Where Will This All/Diesel End Up?

By Michael Every of Rabobank

Underlining how markets are now driven by geopolitics and geoeconomics, it’s all big names, big games, and big trades today. The UN general assembly is in session as the Wall Street Journal notes, ‘World leaders almost all agree on one thing: the UN is failing.’ Xi will also visit Trump: will those talks achieve anything substantive?

Oil is down on hopes for ‘peace in our time.’ The Saudi east-west pipeline will start again at lower capacity, China warned the Houthis not to block the Red Sea, Trump negotiators held a “very productive” three-hour meeting with the Iranians in New York, Iran floated reopening Hormuz in seven days if the US lifts its blockade, and Ukraine’s Zelenskyy stated Kyiv and Washington want that other war to end “before winter” and is ready for an “energy ceasefire.”

Yet elsewhere the question looks like ‘war at what time?’ Iran has hardened its demands for ending the war, and Trump just publicly threatened it with “annihilation”, then met with the Arab states expected to attack Tehran alongside it if that were to occur. Qatar is urging diplomacy as the Gulf enters “one of the most dangerous phases.” Ukraine’s press reports ‘Russia’s rigged election gives Putin a mandate for all-out war’. In Russia, two more oil refineries were just hit, and bomb shelters in Moscow and St Petersburg are quietly being modernized. The US, Greenland, and Denmark signed a security deal that will see expanded US military bases and a larger NATO presence. UK PM Burnham did a U-turn on the Chagos islands deal after being told it was “terrible” by Trump, which is important but not market moving; his refusing to rule out rejoining the EU could be both – and he might notice Argentina considering new submarines and frigates.

The Senate Armed Services Committee chair has criticized the planned pageantry around the Trump-Xi meeting, which was not offered in Beijing in equal measure: but larger questions swirl around tariffs, rare earths, AI, and Taiwan. The Hong Kong press wonders if both men can use their leverage –recall ‘Who has the cards?’ was our 2026 theme this time last year– to make progress. Do recall that in April 2017, when the two men first met in the US to talk trade and North Korea, Trump, over “a beautiful piece of chocolate cake”, told Xi that he had just launched 59 cruise missiles at Syria in response to its government’s use of chemical weapons against its own people. Today, could the US spare 59 missiles for the same level of opponent?

Ahead of that key meeting, speaking to our zeitgeist, Brazil’s President Lula used his UN speech to warn against any foreign interference in his country’s upcoming presidential elections. Much is at stake there in both domestic policy and geostrategic terms.

Trump and Japan’s PM Takaichi met to reaffirm their close geopolitical and geoeconomic alliance. That now encompasses the BOJ and the Yen carry trade too: on which note, Japan’s big banks’ domestic loan share is seeing its first sustained post-1991 bubble burst rise, exactly what the White House and Takaichi want as (defence) industry investment rises.

Nearby, South Korea’s President Lee urged the US to ease North Korea sanctions to encourage it to freeze its nuclear programs; and the EU announced it was moving towards an initial FTA with the Philippines, which sits within the US bloc in Asia – it just received a coastguard vessel from Taiwan, for example.

Where will this all end up? Markets must wait for the results of the big-name big game.

Relatedly, where will diesel end up? That question must be asked again today after Trump backed calls to halt US exports of refined products to address record high prices at home. Treasury Secretary Bessent said officials are now looking into if a total or partial diesel export ban is feasible.

As argued yesterday, in an integrated global energy market, such binary action wouldn’t achieve anything good for the US. However, why assume that backdrop?

The US didn’t export any crude at all from 1975 to 2015: shocking to some, perhaps, but true. Yes, the US wants to use “energy domination” as a strategic tool, which requires sharing it – yet why share with everybody, if to your own detriment? Today, why couldn’t the US opt for a partial, geopolitical diesel export ban and use economic statecraft like the Defence Production Act, to keep up refinery output of the ‘right’ products, more Jones Act waivers, to get fuel from the US Gulf to its west and northeast, and new state-backed mandated land and floating storage facilities at home and even regionally, if needed?

“Because markets?” If that is your answer, please recognize that such ideological thinking, for that is what it is at root, limits the ability to project potential future market outcomes, and sometimes expensively so.

Indeed, note that after Trump floated purchasing cheaper Belarussian potash, ‘elbows up’ liberal-world-order PM Carney floated his country and the US forming a self-reliant bloc for fertilisers. That is exactly what the US wants to do – but for far more than fertilisers, and with more countries than just Canada. For example, Mexico’s President Sheinbaum just had a “very good” call with Trump and touted progress towards a trade deal with what are rumored to be much tighter regional rules of origin.

As such, why not with refined crude products too? That doesn’t mean such a strand of US grand macro strategy would be well implemented – but that fact also doesn’t rule out it ever happening.

Meanwhile, against the above backdrop, the Fed’s Collins stated, “I now see an increased likelihood of future scenarios in which inflation remains notably above 2%.” To repeat what was said yesterday, the big trade is to correctly predict the big-name big game, not what a small-picture thinker like a central banker is saying long after the geopolitical facts were obvious.

If certain deals are struck, if certain countries are struck, if certain market flows are struck, energy prices can change dramatically – and then, suddenly, central bankers will be saying very different things. Those who listen only to them will think they are ahead of the curve rather than seeing they are behind the geopolitical and geoeconomic ones.