Weekly summary 14/12

There have been quite a few interesting events to analyze this week, and below I list the most noteworthy news. Let’s get started:

• In an unexpected turn of events, Bashar Al-Assad’s regime has collapsed after more than half a century in power, marking a turning point in Syria’s history. This outcome, while foreseeable under certain conditions, unfolded within days, highlighting a complex scenario where internal and external factors converge. The exhaustion of the Syrian army, territorial fragmentation, and non-confrontational agreements that left latent threats unaddressed played a key role. Added to this is the withdrawal of international actors such as Russia, focused on Ukraine, and Iran, weakened after months of conflict with Israel.

  Al-Assad’s diplomatic pivot towards the Sunni monarchies of the Gulf also contributed to the distancing of his traditional allies, eroding Iranian support. This realignment, while beneficial for improving the regime’s international image, created a strategic vacuum that Haayat Tahrir Al-Sham (HTS), an Islamist group with Al-Qaeda roots, successfully exploited.

  Syria’s future is fraught with uncertainty. On one hand, there is the possibility of a transition to a democratic model led by the Syrian National Coalition, proposing an 18-month process to draft a new constitution. On the other hand, the risk of territorial fragmentation or the potential consolidation of an Islamist government, akin to the Taliban, poses significant challenges to the region’s stability.

  The main losers include the Alawite minority, facing an uncertain future after decades of dominance, and Iran, whose logistical network and strategic influence in the corridor connecting to Lebanon are now compromised. Russia, which was Al-Assad’s main backer during the civil war, could lose its naval base in Tartus and its air base in Jmeimim, weakening its presence in the Mediterranean.

  In contrast, Turkey emerges as the big winner, with the possibility of expanding its influence in northern Syria and strengthening its regional agenda. Additionally, Turkish construction companies anticipate lucrative contracts in the country’s future reconstruction. Sunni Gulf monarchies are also poised to increase their presence in Syrian politics.

  The United States faces an uncertain scenario. Its presence in eastern Syria, focused on oil fields, could become more complicated with the scheduled withdrawal of troops from Iraq by 2026. Meanwhile, Europe could benefit from a potential reduction in migratory pressure if refugees begin returning to Syria.

  

   

  Israel watches cautiously. Iran’s loss of influence is good news for Tel Aviv but not without risks. Anticipating potential threats, the Israeli military has reinforced positions in the Golan Heights and bombed strategic facilities in Syria to prevent them from falling into hostile hands.

• The announcement of the Willow quantum chip marks a groundbreaking advance in quantum computing, solidifying Google Quantum AI as an undisputed leader in the field. This chip represents a crucial step toward building large-scale, practical quantum computers by addressing two fundamental challenges.

  First, Willow achieves an exponential reduction in errors through advancements in quantum error correction, a milestone pursued by the field for nearly three decades. Unlike earlier systems, where increasing the number of qubits led to higher error rates, Willow demonstrates that expanding its qubit grid from 3×3 to 7×7 drastically reduces errors, proving its ability to scale without compromising quality. This achievement, known as being below the error correction threshold, validates the feasibility of building scalable logical qubits with superior performance and showcases real-time error correction, essential for practical computations.

  Moreover, Willow has set a new standard for speed in quantum computing. In tests using the random circuit sampling benchmark, Willow completed a calculation in under five minutes that would take one of the world’s most powerful supercomputers approximately 10 septillion years. This result not only highlights Willow’s ability to perform tasks unattainable by classical systems but also opens up a horizon of possibilities for overcoming the limitations of traditional computing.

  Willow’s impact extends beyond technical demonstrations, redefining expectations for the applicability of quantum computing to real-world problems. While current benchmarks, such as random circuit sampling, lack direct commercial applications, they represent a necessary step toward algorithms capable of addressing significant challenges in science and industry. Google Quantum AI envisions a future where quantum computing becomes pivotal in advancing artificial intelligence, drug design, battery optimization, and the exploration of new energy sources.

• The recent shift in stance by the Chinese Politburo, reclassifying its monetary policy as moderately expansive rather than prudent for the first time in 14 years, marks a significant turning point in the country’s economic direction.

  

   

  This change, accompanied by calls for more proactive fiscal policies and extraordinary counter-cyclical adjustments, reflects the leadership’s growing concern over addressing economic issues affecting China, from deflation to the real estate crisis.

