$100 Oil? What a Price Spike Could Mean for Markets and Geopolitics

How oil’s surge is upending the global status quo

Brent crude oil was trading on Wednesday morning at around $90 a barrel for the second straight day, and is up 25 percent since June thanks to the prospect of more production cuts by leading oil exporters.

The surge is sending ripples through the global stock and bond markets. And the prospect of higher prices at the pump and throughout manufacturing may spur diplomatic efforts to increase supply and tamp down any inflationary effects on the global economy.

Saudi Arabia and Russia are behind the price increase. The two said on Tuesday that they would extend their oil production cuts — equivalent to a combined 1.3 million barrels a day — through year-end. The duration of the cuts surprised market watchers, as did Saudi Arabia’s hint that it may make even deeper cuts in the coming months.

Nadia Martin Wiggen, a commodities analyst at Pareto Securities, told Bloomberg this morning that Brent could hit $100 a barrel, a level it frequently surpassed in the first months following Russia’s invasion of Ukraine.

There are wild cards to consider. China’s sputtering economy could sap demand for oil, keeping prices down. And Saudi Arabia has little interest in seeing triple-digit crude prices crash the global economy, Jorge León, an economist for the research firm Rystad Energy, told DealBook.

Costlier oil could affect interest rates. “Higher oil prices will only increase the likelihood of more fiscal tightening, especially in the U.S., to curtail inflation,” León said.

Investors have sold off government bonds, including 10-year Treasury bills, over the past two days on fears that central banks will be forced to stay hawkish on interest rates to blunt the inflationary effect of higher energy prices. (A geyser of corporate-bond issuances this week is also roiling the debt markets.)

Global leaders may seek relief from sanctioned oil exporters. Iran’s oil exports have surged since Saudi Arabia began cutting its production this summer, and Bloomberg reported last week that Tehran and Washington have held back-channel talks to keep crude flowing to make up for supply reductions elsewhere. Venezuela, another exporter under sanctions, has reportedly turned to Beijing to help it revive production.

For the Biden administration, “the only thing they can pretty much do to counteract Saudi cuts is to bring more oil into the market from other countries,” León said. “Iran and Venezuela are the best candidates,” he added, even if it’s politically unpalatable to fully reopen talks with them.

The United States may have few other options. Domestic producers of oil from shale won’t fill the void in the short term. And Washington is unlikely to tap the nation’s strategic petroleum reserve, after doing so last year brought it down to levels last seen in the 1980s, León said.

HERE’S WHAT’S HAPPENING

The E.U.’s antitrust chief temporarily steps down. Margrethe Vestager will take a leave of absence from her role as the bloc’s competition commissioner to run for leadership of the European Investment Bank; Didier Reynders, the justice commissioner, will assume the position. Over her decade-long tenure, Vestager has led aggressive efforts to check the power of U.S. tech giants; on Wednesday, the European Commission designated five of them as tech “gatekeepers” subject to tighter regulation under a new law.

The SPAC buying Donald Trump’s social network gets more time for its deal. Shareholders in Digital World Acquisition Corporation voted to give the firm 12 more months to close its merger with Truth Social. That makes it more likely that the platform will get the $300 million held by the SPAC; if the deal was not extended, the cash would have been returned to investors on Friday.

Warner Bros. Discovery warns of a big hit from the actors’ and writers’ strikes. The media giant cut its expected earnings for this year by as much as $500 million because of halted movie and television production. It’s a sign that the initial financial gains that content providers notched from the strikes are disappearing as the standoffs with actors and writers drag on.

Meta employees are back in the office. Starting Wednesday, workers for the parent company of Facebook and Instagram must report to a physical location at least three times a week, unless they’re designated as permanently remote. Meta’s move is indicative of how even many tech companies that had championed remote work are reversing course.

Google girds for an antitrust fight for the ages

What is perhaps the most consequential antitrust case since the Justice Department took on Microsoft in 1998 is set to kick off next week: Federal prosecutors are taking on Google, arguing that it illegally abused its monopoly over search for decades to squash rivals.

The case could force Google’s parent company, Alphabet, to restructure its vast $1.7 trillion empire and pay potentially hefty damages. But it’s also a test of the Biden administration’s ambitious rethinking of antitrust policy in the modern internet era.

The case revolves around search on smartphones, and the deals that Google has struck that make it the default on devices like the iPhone. (The company now controls an estimated 90 percent of the search engine market in the United States and globally.)

Google is likely to argue in court that consumers can change the default settings on their devices to choose alternatives; that it faces competition from the likes of Amazon and TikTok; and that it became dominant because of a superior product, not illegal tactics.

Jockeying over the case has been intense. The two sides have deposed more than 150 people and produced over five million pages of documents. Google has hired three high-profile law firms to argue its case.

The company has argued that Jonathan Kanter, the Justice Department’s antitrust chief, is biased because of his previous work in the private sector representing Microsoft and News Corp. And the government has accused Google of destroying potentially relevant instant messages written by employees.

The stakes are high for the government. Kanter and his team are challenging a legal orthodoxy in which regulators and judges focused on whether companies’ conduct hurt consumers, particularly by raising prices. But Google and other tech giants confound that calculus because many of their top products are free.

