COVERAGE AREA and macrothesis

The Great Recession ushered in a period of Western austerity and isolationism. As it did, top-down multilateralism dating back to World War II gave way to bottom-up diplomacy and financial sanctions displaced military force projection. Despite a year of brisk and widely distributed global economic growth, this fragmentation seems likely to persist, and commercial conflicts appear poised to escalate. We think the Trump Administration could use solar trade measures taken early in the year as a test case for subsequent action on steel, potentially jeopardizing burgeoning crude and LNG exports if trade partners retaliate; steel protections could invite far broader reprisals. We expect North American Free Trade Agreement talks to continue well into the year, but populist rhetoric from the White House ahead of 2018 U.S. mid-terms and the possible seating of a new, populist, Mexican President could create significant bilateral defection risks.

As 2018 begins, reinstatement of sanctions that the U.S. waived in conjunction with the Joint Comprehensive Plan of Action (JCPOA, the 2015 Iran deal) seems unlikely, but we think the President could defect from compact later in the year – however briefly – in the absence of new Congressional and European strictures on Iran’s ballistic missiles, terrorism funding and regional aggression. We anticipate possible imposition of petroleum-related sanctions against Venezuela with the approach of that country’s Presidential election in April, and we reiterate that the debt sanctions established in August could become de facto oil sanctions (by changing the maturity threshold from >90 to >30 days). Despite President Trump’s climate posture and the reemergence of divisions between advanced and developing nations in global climate talks, we see an ongoing commitment to voluntary mitigation efforts by the rest of the world. Longer term, however, strong climate policies and firming carbon prices in other countries could set the stage for carbon border adjustments against non-compliant economies.

Our targeted geopolitical coverage examines the decision sets and decision criteria of global leaders positioned to materially alter supply/demand fundamentals. In addition, our soon-to-be-released, new quarterly product, Themes, Trends and Discontinuities, will contextualize recent developments and outline our forward-looking projections of relevant economic and geopolitical outcomes.

Updated: January 8, 2018.