  The statement also emphasizes stimulating demand, particularly consumption, over other objectives such as supply chain improvements and innovation. However, while the policy tone is positive, its implementation remains uncertain.

  China has been grappling with deflationary pressures exacerbated by a slowdown in the real estate sector. In November, the consumer price index rose by only 0.2% year-on-year, while producer prices fell by 2.5%, extending a two-year streak of declines in factory prices. These figures highlight the ineffectiveness of previous stimulus measures in reviving private spending and restoring confidence in the domestic sector.

  

   

  In response, recent stimulus measures include a 10 trillion yuan debt swap plan to relieve pressure on local governments. Despite efforts to label it as “prudent,” China’s monetary policy has facilitated one of the fastest debt increases in history, primarily supporting the supply side of the economy. This direction has deepened structural imbalances and exacerbated deflation rather than addressing the root causes of slow growth and weak consumption.

  The central issue does not lie in tight monetary policy but in its focus on inefficient investments aimed at offsetting chronic weaknesses in domestic consumption. The Politburo’s recent announcement, emphasizing the need to “vigorously boost consumption, improve investment efficiency, and expand domestic demand,” reflects an acknowledgment of this problem. In practical terms, though the details remain to be clarified as always, this development is very positive for commodities looking ahead to 2025. With even a slight upward surprise from China, we could see a genuine melt-up scenario from the currently depressed levels.

• Norway is facing a significant political and social debate regarding its international electricity interconnectors, particularly with Denmark, the United Kingdom, and Germany. The sharp rise in electricity prices in the Nordic country, reaching peaks of NKr13.16 ($1.18) per kilowatt-hour—the highest level since 2009—has sparked intense scrutiny of current energy policies. A lack of wind in Germany and the North Sea has been a key factor driving this increase.

  The Labour Party, a center-left and leading force in Norway’s government, has announced its intention to campaign in the 2026 elections to terminate the interconnector with Denmark upon its renewal. Its coalition partner, the Centre Party, not only supports this measure but also demands renegotiation of existing agreements with the UK and Germany. Both parties argue that these interconnectors have imported continental Europe’s price contagion into Norway, harming Norwegian consumers.

  This debate has implications beyond Norway’s borders. EU countries, which rely on Norwegian hydropower to stabilize energy prices across the continent, have voiced concerns. The issue extends to Sweden, which faces similar challenges due to weak internal electricity transmission links. This has created stark price disparities between the north, where most electricity is generated, and the south, where consumption is concentrated.

  With high demand, an ongoing energy transition, and tight international markets, this conflict highlights the complexity of balancing domestic priorities with international commitments in a transforming energy landscape.

  Play stupid games, win stupid prizes.

• Yesterday, we shared an analysis of G&R’s quarterly commentary, which again highlights, with data supporting their thesis, the depletion of American shale and its potential implications for the oil market. For instance, the Bakken, currently producing 1.8 million BOE per day, is showing clear signs of exhaustion in its highest-quality reserves. Approximately 80% of Tier 1 and 60% of Tier 2 locations have already been drilled, with many remaining reserves constrained by surface issues or categorized as infill drilling, limiting their incremental potential.

  Historical patterns reveal that the initial boom (2010-2014) spread drilling across Tiers 1, 2, and 3, while between 2017 and 2020, efforts focused almost exclusively on Tier 1. By 2023, operators expanded drilling to Tier 2, achieving a 20% production increase through techniques like longer laterals and optimized spacing, underscoring the pressure on higher-quality inventories.

  While the Bakken remains relevant, its depletion stands out as a case study compared to basins like the Permian, which retains a larger share of high-quality reserves and offers lower breakeven costs even in lower-quality zones. Additionally, the Permian provides greater exploratory potential due to its scale and complexity. However, the dynamics observed in the Bakken highlight the inevitable depletion challenges that could eventually impact even larger and more diversified fields.

  

   

  The dominant narrative suggests clear market surpluses, yet physical reality—the ultimate and impartial judge—shows that global observable inventories fell by 39.3Mb in October, equating to a real deficit of just over 1Mb/d. When next year’s balance disappoints to the downside and the narrative shifts, I expect a very sharp bullish move in oil and sector equities.