“The Google trial is a big test for the government’s entire antitrust agenda because its theory of monopolization is very much in play with many big tech companies,” Rebecca Allensworth, a professor at Vanderbilt University’s law school, told The Times.

But there are other major antitrust battles to come. The Justice Department has also accused Google of abusing its monopoly power in advertising technology, while state attorneys general have filed similar lawsuits. And the F.T.C. is expected to sue Amazon over antitrust violations this month, according to The Wall Street Journal.

“Notwithstanding multiple requests for a vegan diet, he continues to be served a flesh diet.”

— Mark Cohen, a lawyer representing Sam Bankman-Fried, who faces trial next month for his role in the collapse of the crypto exchange FTX. Cohen has petitioned for his client’s release from a Brooklyn jail, arguing that the accommodations are unsuitable.

Merger guideline guidance

When the F.T.C. and the Justice Department announced new merger guidelines in July, they made clear they had no intention of backing down from their aggressive approach to policing deals despite a series of high-profile legal setbacks.

The regulators held their first workshop with competition law experts on Tuesday to discuss the guidelines, making public some of the debates that have been shaking up antitrust circles in private all summer.

Regulators say they are aiming for transparency, but critics complain they made things worse. “These guidelines are a bit difficult,” Barry Nigro, an antitrust expert at the law firm Fried Frank, told the workshop. He argued that the proposed rules “identify a lot of issues but they don’t do enough to describe what’s OK,” adding that the guidelines would make it difficult to advise clients and would lead to more litigation.

Some former antitrust officials also say the government is taking liberties. Gregory Werden, a former senior economic counsel at the F.T.C., has objected to the proposals, saying they don’t provide enough clarity on what types of deals could be challenged. Instead, he wrote recently, the guidelines are “more of a legal brief arguing that the Agencies have enormous discretion and that merging firms have an insuperable burden.”

But supporters of the guidelines argue that a correction was in order. Eleanor Fox, a professor at N.Y.U. law school, agrees that the proposals are “aggressive.” But she has defended them, saying a shift was needed to undo “a period of excessive hospitality to mergers” over the last half-century.

These debates may lead to changes. Alongside a raft of essays from antitrust experts, about 1,200 public comments on the proposal have already been submitted, with a flood more expected ahead of the Sept. 18 deadline. There are also two more expert workshops to come. In the fall, the agencies will review the feedback and may make tweaks. But the final guidelines are unlikely to be released before 2024.

THE SPEED READ

Deals

Dominion Energy agreed to sell its natural gas distribution business to Canada’s Enbridge in a $14 billion deal. (FT)

A state-owned Saudi telecommunications company has acquired a nearly 10 percent stake in Spain’s Telefonica valued at $2.3 billion. (Reuters)

Elon Musk reportedly borrowed $1 billion from SpaceX, the rocket firm he founded, last year, around the time he was acquiring Twitter, now known as X. (WSJ)

Universal Music struck a licensing deal with the French streaming service Deezer that will pay professional artists more in royalties than amateurs, bots and makers of white-noise tracks. (FT)

Policy

“Chris Christie is actually gaining support for president. From Democrats.” (Politico)

Representative George Santos has begun talks with prosecutors about “possible paths forward” in his fraud case, suggesting the New York Republican may be seeking a plea deal. (NYT)

Commerce Secretary Gina Raimondo said American C.E.O.s have pressed for improved dialogue with China and she may brief the Business Roundtable’s gathering of corporate leaders in Washington next week on the issue. (CNBC, Semafor)

Best of the rest

“Why the G20 Keeps Failing​​, and Still Matters” (NYT)

Strive Asset Management, the investment firm founded by the “anti-woke” activist and Republican presidential candidate Vivek Ramaswamy, now oversees $1 billion in assets. (Bloomberg)

Disney is offering pro tennis players at the U.S. Open access to televised coverage of the tournament, a reprieve from its carriage fight with Charter Communications that has led to the event being blacked out in New York City. (FT)

China’s downturn is a test of President Xi Jinping’s push to assert Communist Party control of the economy. (NYT)

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Andrew Ross Sorkin is a columnist and the founder and editor at large of DealBook. He is a co-anchor of CNBC’s “Squawk Box” and the author of “Too Big to Fail.” He is also a co-creator of the Showtime drama series “Billions.” More about Andrew Ross Sorkin

Ravi Mattu is the managing editor of DealBook, based in London. He joined The New York Times in 2022 from the Financial Times, where he held a number of senior roles in Hong Kong and London. More about Ravi Mattu

Bernhard Warner joined the The Times in 2022 as a senior editor for DealBook. Previously he was a senior writer and editor at Fortune focusing on business, the economy and the markets. More about Bernhard Warner

Sarah Kessler is a senior staff editor for DealBook and the author of “Gigged,” a book about workers in the gig economy. More about Sarah Kessler

Michael de la Merced joined The Times as a reporter in 2006, covering Wall Street and finance. Among his main coverage areas are mergers and acquisitions, bankruptcies and the private equity industry. More about Michael J. de la Merced

Lauren Hirsch joined The Times from CNBC in 2020, covering deals and the biggest stories on Wall Street. More about Lauren Hirsch

Ephrat Livni reports from Washington on the intersection of business and policy for DealBook. Previously, she was a senior reporter at Quartz, covering law and politics, and has practiced law in the public and private sectors.   More about Ephrat Livni

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