In a brilliant book, ‘Sapiens’, the author, Yuval Noah Harari, defines culture as the instinctive ability of strangers to cooperate effectively. Cultures, due to their internal dynamics and because of their man-made nature, constantly undergo changes and they are tempted to become the dominant force over other cultures. It was not until after the French Revolution and the US Independence that the seeds of the culture of liberal democracy were sowed. In the more than 200 ensuing years social equality and individual freedom became fundamental values. Some argue, plausibly inaccurately, that these values are contradictory as equality can only be attained by curtailing the freedom of the wealthy (communism) and the freedom to do whatever one wants impedes equality (relentless widening of inequality gap). The history of the past 200 years is mainly about the effort to regularly attempt to reconcile this contradiction, which is embodied in ideological, economic or military wars.

It is the latest round of the reconciliation process that sent stock markets tumbling last week. The monthly losses were less painful but the retreat from the middle of February is rather spectacular and telling. The MSCI All-Country Index finished the month 0.7% lower, down 2.78% from the February 18 peak, shedding 1.33% of its value last week. It is the current US Administration that is undeniably driving asset prices via the culture of its MAGA policy. The agenda is isolationist and protectionist, the execution is confusing and inconsistent. The ultimate objective of the US Government is to bring peace and prosperity to the US and consequently to the rest of the world by ‘levelling’ the political and economic playing field.

The effectiveness of the tools to achieve this goal is dubious. On the political front, it is peace through strength. This strength was disturbingly on display on Friday. After siding with Russia and North Korea in the UN, the complete lack of empathy and political decorum led to the public humiliation of the leader of Ukraine. From the economic perspective it is tariffs. There are basically three clearly distinguishable approaches to the modus operandi of the US administration: the unconditional and pliant servants, the ardent and biased antagonists and the pragmatists, who assess the head-spinning developments as objectively as possible. The latest category, called market, is possibly the most reliable gauge of the potential impact of the measures of Donald Trump & Co.

It is no surprise that after the latest twist in the tariff saga, there was a stampede out of the risky assets with the exception of oil, which is touched upon below. The argument, that tariffs will more than cover the loss of tax and spending cuts and deregulations (neoliberal supply-side economics) has not been received warmly by investors; they are voting with their dollars. Firstly, there are gains from international trade. This notion is based on the principle of comparative advantage and opportunity cost, which is the potential benefit of giving up one alternative for a more beneficial one. Autarky damages economic prospects. The mantra of the ‘US doesn’t need Canadian energy’, which has merits by merely looking at the numbers, is economically inauspicious. Secondly, introducing punitive measures or excise duties on US imports will inevitably lead to retaliatory measures. Any country that rolls over will be exploited further. And herein lies the definition of trade war, the impact of which has been so conspicuously illustrated in last week’s movements in equity prices.

After more than a month of behind-doors deliberations and contrasting reports and announcements, the White House, last Thursday, decided to increase the proposed 10% tariffs on Chinese imports and go ahead with the 25% planned duties on Mexican and Canadian goods effective tomorrow. It is impossible to predict if they will actually be implemented, if yes, how long they will be in place and what reciprocal measures will be imposed on the US. At this stage, it is only reasonable to refer to the market’s reaction to the announcement, which was anything but appreciative.

Tariffs might dent economic and oil demand growth, but they also curtail oil supply when directed towards oil producers, such as Canada and Mexico. The two nations collectively send around 8 mbpd of crude oil and products to their neighbour, which will severely be curtailed if they are tariffed – regardless of whether it is 10% or 25%. Add to that the cancellation of Chevron’s licence to operate in Venezuela, which exported 230,000 bpd of oil to the US last year, Kpler estimates, and you have just mixed yourself a potentially bullish and colourful supply cocktail. Yet, what was observed at the end of last week was that Thursday’s advance in outright prices was not maintained and the Canadian crude discount to the US market did not widen, at all. The price jump had the lifespan of a mayfly and oil registered weekly losses across the board and the first monthly negative return since November. It is noticeable that sanguine Chinese manufacturing data released on Saturday is also failing to provide meaningful oil price support.

The explanation might be found in Donald Trump’s courting of Vladimir Putin. After Friday’s shocking scenes from the Oval Office, one could actually hear the sounds of popping corks in the Kremlin and the humming of an increasing number of oil rigs in Siberia. And then there is the massive spare capacity of OPEC to fall back on. No doubt, the US would be ready and willing to put pressure on the producer group to open the spigots if deemed necessary. After the first month in office, it has become obvious that the administration will continue its confrontational policies on several fronts, including oil. We believe it will impede oil demand but what’s more important is how influential forecasters assess the past 5 weeks. It is useful to recall that in the latest monthly estimates, the EIA put the 2025 global oil demand growth at 1.36 mbpd, the IEA at 1.10 mbpd and OPEC at 1.47 mpbd. Downgrades in the updated projections in two weeks will not come as a complete shock.

Uncertainty, unpredictability, ultimatums for unconditional obedience and belligerent rhetoric and action characterized the last month. And the future? This report began with a reference to a book. Our miserable selves find it fitting to end it with a quote from another one, 1984 by George Orwell: ‘If you want a picture of the future, imagine a boot stamping on a human face – forever’.
 

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