MacroVoices #551 Michael Every: Decoding The Global Geopolitical Puzzle (Part 2)

Macro Voices

In this follow-up session, Michael Every and Eric Townsend analyze the intensifying fragmentation of the global order into competing geopolitical

Key takeaways

• Iran may extend asymmetric strikes into the Indian Ocean to disrupt global energy flows and ship-to-ship transfers.
• A potential 90-day U.S. diesel export ban could trigger market chaos and serve as a tool for economic coercion against allies.

Main topics

• Global Geopolitical Blocs
• Energy Security and Diesel Bans

Notable quotes

Markets are not necessarily best for national security.

Conclusion

The episode serves as a sobering warning about the high costs of econo

Transcript preview

Speaker 1 (0:00) Do you really think the US is going to accept a Canada which drifts away from it geopolitically, starts doing deals with China maybe, or with Europe, and then who knows where Europe goes in the future, and have a long, open, undefended border with it? That doesn't make any sense geostrategically. That was Robobank's global Speaker 3 (0:17) strategist, Michael Every. I'm Eric Townsend, and this is a special bonus overtime episode of Macro Voices, the free weekly podcast targeting professional finance and sophisticated private investors. If you were expecting to hear our regularly scheduled weekly podcast, it's probably second on the list in your podcast player because Michael had so much insight to offer this week that we literally had to schedule a second podcast episode to capture it all. So this is part two of Michael Every's September 24th Macro Voices. interview. Part two was recorded a day later. which is actually a day earlier, so it's really September 24th still. But boy, we've got a whole bunch of new news to tell you about in part two. You're going to want to listen to part one first. So if you accidentally found your way here because it was on the top of your player list, go listen to part one first. You'll find that in Macro Voices episode 551, released on September 24th. Now, before diving back in with Michael, I'm going to take this opportunity to tell you that in response to your feedback on X and elsewhere, we're going to begin experimenting with this new format. So when we have a guest whose views don't quite fit into our usual time budget, we know our audience are very busy people who don't have time for a three-hour podcast. So we're going to structure this. We're firmly committed to keeping our feature interviews in the flagship podcast to our target length of 45 to 50 minutes. That won't change. And that's out of respect for your time. What will change going forward is that when we have a guest like Michael, who's obviously got more to say than fit in the time allotted, we're going to just record a bonus episode after the fact. And that's what we're doing now, one day later. So I'm going to ask for your patience, especially on this inaugural overtime episode, because we hit our production team up with this at the 11th hour. We don't have a budget for this. We didn't have a plan for this. And so we're going to relax our editing standards. Please bear with us. You'll probably hear a few editing glitches on this one because we asked our team to put it out really quickly in order to get the content to you. Don't expect this every week. We're going to experiment it for special guests like Michael Anasalhaji, people who have so much to say that it doesn't fit in an hour. Michael, let's dive in. Well, wait a minute. I was going to say where we left off on part one, but so much news has happened in the last 24 hours since we recorded part one that I want to just... dive into what's happened since then, I want to reset our ground rules a little bit. Let's call this macro voices unplugged that we're doing this extra session here. And I'm going to say, let's just say normally we try to avoid unconfirmed rumors and speculative theories. Let's say they're fair game because frankly, last time we avoided those, neither one of us could figure out what the heck is going on in the world because it's a complicated picture. So let's just. say it's okay to go into speculative theories, not quite conspiracy theories, but let's not apologize for questioning the mainstream narrative and trying to figure out what the hell's really going on here, as we might do in private conversation. And as I alluded at the end of part one, boy, unverified rumors are a target-rich environment right now between the South China Sea incidents, North Korea reportedly testing hypersonic weapons, Xi Jinping's possible designs on invading Taiwan as part of a campaign to repatriate Taiwan as part of the People's Republic of China. There's no shortage of topics to fill this bonus session before we just got hit this morning with three more news items. So I'll come back to those things. And Speaker 1 (3:47) I Speaker 3 (3:47) really want to connect the dots because I think they all connect back to China somehow. I just haven't quite figured it out. Let's start with the three stories that have happened. The first one. According to Ola Hansen, our good friend over at Saxo Bank, Axios reporting this morning that Iran has essentially given the United States a one-week ultimatum to either lift the military blockade or they will resume asymmetric escalations. And that spiked crude oil this morning. I'm only looking at WTI. I don't have a Brent chart in front of me. But that first spike was a good $3, $3.50 just on that news. It seems to me like this was kind of predictable. What do you think, Michael? Speaker 1 (4:30) It was predictable because you are also seeing stories at the same time that actually the Saudis are starting to follow the UAE's lead and have been successfully shuttling more and more oil through