to Ukraine amid disputes over Ukraine’s grain exports. When the European Union lifted the import ban of Ukrainian grains in its effort to ensure steady supply to the world market last month, Hungary, Slovakia and Poland, all EU members, decided to unilaterally maintain the import restrictions. After Ukraine filed a lawsuit at the WTO against these countries Poland, where parliamentary elections are taking place this weekend, decided to retaliate the retaliation.

Whether it is the US, or the EU, political myopia and wider geopolitical interest clearly provide ostensible, or in some cases, explicit political support for Russia. Attempting to secure short-term political gains will make the inevitable more onerous to achieve and apart from the obvious and unnecessary increase in tension between apparent allies the economic repercussions that will come in the form of engrained inflationary pressure will also be more severe than wished for.

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