The Barrel is Now Distributed by Political Decision

The macro point

On September 16, drones damaged three pumping stations on Aramco's East-West pipeline and disrupted loadings at Yanbu port. According to Bloomberg, the group warned at least two European refiners that they would not receive crude in October; Polish company Orlen is turning to the North Sea. Aramco is offsetting by transshipments at the Omani port of Sohar. In our view, Europe, served via the Red Sea, is the first to pay the price.

On Friday, Donald Trump enacted the ‘Lindsey O. Graham Sanctioning Russia and Iran Act of 2026’. The text authorizes, without imposing, tariffs of up to 100% on the top five buyers of Russian oil and gas, with exemptions for European allies that have reduced their reliance on Russian gas. No tariffs are applied to date. China, the largest buyer of Russian crude, is the primary target.

Some may argue that Washington has been threatening for months without applying them. That's correct, and that's what's changing: the threat was a presidential intention, revocable overnight. It is becoming an authorization voted by Congress, with reviews every 180 days. Beijing and New Delhi interpret it differently.

In the Eurozone, inflation reached 3.2% in August, with 1.29 points for energy. The ECB raised its deposit rate to 2.50% on September 10, the Fed its rates to 3.75%-4.00% on the 16th. These increases will do little to lower the barrel: they slow demand, but the shock comes from supply. However, they affect exchange rates: the better-yielding dollar attracts capital.

Technical point

The yen gave back some of its gains. Driven by the unwinding of carry trades, it had gained 3.6% against the euro in two weeks. The Bank of Japan did raise its rate to 1.25% on September 18, but the increase was expected by nearly 80%, and the seven-to-two vote, along with Kazuo Ueda's refusal to commit to the future, triggered profit-taking: the euro climbed from 178.56 to 180.94 yen (+1.33%).

This is the asymmetric risk we indicated last week, and it does not signify a reversal: the euro remains 2.3% below its level on August 31. The rate gap with the United States, still large, continues to favor carry trades, but the Bank of Japan is not closing the door on future actions. In our opinion, the euro should fluctuate between 179 and 183 yen, and this yen pullback offers buyers the opportunity to cover some of their needs.

The euro dropped 1.14% against the dollar, from 1.1592 to 1.1460, the Fed's projections now placing the median of its rates at 4.1% at the end of 2026. Year-end targets aimed at 1.22 to 1.25 this summer; since revised, 1.15 to 1.20. A budget built on 1.20 must therefore be recalculated before any hedging. Elsewhere, calm prevails: the euro ends at 0.8588 pound, 0.9462 Swiss franc and 1.6056 Canadian dollar, virtually unchanged over the week.

The supports and resistances displayed below indicate the lows and highs within which rates should evolve during the week.

Announcements to follow

The week is short on statistics but rich in political meetings. On Tuesday, Donald Trump meets six Gulf leaders in New York: a diplomatic gesture towards Tehran could push Brent down, which is the main risk to our reading. On Wednesday, preliminary PMIs will measure the impact of the energy shock on activity. On Thursday, Xi Jinping's visit will test the new US law, and the Swiss National Bank will make its decision, expected to remain unchanged.

Below are the publications and events expected to have a major impact on currency rate movements.

The information presented in this publication is provided for informational purposes only and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should not be used or considered as an incentive to engage in any investment.