It will be tight to meet the United States’ desire to do a post-Brexit trade deal with Britain within a year, British Prime Minister Boris Johnson said on Sunday.
Johnson, who took office last month, had his first bilateral meeting with U.S. President Donald Trump earlier on Sunday at the G7 meeting in France and the two discussed a range of issues including trade.
In interviews with British television media afterwards, Johnson said the United States wanted to do a deal within a year of Britain leaving the EU on Oct. 31.
“Years and years is an exaggeration, but to do it all within a year is going to be tight,” he told BBC TV.
Johnson also said the chances of Britain agreeing a Brexit deal with the EU were improving but it would be “touch and go”.
US-China trade war’s unstoppable global economic transformation
U.S. President Donald Trump attends a bilateral meeting with China’s President Xi Jinping during the G-20 leaders summit in Osaka, Japan, June 29, 2019.
Kevin Lamarque | Reuters
ABU DHABI, United Arab Emirates – If one strains hard enough to listen in the humid heat of this oil-rich kingdom, one can hear the rumblings of the most profound event for global energy markets and the world economy, not only for this year but perhaps for this era:
It is the decoupling of the world’s two weightiest economies, that of China and the United States. The process seems as inescapable as its extent and global impact remains incalculable.
This week’s news that President Trump was delaying by two weeks a tariff increase on $250 billion of Chinese goods planned for October 1, the 70th anniversary of the People’s Republic of China, is unlikely to slow this trend, and neither will China’s responding exemption of pork and soybeans from new tariffs.
The most knowing delegates at this year’s World Energy Congress, who met here this week, continued to worry about the US-Chinese trade war. It has slowed growth and placed the biggest drag on oil prices. At the same time, however, they were shifting focus to the more momentous and generational event of decoupling.
They saw it in the Liquified Natural Gas contracts that the world’s fastest growing LNG exporter, the United States, wasn’t signing with the world’s fastest growing importer, China. They recognized it in the recent Chinese deal to take an equity stake in Russia’s Arctic LNG 2 project taken by China National Petroleum Corp (CNPC) and China National Offshore Oil Corp (CNOOC).
Delegates also heard decoupling in the only four LNG vessels that have sailed from the United States to China this year, according to the US Census Bureau, down from 32 in 2018 and 23 in 2017.
LNG has transformed global gas markets dramatically in recent years, driven largely by significant demand in China and the rest of east and southeast Asia. However, in a market where financing is driven by long-term contracts, often even before construction begins, American suppliers are already gauging the potential costs, until recently unanticipated, of lost Chinese buyers.
One can also see decoupling in the oil deliveries not made to China from the United States this year, even though the US has become the world’s largest oil and gas producer and a net exporter. Whereas US shipments of crude oil to China reached half a million barrels a day in summer 2018, they averaged only a third of that in the spring of 2019.
Though delegates had come here to focus on energy markets, the implications of decoupling have begun to touch almost all economic sectors, from aviation to automobiles, from finance to farmers, and from cell phones to semiconductors.
The tit-for-tat tariffs and accompanying Trump tweets have been driving markets all year, but what traders haven’t even begun to price in is the longer term, structural impact of this decoupling and its particular danger to individual companies.
Wary that US leaders fundamentally want to undermine their country’s rise, Chinese leaders increasingly are dissuading or outright preventing their companies from dealing with American partners. Meanwhile, chastened US companies are rethinking supply chains and relocating Chinese-based manufacturing.
If nothing interrupts this process, it will reverse 40 years of increased trade, financial and economic integration of the two countries. Other nations’ companies won’t follow the American lead but rather look to pick up lost US opportunities among China’s 1.4 billion consumers.
Encouraged by his trade advisor Peter Navarro, President Trump made his own decoupling druthers clear in a late-August tweet: “Our great American companies are herby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”
President Trump’s trade policies are resulting in an economic slowdown that could endanger his re-election and thus his revived efforts toward a solution. Yet, it remains unlikely that any major deal can reverse this downward trajectory in bilateral relations in any lasting manner, even as China and the United States open the 13th round of trade talks in October (no specific date set yet).
Beijing remains eager to see the US remove its tariffs. Trump administration negotiators continue to want China to commit to structural changes in how it does its business, ranging from intellectual property protections to state subsidies.
Hunkering down for the long-term
The most profound shift of recent weeks, however, may be Beijing’s move from negotiating the best deal possible to hunkering down for an epochal, systemic contest that Chinese officials fear will long outlive the Trump administration.
Speaking earlier this month to a training session for Communist party cadres, Chinese President Xi Jinping dramatically underscored this change of mood.
The summary of Xi’s speech, published so it would not be missed by the official Xinhua news agency, doesn’t mention the United States but focuses on “all manner of struggles” China will have to undertake to achieve the “Chinese dream” of a “great national rejuvenation” by 2049, the centenary of the People’s Republic of China.
Said Xi, “For those risks or challenges that jeopardize the leadership of the Communist Party and China’s socialist system; for those that endanger China’s sovereignty, security and development interests; for those that undermine China’s core interests and major principles; and for those that deter China’s realization of a great national rejuvenation, we will wage a determined struggle against them as long as they are there. And we must win the struggle.”
The South China Morning Post, in reporting on the speech, said that the Chinese word for “struggle,” douzheng, appeared nearly 60 times in the summary, underscoring the siege mentality that seems to have seeped into Chinese leadership regarding the US.
