The Great Games Afoot

By Michael Every of Rabobank

Brent oil is lower today at $86 on a bundle of news: US Secretary of State Rubio told allies strikes against Iran were off the table –for now — and sanctions were on it; the US was reported to be returning some diplomats to Middle East embassies withdrawn over security fears; and Iran and Oman said they had discussed a Hormuz temporary corridor and mine-clearing – though Iran reiterated that the strait is still closed and just attacked another ship. There’s a Great Game afoot there, obviously.

The regional view is that Iran is running out of money, with the UAE and Iraq in particular showing how Tehran can be hit economically. Yet the US isn’t targeting China’s support for Iran, which Beijing has defended, warned against disrupting — Bloomberg says with “defiance”, and threatened to retaliate against. There’s a Great Game afoot there too, of course.

Bonds liked lower oil prices. 10- and 30-year US Treasury yields were down 7bps and 9bps respectively this week at time of writing. That’s despite an AI-written op-ed from former Bessent and Warsh boss and hedge fund maven Druckenmiller, which criticises the Treasury Secretary’s bond market machinations and arguing price discovery is paramount. There’s a Great Game afoot in that public spat too. As Bloomberg puts it today, ‘Short Squeeze in US Long Bonds Shows ‘Bessent Put’ at Work.’ Gold is not showing signs of capitulation, however.

CIA Director Ratcliffe flew to Moscow for what seems to have been 15 minutes of dialogue. The last time that happened was just before the Russian invasion of Ukraine. The Vatican envoy was also in Moscow calling for an urgent end to the war. Both come after Europe offered further direct military support to Kyiv, the UK pledging blueprints of advanced missiles, despite Russian warnings this crosses their red line; reports of imminent Russian mobilisation of up to 500,000 men; Sweden reviving talk of seizing Russia’s frozen FX assets; accelerated UK civil defence planning against Moscow’s threats; and a UK government warning to Brits to stock up on food amid threat from “climate crisis” and “hostile states.” Did Ratcliffe talk Iran? Was he ‘palling with Putin’? Did he warn Moscow not to escalate vs Ukraine? Or did he try to de-escalate Russian actions vs a UK PM with no foreign policy experience trying to charm EU leaders? There’s a dangerous Great Game in that tangle of questions.

Ex-Soviet Ukraine, Georgia, Moldova, and Armenia, along with Montenegro, want to join the EU. Iceland was just told if it votes to start membership talks Saturday it could be in by 2028: colour in more blue on the map: don’t add any military to defend it. Canada also wants deeper relations with Europe, necessitating a loss of sovereignty, as its press claims it’s ‘fighting for its sovereignty’ with Americans who “don’t even realise they’re in a war.” A combustible pocket of the US press now accuses PM Carney of “colluding” with US Democrats in appointing “a long-time Democrat political operative” to the new position of Chief Operating Officer of the Prime Minister’s Office, the equivalent of the White House Chief of Staff. All the above is a Great Game too if you choose to see it, even if some don’t always understand the rules it’s played by.

Yet Americans, Canadians, and everyone else can see the ensuing North American trade war. Canada just raised its tariffs on the US to 50% in response to Trump. Some of the Canadian press ask, “Where’s the plan to keep industry from fleeing?” Meanwhile, Trump is now saying he’ll rename Lake Ontario to Lake America: what can Canada rename to match?

In US politics, a judge reversed the reversal of her order by the Supreme Court seen the previous day which opened the door to significant changes in how the US postal service handles mail-in voting in elections. As Axios notes, this Great Game still has further to run as we sprint towards the midterms.

The South China Morning Post hammers home: ‘No immunity: how Xi’s anti-corruption fighters are zeroing in on fresh targets.’ Just below that headline is one that ‘Hong Kong’s property, financial markets face test under cross-border anti-corruption law.’ Quite.

And in Japanese politics, PM Takaichi is quoted as saying, I’m so lonely I befriended a cockroach.’

Sticking to the mundane ‘higher/lower’ game of modern markets, Australian CPI came in hotter than expected just after the RBA minutes said the Bank thought it had peaked. Headline CPI was 1.0% m-o-m and 3.5% y-o-y vs. 0.9% and 3.2% consensus, and trimmed mean was 0.5% m-o-m and 3.6% y-o-y vs. 0.3% and 3.5%. A lot of that was driven by fuel, but also by domestic holiday and travel, led by fuel, and restaurant meals, led by food led by fuel. Even clothing and footwear, furniture, and household equipment, all of which need inputs led by fuel and distribution led by fuel, came in stronger than expected. The market is now chattering about the RBA hiking again in September just a day after it was of totally different mind.

Was this a shock given Reuters notes almost half of global oil now flows from war zones? Geopolitics is not something exogenous one can ignore: it lies at the heart of inflationary problems.

When do central banks and modellers grasp the fuel component in CPI, like critical minerals and electricity, flows on to other things – and without the deflationary impact of a ‘China shock’ for those states opting to try to retain local industry? When will their focus shift to *supply* not demand? And, linking back to Bessent, when will they see lower yields as a means to that end rather than towards ‘Buy all the things!!’ Pavlovian responses?

That may not be Great for some. But it’s now The Game.