Economy

This article is an on-site version of our Trade Secrets newsletter. Sign up here to get the newsletter sent straight to your inbox every MondayWelcome to Trade Secrets. The big COP28 climate change meeting is under way in Dubai, initially overshadowed by stories about the hosts allegedly using the event to buy influence and sell oil and gas. Seriously, if you’re going to greenwash, do it properly. Still, amid the PR facepalms was some modestly positive news about the launch of a “loss and damage fund” to compensate lower-income countries for the effects of climate change. Today’s main pieces address how the jockeying for political position around such initiatives holds back progress on climate action, and the implication for carbon border measures. Charted waters is on falling inflation in the eurozone.Get in touch. Email me at [email protected] the past and future narrativeBefore cracking open crates of champagne for the victory party of the loss and damage fund, let’s first hydrate ourselves by drinking deep from the well of perspective. The numbers involved at the outset are pretty feeble, and the politics is very tricky. The rationale for spending money, the institution that gets to spend it, even the name the pot of money gets given: all are pulled different ways by competing narratives.The US and particularly Congress is not a fan of multilateral funds it doesn’t get to control. It’s notable that one of the most impressive US aid efforts of recent decades, George W Bush’s President’s Emergency Plan For Aids Relief (Pepfar) to combat HIV in Africa, was an American-badged and American-run project.The compromise is to have the loss and damage fund housed, at least for now, at the World Bank, the president of which the US traditionally supplies. Even so, Washington still doesn’t like the term “loss and damage”, an expression its climate envoy John Kerry notably did not use when the announcement was made, and nor has it given the fund much money. The term, redolent of tort law, implies compensation (some might say reparations) paid by polluters to their victims, suggesting an ongoing liability.To be fair, that’s not an unreasonable way of looking at climate change. Current carbon levels reflect past emissions by countries that got rich through polluting. See this graphic from a report by the Indian research and advocacy organisation the Centre for Science and Environment, about the “global stocktake” of how the world is performing on climate change since the Paris Agreement of 2015. Crudely speaking, it shows which countries think we should focus on past versus future emissions. Even a sceptic (like me) of the concept of a united “Global South” of developing countries can’t deny the divide between rich nations and poorer ones.But establishing the principle that climate change is essentially about the polluters of the past correcting their wrongs isn’t going to get consensus, or indeed control emissions from the newer industrialisers such as India and China. Hence the attempts by rich countries to insist the better-off middle-income nations also pay into these adjustment funds. As Ian Bremmer of GZERO Media points out, developing countries shouldering a lot of the burden of cutting emissions is unfair, but necessary. To adapt Harry S Truman’s attributed saying that it’s amazing what you can accomplish if you don’t mind who gets the credit, it’s sadly striking how little happens if you can’t agree who takes the blame.Of course, there’s always the idea of dancing neatly round this stand-off by attracting private finance, the principle behind the COP28 hosts’ proposed $30bn development fund. But vague promises of leveraging up relatively small amounts of official money into a big investment effort have frequently been made in other contexts and need to be treated with scepticism.The carbon border tariff bindAt least in the area of aid and finance to help countries adapt and mitigate the effects of climate change, rich governments can redistribute to poor. With regard to trade, border measures that work directly on carbon content pretty much by definition have to focus on the product rather than the general state of the country from which it came.As I wrote last week, in the absence of any serious negotiations over trade and climate change, the main initiative in this area is the EU’s carbon border adjustment mechanism (CBAM). Both in logic and in legality it can only focus on current emissions. If the aim is to prevent carbon leakage, it needs to be directed against imports that are being made right now. And if it’s going to survive legal challenges at the WTO, it’s got to be precisely focused on achieving a particular aim and must treat identical products the same way. There were media reports earlier this year that India was preparing some kind of national carbon pricing mechanism that took previous emissions into account, but it’s very hard to see how that’s either practical or legal, certainly in international trade terms.The only real way indirectly to gesture towards historic emissions would be to give passes on the CBAM to poorer countries. But, as I also noted last week, the EU says that would defeat the object of the measure and also potentially leave it open to WTO challenge.You can see the technocratic and legal argument for what the EU is doing. Then again, if you’re a middle-income former colony whose manufacturing industry was devastated in earlier centuries by