Red Sea chokepoints are critical for international oil and natural gas flows #oott #oott https://t.co/zr8zfX68IB pic.twitter.com/sOFSVX4TUj
— Giovanni Staunovo🛢 (@staunovo) December 4, 2023
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Bitcoin - Will the Fed Fuel the Bull Run?
Sat 30 Dec 2023 ▪
7
min of reading ▪ by
Getting informed
▪
Paiement
The Israeli maritime embargo could revive inflation and delay rate hikes, temporarily removing an upward factor for Bitcoin.
Yemeni Piracy
The Red Sea is a major artery for international trade, with a significant portion of oil and natural gas shipments from the Persian Gulf to Europe (and some to North America) passing through it.
During the first half of 2023, oil shipments represented about 12% of the total oil traded by sea, and LNG shipments accounted for 8%.
However, daily attacks by Yemen on merchant shipping will continue until Israel allows humanitarian aid to reach Gaza.
This week, 300 ships with a total capacity of 4.3 million containers changed course or plan to do so to avoid the Red Sea. This represents about 18% of the world’s maritime transport capacity.
Ali al-Qahoum, a member of the Ansarullah (Houthis) political bureau, said that any hostile action by the United States, Israel, or other Western powers against the country would have disastrous consequences and would be very costly.
“The Houthis will not abandon the Palestinian cause, despite American, Israeli, or Western threats,” said Mr. al-Qahoum.
Drone attacks have already forced two of the largest shipping companies to circumnavigate Africa. This detour adds about a week to the journey and increases transportation costs, ultimately causing inflation.
European countries take the Yemeni threats seriously; they have refused to send warships as part of the U.S. Prosperity Guardian naval operation.
A French frigate has already been targeted, forcing it to respond with a missile a hundred times more expensive than the drone.
Strait of Hormuz
On December 25, Israeli Prime Minister Netanyahu stated that “the war in the Gaza Strip will last a long time, and no imminent end is in sight.”
Meanwhile, the commander of the Iranian Revolutionary Guards said that the Israelis “will soon have to face the closure of the Mediterranean Sea, the Strait of Gibraltar, and other waterways.”
Drones launched from Lebanon can effectively isolate the Israeli port of Haifa. This would be a total naval blockade of Israel.
If the United States decides to attack Yemen and/or Lebanon, the war will intensify to the point that no ships will transit the Red Sea.
“There is no danger to your ships if they do not intend to support the Israelis.”
Iran could also come into play by filtering ships passing through the Strait of Hormuz, through which 20% of the world’s oil production transits. Nearly 50% of global maritime exports (more than 2400 tankers) pass through it every year. Not to mention Qatari gas.
This would be a blow, especially to the European economy, since the United States has recently become self-sufficient in oil and gas. In the end, we could experience another extremely inflationary year if things escalate.
A move by the BRICS
With Egypt, Ethiopia, and Saudi Arabia, the BRICS+ can disrupt global trade, not only in oil but in almost everything.
Egypt controls the Suez Canal, and the Saudi kingdom borders the Red Sea. Ethiopia, although landlocked, is a regional power that can persuade Sudan and Somalia to revive piracy in the Gulf of Aden and the Arabian Sea.
Moreover, the new members of the BRICS+ are major oil exporters. Brazil, China, and Russia are also significant producers of metals and rare earths crucial for energy transition.
Saudi Arabia’s admission also expands the financial firepower of the BRICS+. Nearly 20% of international transactions are now conducted in yuan, which Riyadh intends to accept as payment for its oil.
Especially since the Chinese International Payment System (CIPS) will soon connect as many banks as the SWIFT network, and the yuan is exchangeable for gold for oil-exporting countries.
Let’s not forget that U.S. foreign policy has one goal: to preserve the dollar’s hegemony. This exorbitant privilege requires the entire world to continue trading in dollars and invest its trade surpluses in U.S. debt.
This is something China is reluctant to do. Its holdings of U.S. Treasury bonds have fallen 35% in the past six years, from $1.2 trillion to $770 billion.
Beijing does not want to end up like Russia, which saw the West freeze half of its foreign exchange reserves.
Consequences for the dollar and Bitcoin
Nobel Prize-winning economist and Yale University professor Robert Shiller commented on the repercussions of releasing the frozen $300 billion/euros of Russian assets to Kyiv:
“I can’t convince myself that this is the right solution. It would confirm to Russian leaders that what is happening in Ukraine is a proxy war. Paradoxically, it could backfire against America and the West as a whole.
What signal are we sending to the dozens of countries, like Russia, including G7 countries, that hold their reserves in dollars? If America does this to Russia today, it could do it to anyone tomorrow. It would shatter the dollar’s reputation and be the first step toward the de-dollarization that many desire.”
This is evident as, according to the Wall Street Journal, more than 20% of oil exported in 2023 was sold in a currency other than the dollar.
To get to the heart of the matter that interests us, geopolitical tensions could influence the Fed.
For now, the markets are counting on six or seven rate hikes in 2024. This, along with ETFs, FASB, and the halving, would be the fourth major catalyst for Bitcoin’s rise.
However, if the disruption of global maritime traffic worsens, causing inflation, the Fed and the ECB could postpone the rate cuts.
That being said, debts have become such that rates cannot remain high for long without triggering an exponential escalation. Given the explosion of the U.S. public debt service, the rate cut would only be postponed.
In any case, the global backlash against the greenback bodes well for Bitcoin as a cornerstone of the next international monetary system.
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Bitcoin, geopolitical, economic and energy journalist.
DISCLAIMER
The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.