Hormuz, which of course is still seeing, you know, live firing. It's still seeing the odd shit being hit. And yet with the, you know, the pressing importance of trying to get that crude flow going. The Saudis have been prepared to go ahead with it anyway, which just means that oil is that much more expensive from a security perspective. You know, the cost involved in getting it out and insurance, et cetera, et cetera. But it can still flow. But Iran was never just going to sit there. This is an economic war and a physical war at the same time and say, oh, well, you foxed me there. There's nothing I can do. So now they are saying, yeah, OK, whether there is a fixed deadline or not, we don't know. But the implication is that not only will they keep striking in Hormuz, not only can they escalate the way they already have via the Houthis in Bab el-Mandeb and the Red Sea, but they're now talking about the Indian Ocean too. Now, whether they can or can't strike that far remains to be seen, but you wouldn't want to rule it out given that one of their missiles got as far as Cyprus at one point earlier on in the year, which would mean that you could potentially disrupt energy flows much further afield. And it more likely also hit those ship-to-ship transfers which are happening off the coast of Oman, at which point, yes, not only do you have all the other problems we have, you then have potentially lower crude flows too. We could probably do an interview Speaker 3 (5:59) on that alone, but let's go to the second of our three stories before we get into the full interview that we had planned. The number two story, Politico reporting that President Trump is apparently committed. to at least a 90-day ban on export of diesel. And something I find really interesting is Energy Secretary Chris Wright has in the past just been almost the first word out of that guy's mouth is always under the leadership of President Trump. He's the most loyal and obedient subordinate in the president's entire world. And he's coming out. on the public stage saying, no, that's a dumb idea. The markets don't work that way. Let's not do that. So he's directly disagreeing with the president, and it seems he's losing that fight. The president says, no, we're moving forward anyway with a 90-day ban on export of diesel fuel from the United States. I think most of our listeners already understand this, but very quickly, why don't you start with why that's... probably not going to have the effect that President Trump is hoping for. And then let's get into the background of why this is happening and why we're seeing, I think, a breakdown of trust between Secretary Wright and President Trump. Speaker 1 (7:12) We discussed that in the first part, but just to reiterate, obviously in a complex, integrated global energy system in which different parts of the U.S. interface with other countries and the whole world relies on counterparties. If you suddenly stop the US exporting diesel, it doesn't just solve one problem. It creates lots of others in equal measure. And the blowback can be more expensive crude, which of course then ends up with more expensive fuel prices anyway. And it can be shortages, obviously, internationally and major geopolitical problems. But it can even be shortages and problems in the US. But what I did say, and I would like to just reiterate again here for those who maybe didn't hear me say it the first time, is when you look at that... particular nexus of problems and that network, it is operating on the basis that we do have that integrated one world global economy energy system. And I am still deeply cynical, but that is something that actually strengthens the US relative position vis-a-vis China, vis-a-vis others over the longer term. It would not surprise me at all that if this 90 day ban does go through, which isn't confirmed yet, it's a political rumor. And it wouldn't surprise me at all if once it goes in, you get complete chaos and market meltdown in different locations. And then you see the thing refined and they decide, well, okay, we're not going to do it against everybody. We're only going to do it against ABC or XYZ. And then gradually you get other supporting policies brought in as well. For example, as I said, in refineries to say, you don't get to make a choice of what your refinery runs look like, or the government starts saying, well, we're going to pay for extra storage so you can keep refining it. And we'll provide you with subsidized storage somewhere so that we can at least have like an SPR for diesel, et cetera, et cetera, et cetera. So I think we're opening the door to all those kinds of things if we go ahead with them. But obviously, if you are a product of the private sector in the energy sector in the US and you understand how it works, you would be opposed to that measure as a headline act. Speaker 3 (9:09) Well, it sounds like the setup from what you're saying is that we pass this 90-day rule, you end up cutting off nations whose ability to deliver food to their people literally depends on having diesel fuel. And then it sets the stage for the administration to say, oh, you don't like that, huh? Which world leader wants to kneel and beg first? And I'll consider on a... individual basis issuing exemptions to this blanket ban. I mean, is that what you're suggesting we could be heading Speaker 1 (9:42) toward? I don't think it will necessarily be done in quite such, if you'll excuse the pun, crude terms. But I do think that's exactly the underlying dynamic. Because if you have something that is vitally important to others, and they're not doing what you want them to do, economic coercion is a tool, you know, as old as time. It's certainly been used by lots of others. It's currently being used by lots of others at the moment. And most other