competition from a European imperial power, you can also see how incredibly maddening it is for that power or similar countries to suddenly slap tariffs on your exports for doing what their producers did for centuries without getting taxed for it.Charted watersInflation is falling across most of the advanced economies, including as shown here in the eurozone, suggesting that interest rates may have peaked. The implications for trade are clear. So far we’ve seen a pretty normal cyclical downturn in goods trade to accompany the slowing of global growth. If the world economy turns around, trade will be very likely to turn with it and another alleged threat to globalisation will recede.Trade linksI did say there wasn’t a great chance of success, and the idea of getting the revision of the EU-Mercosur deal done before Javier Milei takes office in Argentina on December 10 has essentially disappeared.Speaking of trade talks going badly, Brussels’ negotiations with India are also struggling to bridge the two sides’ disparate views, an outcome that could not have been predicted except by anyone with the slightest familiarity with the subject.Inu Manak at the Council on Foreign Relations asks whether Washington’s reversal of its previous enthusiasm for far-reaching digital rules in trade deals could be reversed again.Belgian prime minister Alexander de Croo, representing sceptics of EU industrial policy being run by and for the countries with the deepest pockets, says the EU should concentrate on improving the single market rather than doling out state subsidies to address climate change.A paper for UK In A Changing Europe, a network of academics and researchers, says the British government’s recent white paper on development shows a constructive approach but is unlikely to restore the cuts in aid made since 2010.Trade Secrets is edited by Jonathan MoulesRecommended newsletters for youEurope Express — Your essential guide to what matters in Europe today. 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LONDON (Reuters) – Global central bank umbrella body, the BIS, eased its hardline stance on inflation on Monday, calling recent progress encouraging, but stressed that central banks were not out of the woods yet.Global economic data has begun to show a clear trend that multi-decade highs in inflation — caused by the rebound from the COVID-19 pandemic and spike in energy prices — are in the rear-view mirror. Money markets are pricing in over 100 basis points of rate cuts from both the U.S. Federal Reserve and European Central Bank next year, and have shifted the expected timing of the first moves firmly into the first half of 2024.The pace of that shift has left some policymakers uncomfortable and for the Bank for International Settlements, which hosts behind-closed-doors meetings of the world’s top central bankers, there is a balance to strike. “The outlook has improved but the key point we have to bear in mind is that we are not out of the woods and that the job has to be done,” Claudio Borio, the head of BIS’s monetary and economics unit, said. Central banks are proving “laser focused” in bringing inflation down, Borio added, but in a further sign of the softening rhetoric he said they needed to be “flexible and nimble” if a slowing global economy required it.”Unfolding of credit risk” following the huge rise in borrowing costs was still to come, he said, although the measured reaction of markets to October’s rise in Middle East tensions after Hamas’ attack on Israel was reassuring.The quarterly report from the BIS, often dubbed the central bankers’ central bank, looked a number of specific issues bubbling under the surface in global finance.One of those was a corner of the consumer credit market known as buy-now-pay-later, or BNPL, which has grown in popularity in recent years. BNPL, which offers payments by instalments for people to buy clothes and other products, has faced crackdowns in some major economies already.The BIS said the sector, which remains relatively small and no threat to the wider financial system, thrived because of very low interest rates.”It remains to be seen how well they will do in this much more challenging environment, and I think it will be reasonable to conjecture that once you don’t have this favourable combination, that they will not do as well,” said Hyun Song Shin, head of research at the BIS.Speaking more broadly, Borio reiterated that the era of ultra-low interest rates had been “left behind”, although there was clearly a tug-of-war about where markets and central bankers think interest rates will start to level out. Central banks “are well aware of the risks and they will keep interest rates up as long as it is needed in order to get inflation down,” Borio said. “We will see exactly how long that will have to be”. More