“It’s a fundamental political statement,” prominent Beijing political commentator Wu Qiang told the newspaper. “China will adopt an antagonist stance, position and approach to handle the deterioration of China-US relations.”
Xi took considerable poetic license, reminiscent of the movie Crouching Tiger, Hidden Dragon in how he instructed Communist cadres to remain watchful of the emerging dangers. He said they should be able “to notice a deer passing by, looking at the grass and leaves, see a tiger jumping out by hearing the wind in the pines, and know the coming of autumn by spotting the changed color of a tree leaf. “
In the less nuanced world of Trump tweets and global markets, it’s time to buckle up for what is likely to be a long and bumpy ride. It also may be the moment to shift one’s focus from President Trump’s “art of the deal” to what one Chinese expert, Li Mingjiang of Nanyang Technological University, calls President Xi’s unfolding “art of the struggle.”
Frederick Kempe is a best-selling author, prize-winning journalist and president & CEO of the Atlantic Council, one of the United States’ most influential think tanks on global affairs. He worked at The Wall Street Journal for more than 25 years as a foreign correspondent, assistant managing editor and as the longest-serving editor of the paper’s European edition. His latest book – “Berlin 1961: Kennedy, Khrushchev, and the Most Dangerous Place on Earth” – was a New York Times best-seller and has been published in more than a dozen languages. Follow him on Twitter @FredKempe and subscribe here to Inflection Points, his look each Saturday at the past week’s top stories and trends.
For more insight from CNBC contributors, follow @CNBCopinion on Twitter.
US blames Iran for drone strikes on Saudi oilfield
This Saturday, Sept. 14, 2019, satellite image provided by NASA Worldview shows fires following Yemen’s Houthi rebels claiming a drone attack on two major oil installations in eastern Saudi Arabia.
NASA Worldview | AP
Secretary of State Mike Pompeo said Saturday that Iran is responsible for the drone attacks on important facilities in Saudi Arabia‘s oil-rich Eastern Province that reportedly forced the kingdom to shut down half of its oil production on Saturday.
The closure will reportedly impact nearly five million barrels of crude production a day, roughly 5% of the world’s daily oil production.
“Tehran is behind nearly 100 attacks on Saudi Arabia while Rouhani and Zarif pretend to engage in diplomacy. Amid all the calls for de-escalation, Iran has now launched an unprecedented attack on the world’s energy supply,” Pompeo tweeted. “There is no evidence the attacks came from Yemen.”
The White House condemned the attacks and said President Donald Trump spoke with Crown Prince Mohammad bin Salman to offer U.S. support for Saudi Arabia’s defense.
“Violent actions against civilian areas and infrastructure vital to the global economy only deepen conflict and mistrust. The United States Government is monitoring the situation and remains committed to ensuring global oil markets are stable and well supplied,” the White House said.
Yemen’s Houthi rebels have claimed responsibility for the attacks, which reportedly created a huge fire at a processor essential to global energy supplies. The Saudi interior ministry said the fires were under control and that investigations into the terrorist attack are ongoing.
The drones attacked Hijra Khurais, one of Saudi Arabia’s largest oil fields, and Abqaiq, the world’s biggest crude stabilization facility.
“We call on all nations to publicly and unequivocally condemn Iran’s attacks,” Pompeo said. “The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression.”
Oil could rise $10 per barrel after drone attack forces Saudi to cut output
A trader wipes his eyes as he watches stock prices at the New York Stock Exchange in New York.
Don Emmert | AFP | Getty Images
Oil prices could jump as much as $10 per barrel after a number of drone strikes hit the center of Saudi Arabia’s oil industry, reportedly forcing the kingdom to cut its oil output in half.
Ten drones attacked an oil processing facility at Abqaiq and the nearby Khurais oil field on Saturday, reportedly causing a loss of almost five million barrels of crude production a day or about 5% of the world’s daily oil production. Although it’s still too early to tell the extent of the damage and how long the facilities will be shut down, oil analysts and traders told CNBC the impact on the commodity’s price could be double digit.
“This is a big deal,” said Andrew Lipow, president of Lipow Oil Associates. “Fearing the worst, I expect that the market will open up $5 to $10 per barrel on Sunday evening. This is 12 to 25 cents per gallon for gasoline.”
Kevin Book, head of research at Clearview Energy, said the price impact will depend on the repair time which can take weeks to months.
“Our baseline assumptions, which incorporate public assessments of strategic petroleum reserve capacity and OPEC spare capacity, imply a net shortfall of ~1 MM bbl/d, or at least a ~$6/bbl premium to the ~$60 Brent close,” Book said in a note. “Exclusive of this supply offset, and assuming a three-week shutdown, our models imply ~$10/bbl of upside.”
U.S. West Texas Intermediate (WTI) crude futures settled 0.4% lower at $54.85 on Friday, and Brent crude futures traded 0.2% lower at $60.25 per barrel.
Yemen’s Houthi rebels have claimed responsibility for the attack, one of their largest attacks ever inside the kingdom. The Houthis have been behind a series of attacks on Saudi pipelines, tankers and other infrastructure in the past few years as tensions rise among Iran and the U.S. and partners like Saudi Arabia.
“Assuming damage light, the next big question is where the drones came from,” said Bob McNally, president at Rapidan Energy Group. “If Iraq, then oil will go up more than a few dollars. And if Abqaiq kills talks of easing sanctions and the discussion turns to retaliation and escalation, I think oil could easily trade higher by $10 or more.”
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