countries that aren't doing it would do it if they had the ability to do it. You know, when you are in a Cold War, you know, a geopolitical clash with other countries, the very last thing you want to do is to turn around and say, you know, what I always say flippantly, well, because markets, this is best for markets. Markets are not necessarily best for national security. Now, neither is irritating everybody, neither is driving away your allies. Neither is seeing people being plunged into poverty. There is a fine line between the two. And what I'm saying is, again, it wouldn't surprise me if this does happen. It wouldn't surprise me if we then have exactly that kind of negotiating process that you're talking about, but towards other goals. And one of them, I think, would be to make sure that those who the US works most closely with and trusts the most are at the top of the priority list for fuel. And those who aren't, or who refuse to kiss the ring, are at the bottom of that list. And welcome to 2026 and 27 and 28, et cetera, et cetera. That's the way the world now works. Speaker 3 (11:02) Well, surely we can't really think that all of the news is going to go that badly. So let's move on to number three. Oh, wait a minute. Maybe it can. Canadian Prime Minister Mark Carney apparently has directed the Canadian military to do war game simulations and so forth and to assess. how Canada should respond if the U.S. were to mount a full-scale military invasion on Canada. Did that really happen? I feel awkward even having set the rules for this Macro Voices Unplugged to say we're going to go ahead and do Unconfirmed Rumor. Are you sure that really Speaker 1 (11:39) happened and I wasn't dreaming it? It's in the Canadian press, it's in the New York Times, and it's Mark Carney saying it, so I take it as read. All I can say is... First of all, a little bit of history. When Canada was still under British Empire rule, they had a plan to invade the US. Of course they did. It's very well known. You can Google it. During that particular era, like 100 years ago, the US had a plan to invade Canada as well. This is well known. So this is not new. It's just new in recent history. And most militaries around the world do have what-if scenarios in dusty desk drawers that they can pull out in wild situations. So that's not a complete surprise. And that was also happening at the time when you had all those histrionic, and I stress histrionic, headlines about the US getting ready to invade Greenland and Europe pretending it was going to send armed forces there, which of course we again discussed in the first segment here. So it's not a complete surprise it's happened. What I think is important to me in that is A, it's being revealed, because you didn't have to reveal that, but B, when you have the regular discussion, about what Canada is or isn't doing with this elbows up campaign, which is very popular under Mark Carney within Canada. And I get why. I'm not trying to make any value judgment or be normative. You obviously have an economic trade-off saying, well, we are incredibly deeply integrated with the US in a way which many people fail to understand. But we're going to try and distance ourselves from the US and try and basically join the European Union or come as close to doing that as possible. If you look at just the economic side of that argument, it doesn't make any sense to anyone except the most starry-eyed Canadian and European optimist, because Canada produces high-end value-added industrial goods in the few key sectors, which are completely integrated to the US and are often sold to the US, and it produces raw materials. That's what its tradable goods are. Now, Europe would like to get its hand on the raw materials. Europe can buy those raw materials from Canada right now. There's no need to... to have any kind of new trading relationship to deal with those. Europe does not want to buy Canadian cars. Europe does not want to buy Canadian trains. Europe does not want to buy Canadian jets. It has enough of its own. So Canada would be facing an economic future in which it disentangles itself with an economy which is just about two hours drive for most of Canadians going south, where 90 % of its population lives, to trade more with a bloc on the other side of the Atlantic, which doesn't want to buy its high-value-added goods and only wants to buy its raw materials. Great. I don't think that's much of a sensible strategy, no matter how much one dislikes what Trump is doing and saying, but you can model that as an economist and it's not pretty what comes up. What Carney has just shown you is exactly what geostrategists like myself and others, when we've been having conversations about this, you know, let's walk away from the US national strategy or grand strategy, have been saying, sotto voce, which is... This has staggeringly bad fat tail risks on the downside. And where's the upside? Because if you're saying, okay, maybe, maybe things can work out with Europe in the long run, maybe, maybe, and it's worth five, 10 years of pain to get there, but we know it's going to be very painful. Again, I don't think the math's there, but let's say that's possible. If you then say as a national strategy, we move from having complete peace and security on our southern border, like absolute complete peace and security. And of course, we've got problems potentially with Russia in the Arctic, maybe in the future. And again, how are we going to fight Russia when you've got no real military? And of course, China might start coming through that space with Russia at some point in the future. And again, that's going to cost a lot of money to confront. It will cost a lot more to do it without the Americans. But if you then say, well, maybe we've got the Americans as an actual