(Reuters) – The recent calm in bond markets of the most indebted euro zone nations could quickly flip to turmoil in 2024 if investors already nervous about debt sustainability and high interest rates are spooked by more rigid post-pandemic budget rules.Analysts believe Germany’s budget crisis will mean tougher fiscal policy in the largest euro zone economy in 2024, which could add to pressure on less wealthy members of the bloc to keep a tighter grip on their finances.That could reverse a trend that has seen the premium investors demand to buy bonds of euro zone governments over benchmark Germany shrink more this year for indebted economies like Italy than it has for the “core” of wealthier countries.Italian 10-year bonds currently yield around 173 basis points more than German debt, 38 bps less than a year ago, while the gap between Portuguese and German yields has narrowed by 34 basis points. French bonds meanwhile yield 58 bps more than German, 5 bps more than a year ago. Investment bank BofA nonetheless warns that Italy’s huge debt burden means it is “one shock away from threat to debt sustainability”.”The euro area has to avoid making the same mistake it made more than a decade ago, when both fiscal policy and monetary policy were too tight,” said Ruben Segura-Cayuela, European economist at BofA. “Too-aggressive simultaneous tightening could threaten the resilience that the periphery, and peripheral spreads, have shown so far.”During the European sovereign debt crisis of 2010-2012, some countries – including Greece, Italy and Spain – saw their borrowing costs rocket, raising questions over how easily they might be able to repay their debts.European Union finance ministers are in the process of revamping the roughly 30-year old Stability and Growth Pact, which limits budget deficits to 3% of GDP and debt to 60%, with disciplinary measures for those that break the rules. Those limits have been suspended since 2020 due to the COVID pandemic and surging energy prices, and the splurge in government borrowing to cover the costs of those two crises has partly been behind the drive to reshape the fiscal framework. There could be a political agreement as early as next week, but it may take until after European parliamentary elections in early June to reach a final deal. Some countries, including Italy, asked for a more lenient approach focused on growth, while Northern members led by Germany put more emphasis on reducing debt.The European Commission initially proposed that any decline in debt over four years should be acceptable. Germany insisted on minimum annual amounts, that would be the same for all.”New rules need to move away from the ‘one size fits all’ and numerical targets while leaving room to deal with the long-term challenges of the region,” BofA’s Segura-Cayuela said. Germany’s own finances have been thrown into disarray by a court ruling last month that a government move to use 60 billion euros of unused COVID funds for climate spending was unconstitutional. Berlin has had to freeze its budget plans for this year and next and suspend a self-imposed cap on borrowing, known as the “debt brake” for another year. “Where we stand now, the signal from Berlin is that Germany wants to stick with its debt brake. If so, finding a compromise on the Stability and Growth Pact could be more difficult as there is little probability that Germany may soften its stance,” said Felix Hubner, chief German economist at UBS.Analysts argued the German public may be unwilling to accept a tightening of domestic fiscal policy without a blanket approach across Europe – meaning a tougher scenario for the periphery.The European Commission initially proposed that any decline in debt over four years should be acceptable, while Germany has insisted on minimum annual amounts, called benchmarks, that would be the same for all. Bondholders are meanwhile banking on the European Central Bank cutting interest rates in a few months, which should support euro zone peripheral debt. JPMorgan sees the Italian-German yield gap at 175 bps by mid-2024 and 200 bps by year-end, assuming the ECB support for the periphery is unchanged.Allianz (ETR:ALVG) Global Investors has been neutral on peripheral bonds since late summer and sees the Italian-German at 180-200 bps as long as Italy keeps its investment-grade credit rating and the ECB policy path is what markets currently expect, senior rate specialist Massimiliano Maxia said.($1 = 0.9112 euros) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The EU’s top leaders meet this month for the last European Council of the year. How decisive they manage to be could make the difference between a summit that would rank among some of the most consequential — or a massive wasted opportunity.Consider the unresolved decisions that have been piling up. Whether to make good on the promise to finance Ukraine with €50bn over four years, half a year after it was made. Whether to open formal EU membership negotiations with Ukraine and possibly other candidate countries. Whether finally to sign off on a trade deal with South America’s Mercosur bloc. Whether to adopt proposed new common rules for national public finances, as well as midterm revisions to the EU’s seven-year budget.Contrary to appearances, what has been holding up these decisions is not that they are deeply controversial. Everyone understands that they are necessary or would bring momentous benefits to the EU and its relations with the rest of the world. Instead, what they have in common is that they have all been impeded by much more trivial concerns. It is not good enough to blame the delays on the obstructionism of Viktor Orbán’s Hungary. It is true that Orbán is holding up the Ukraine decisions to extract advantages — in particular, a release of EU funds held back due to his undermining of his country’s rule of law. But, as in earlier big decisions, there is a limit to how far others will let him delay them. Already there is talk in national finance ministries of circumventing Budapest by funding Ukraine “at 26” as a possible if not preferred