Uncertainty hits the oil markets. Tensions heat up between Scotland and Westminster. Corruption scandal in Brazil hits dozens across the political spectrum. All in The Week Ahead.
Time to look at oil markets again: Saudi Arabia undermines OPEC meeting with production boost
Last week, oil prices picked up to $48/barrel when U.S. oil inventories were reported to have fallen 531,000 barrels. This comes after the Saudi Arabian government announced that its own production of oil had increased to 10 million barrels, seemingly undermining the deal reached by OPEC earlier to keep production down to encourage a price rise. This has also contributed to the International Energy Agency noting that a market correction is not likely to occur in the short term: “for those looking for a rebalancing of the oil market, the message is that they should be patient, and hold their nerve,” noting that volatility is likely to occur in the future. As OPEC does not have any major meetings scheduled to alter or confirm existing policy, the oil markets may be on edge waiting to make sure other major OPEC nations, particularly Iran and Iraq, maintain their side of the production cut deal. Any slippage among other OPEC member states could lead to a boost in production across the group, which could lead to a sudden decline in oil prices as the Northern Hemisphere heads to the summer months. This could reduce travel and transportation costs for consumers, but further harm oil-based economies that are already suffering from low oil prices.
War of words heats up between Holyrood and Westminster
Last week, Scotland’s First Minister Nicola Sturgeon announced that in the event of a Brexit that withdraws the UK from the Common Market — a “hard” Brexit — she would seek to hold a second referendum on independence. The timing of the vote was slated to be after the agreement, or non-agreement in the event of a clean break, but before its implementation, likely between the winter of next year and spring 2019. In response, UK Prime Minister Theresa May indicated that an independence referendum would not be in the offing, and would not receive her consent. In response, Sturgeon noted that blocking a referendum would be “untenable, undemocratic, and totally unsustainable.” Next steps are uncertain, and considering the substantial amount of time between now and any referendum date, this issue may simmer for quite some time. That being said, the SNP MPs are likely to bring this up repeatedly in the Commons as an example of Scotland’s perspective not being respected south of the border. Sturgeon has maintained that she is open to the timing of the referendum, and would be willing to discuss a way to “work [their] way through that disagreement” with PM May, but other major SNP leaders have been adamant that a referendum be held before Brexit is formally completed. Expect this issue to simmer in the UK political scene until a resolution on terms is made, and if another referendum is formally agreed to by the British and Scottish governments, expect the same late market upheaval that characterized the 2014 vote.
Operation carwash investigation expands in Brazil hitting dozens of politicians in all major parties
Last week, special prosecutor Rodrigo Janot submitted a list to the Supreme Court of over 300 individuals, and nearly 100 prominent political and business figures in Brazil in connection with a sprawling graft scheme that has already led to the downfall of one of Brazil’s wealthiest business figures. Although this list is technically secret, the Brazilian press has managed to get information on the most significant of these names. Chief among them are former presidents Rousseff and Lula, five current members of the Michel Temer cabinet, including the Foreign Minister, several former presidential candidates, and the leaders of both the Senate and Chamber of Deputies. Although this is currently in an investigative stage, previous requests for investigation have contributed to the downfall of political leaders in the Brazilian Congress. The ongoing effect of the investigation has been, in the words of current Senate Majority Leader Romero Juca who is himself under investigation, “a black cloud over the entire political class.” In an unrelated investigation but one which is contributing to the political instability in Brazil, President Temer is facing charges that his 2014 campaign for Vice President was marred by benefitting from illegal slush funds. Should the court find this indeed occurred, this could nullify the initial election results. The slow burn of this scandal could mar Brazilian politics for years: former President Lula, who faces at least 5 charges of illegally accepting Petrobras funds, has indicated these are merely a ruse preventing him from running again for president next year.
The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.
This edition of The Week Ahead was written by GRI Analyst Brian Daigle.