I did a quick hit on Squawk Box this morning and the discussion centered on oil and, what is to me, a surprising lack of strength in the commodity when Russia's new-found belligerence is factored in.
Russia's move into South Ossetia and then into Georgian territory will force a reconsideration of alliances in the area. Former Soviet satellites will now have to ask themselves if their security is enhanced or threatened by affiliation with the West. The Western side of Central Asia, the Balkans, Poland, the Ukraine, have cast their votes with NATO. But the Caucusus, Kazakhstan (with huge oil reserves), and Uzbekistan (gas reserves) being to the East and far removed from the geographic embrace of Western Europe will need to consider where their best interests are.
Kazakhstan is rumored to be considering moving 500,000 barrels a day of production away from tanker shipment across the Caspian Sea to Baku (where it would be piped to the Turkish Mediterranean) to Russian pipelines. My friend, CNBC's Michele Caruso-Cabrera, disagrees with me (see the video), but I believe that the new geopolitical reality is a threat to the stability of the oil supply from the region. I would have thought the price would be reflective of that.
Michele's point is Russia, or Kazakhstan, needs the currency that oil and gas bring. And that is correct. But Russia, the largest energy producer in the world, has played hard ball before and has cut off gas to the Ukraine and Europe probably just to prove it can. Germany will need natural gas during a cold winter sooner and more urgently than Russia will need the currency from selling the gas.
It could be the markets have figured the global economic slowdown is becoming more pronounced, or at least we all are more aware of it, and that slowdown and the decline in the demand for oil that will accompany it are enough to trump the geopolitical.