option. Just as big a problem has been the European Commission’s bundling of Ukraine support with other top-ups to its budget from member states. As for Ukraine’s accession talks, some are tempted to string things out for a few months in a misguided belief this would make Kyiv reform faster.The hold-ups range beyond the Ukraine questions. The shape of the fiscal rules has long been largely clear. The remaining technical details finance ministries are fighting over will make next to no difference to the EU’s economic prospects. The Mercosur deal, meanwhile, is being held up by narrow sectoral interests and overzealous environmental demands. That’s unsurprising — and in a narrow sense even legitimate — but these interests are nowhere near enough to justify scuppering the deal. The budget revisions, too, are over trivial numbers.In all these cases, the EU remains hamstrung by the narcissism of small differences. But we are well past the point where holding out for one more marginal concession, haggling over technical details or gathering more knowledge is of much help. On all these issues, the political decisions just have to be made. Doing so would make this into one of those summits that take the European project into a new chapter: setting Ukraine on a firmer western course, creating the world’s largest free trade area and establishing a predictable framework for securing the big investments needed in defence, decarbonisation and digital modernisation. No one is presenting an alternative political course: the failure of political will this month would simply be a massive exercise of kicking the can down the road.The longer it takes the EU to decide things that should just be wrapped up, the more the genuinely hard deliberations will be delayed.They include a full, good-faith and sustained engagement with how to ready the bloc for enlargement. A tentative debate earlier this year on deep reforms of EU decision-making and European institutions has, for the moment, fizzled out (which also means it has become unlinked from the decision on advancing accession talks).They include, too, the shape of the EU’s next seven-year budget, and how to make it fit for an age of economic insecurity and geopolitical tension. It is clear that very large common investment projects have to be carried out — in energy, for example, and in stronger transport and infrastructure links with neighbouring countries — while protecting the integrity of the single market and dealing with enlargement. That requires a bigger, fundamentally reshaped budget, to satisfy the interests of both net contributors and recipients. Dealing with such challenges must no longer be displaced by second- or third-order interests. One solution is to take more decisions by majority, as some propose. But that is an inferior substitute for statecraft that builds broader agreement. Next week, leaders have a chance to show they can deliver [email protected] More

WASHINGTON (Reuters) – U.S. Federal Reserve officials appear on track to end the year with interest rate hikes as a thing of the past but with a coming challenge over when and how to signal a turn to rate cuts that investors, politicians and the public may demand before the central bank is ready.The issue may seem distant. A closely watched gauge of underlying inflation remains at 3.5% year-over-year, significantly above the Fed’s 2% target, policymakers still worry about its resurgence in a low-unemployment economy, and officials’ rhetoric points more to an extended rates plateau or even another hike.But the hawkish tilt in their words is also a way to keep options open at a time of uncertainty even as the outlook has made Fed officials increasingly confident that the federal funds rate range of 5.25% to 5.5% in place since July is enough to take some steam out of the economy and lower inflation the rest of the way.Deciding that inflation has fallen enough to start cutting rates may be down to a matter of months, with the complications of presidential election-year politics, itchy financial markets, and hopes to limit any rise in the unemployment rate all coming into play.The first step toward that debate will occur at the Fed’s final meeting of the year on Dec. 12-13, when in addition to deciding what to do with interest rates now officials must pencil in where they think rates likely are headed next year and beyond.”They will have a real awkward time in December,” with the projections likely showing interest rate hikes at an end, but Fed officials not wanting that to be construed as a weakening of their commitment to 2% inflation or as a signal that cuts are imminent, said Vincent Reinhart, Dreyfus & Mellon chief economist and a former top Fed monetary policy official.Since June, the quarterly “dot plot” of policymakers’ projections of the appropriate path of policy has shown rates rising another quarter point this year. “They’ll have to remove a ‘dot’ without the headline being ‘Fed won’t raise as much’…Anything you say that hints at easing adds to the inherent bias” to cut rates, Reinhart said.Policymakers next week are expected to hold rates steady for the third meeting in a row and in a new policy statement take stock of data that has largely moved in line with a “soft landing” in which economic activity and job growth slow modestly as inflation steadily declines.One challenge will be reconciling that assessment with officials’ desire to keep an open option for further rate increases if inflation does not behave as hoped. Even more telling: As they did in September, the updated projections are likely to show interest rates will be lower by the end of 2024, focusing attention on the fact that the next move more likely than not is a rate reduction, and triggering debate about when that becomes appropriate.’GETTING WHAT WE WANTED’With a presidential election in November, the closer Election Day comes the more tangled in politics a rate cut may appear – particularly if former President Donald Trump, who was angered when the Fed raised rates on his watch, is the Republican nominee as most polls now predict. Investors will be eager for the boost a rate cut would give to markets, and consumers will be relieved by lower mortgage and credit rates.The December meeting is likely to “give you a dot plot that suggests ‘okay, we’re done hiking…and we’re forecasting cuts,'” said Michael Gapen, U.S. economics chief at Bank of America. “It is tricky to communicate,” since the aim of the cuts won’t be an economic rescue, as rate cuts often are, but an effort to keep pace with falling inflation and steady the “real” cost of borrowing.Gapen expects the Fed to turn towards a “cautious, gradual easing cycle” once the Personal Consumption Expenditures Price Index, the inflation rate used to determine its 2% target, falls significantly below 3%, with three- or six-month annualized averages at around 2.5% or less. Indeed, in remarks last week Fed Chair Jerome Powell noted that over the last six months inflation had averaged around 2.5%.Investors, meanwhile, have become increasingly fixed on March as a starting point for rate cuts.The mistake of cutting too soon, before inflation is convincingly on its way back to 2%, is one that Powell has explicitly pledged not to make, citing the experience of Fed officials in the 1970s who loosened policy prematurely. That allowed higher inflation to become more embedded, and forced their successors to impose such strict monetary medicine that it pushed the economy into recession.”We are prepared to tighten policy further if it becomes appropriate to do so,” Powell said Friday in final remarks before the Fed’s traditional blackout period on public policy comments before each Federal Open Market Committee meeting.Yet the language has begun to shift, with even inflation hawks like Governor Christopher Waller last week outlining why he is confident inflation will continue to decline without further rate increases, and noting that three to six months more progress could be adequate to justify a lower policy rate.Powell, in an appearance at Spelman College in Atlanta, summed it up.Between falling inflation and a modest slowdown in growth, Powell said: “We are getting what we wanted to get.” More

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WASHINGTON (Reuters) -The U.S., EU and UK are pressuring Liberia, the Marshall Islands and Panama to increase oversight of ships carrying their flags to ensure they do not transport Russian oil sold above the price cap, a source who has seen the communications to the countries said on Friday.The move marks another escalation in the West’s efforts to enforce the $60 price cap on seaborne shipments of Russian oil it imposed to punish Moscow for its war in Ukraine.The cap, which aims to reduce Russia’s export revenues while maintaining flows of oil around the world, was imposed in late 2022 but has only recently been enforced.The mechanism bans Western companies from providing maritime services such as transportation, insurance and finance that facilitate the trade of Russian oil sold above the cap.Russia has increasingly had to turn to a so-called “ghost fleet” of aging tankers to ship oil and avoid the cap. That fleet is transporting oil to countries including China and India, much further away than Russia’s traditional customer base and adding greatly to shipping costs.Panama, the Republic of the Marshall Islands, and Liberia have allowed some of those ships to carry their flags, according to Lloyd’s List Intelligence and oil analysts. The practice, known as “flag hopping,” allows some shell companies that have been set up to trade Russian oil to sail with ships under those flags and dodge sanctions.Lloyd’s List Intelligence has said nearly 40% of the about 535 dark-fleet tankers have registered ownership via companies incorporated in the Marshall Islands. The letters warn the three countries of increased circumvention of the G7’s price cap on Russian oil and of the high level of risk attached to vessels that do not carry Western insurance and other services and that are seeking other flags, the source said. The three countries themselves are not at risk of Russian sanctions.Embassies in Washington for the three countries did not immediately respond to requests for comment. The goal of the pressure is to not reduce the number of ships carrying Russian oil on the water, but to tighten compliance on the cap and to make it more expensive for Russia to move oil without using Western shipping services. It also seeks to give leverage to countries buying oil outside the price-cap coalition to get discounted oil from Russia.Panama has traditionally been responsive to U.S. requests to deal with illicit activity, the source added. The group is asking Liberia and the Marshall Islands to increase awareness among those in the trade that its flag should not be used for tankers transporting oil priced above the cap. The letters were signed by Lindsey Whyte, head of international finance at Britain’s Treasury, John Berrigan, head of the European Commission’s financial services unit, and Brian Nelson, the top terrorism financing official at the U.S. Treasury, the source said.Reuters has not seen the letters in question. The U.S. Treasury, the British embassy in Washington and the Delegation of the EU to the U.S. did not immediately respond to requests for comment. More

U.S. stock futures fell on Monday, handing back some recent gains at the start of the final month of the year.By 05:15 ET (10:15 GMT), the Dow futures contract was 78 points, or 0.2%, lower, S&P 500 futures had dipped by 13 points or 0.3%, and Nasdaq 100 futures had fallen by 60 points or 0.4%.The benchmark S&P 500 index hit its highest level this year on Friday, bringing its year-to-date gains to almost 20%. The blue-chip Dow has also advanced for five weeks straight and is up over 9% for the year, while the tech-heavy Nasdaq Composite has surged 37% in 2023.The averages have benefited from growing expectations that the Federal Reserve will keep interest rates unchanged later this month, before starting to cut next year.Fed Chair Jerome Powell said on Friday that the risks of the U.S. central bank slowing the economy more than necessary have become “more balanced” with those of not moving interest rates high enough to control inflation, suggesting caution going forward.There will be no updates from Fed officials during the week as the central bank enters the traditional blackout period ahead of its Dec 12 – 13 meeting, meaning investors will have to concentrate on data releases for further monetary policy clues, and Friday’s official jobs report in particular (see below).The week’s key economic data release will be Friday’s November jobs report, as investors try and gauge whether growth in the world’s largest economy is continuing to level off.Economists expect the U.S. economy to have added 180,000 jobs in November, after 150,000 jobs were created in October, with the unemployment rate remaining at 3.9%. Average hourly earnings are seen rising 0.3% on the month, an annual rise of 4.0%. Too strong a number would undercut bets that the Fed will begin loosening its restrictive monetary policy earlier than expected, presenting an obstacle to the fourth quarter rally in stocks and bonds.A weak number, on the other hand, could spark fears that the economy is cooling following 525 basis points of rate increases, potentially dampening risk appetite.Bitcoin, the world’s biggest cryptocurrency, surged past the $40,000 level in early trading Monday, more than doubling in value this year and climbing to its highest level since May 2022, right before the cryptocurrency sector was rocked and prices slumped due to the collapse of the stablecoin Terra.Bitcoin, and the cryptocurrency market as a whole, has benefited from raised expectations that U.S. interest rates are heading lower next year – after all, easy monetary policy and increased speculative trading saw the token reach a record high of nearly $69,000 in 2021. Adding to positive sentiment has been speculation over the potential approval of a U.S. ETF that directly tracks the price of the cryptocurrency, amid growing confidence that this would draw in large swathes of institutional capital. The approval of such a product by the U.S. Securities and Exchange Commission would likely be translated as meaning official acceptance of the crypto industry – a sector that has been wracked with a series of high-profile bankruptcies and regulatory crackdowns.The 2023 United Nations Climate Change Conference continues in Dubai Monday, but world leaders have now left, so any announcements are likely to be more limited in scope.Central to the summit’s outcome is how countries will word a final agreement on the future of fossil fuels.The president of the summit, UAE’s Sultan al Jaber, caused controversy over the weekend by claiming there was “no science” to suggest phasing out fossil fuels will help limit global warming to the 1.5 degrees celsius target established by the 2015 Paris Agreement. More than 100 countries already support a phase-out of fossil fuels, and the success of this summit could be determined by whether the final COP28 agreement calls for this or uses weaker language such as “phase-down”.Oil prices fell Monday, continuing the weakness seen at the end of last week amid uncertainty over the likely extent of the crude output cuts agreed by a group of top producers.By 05:15 ET, the U.S. crude futures traded 0.9% lower at $73.40 a barrel, while the Brent contract dropped 0.9% to $78.14 per barrel. Oil prices slumped more than 2% last week despite the Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, announcing additional production cuts in order to support prices.However, the cuts were voluntary in nature, and this has raised doubts about whether or not producers would fully implement them. This uncertainty has outweighed the rising geopolitical tensions, with the resumption of the Israel-Hamas war after a recent ceasefire. Additionally, there was an attack on an American warship and commercial vessels in the Red Sea on Sunday, with Yemen’s Houthi group claiming drone and missile attacks on two Israeli vessels in the area.The developments risk inflaming fears that the Israel-Hamas war could widen into a broader conflict, potentially impacting crude supply in the oil-rich region. More