THE ETERNAL SOVEREIGN

Tag: energy

  • China’s Silver Mine Crackdown Highlights Why Rising Prices Won’t Quickly Boost Supply

    For the first time in the current market cycle, a silver producer has disclosed concrete figures showing a forced reduction in output, with the decline stemming from China’s mine-safety crackdown rather than changes in silver prices.

    Silver is currently trading around $58 an ounce after falling below its early-July low. The metal has dropped about 18% from its year-end 2025 close near $71 and remains roughly 52% below the record high of $121.62 reached on January 29. Even so, silver is still more than 50% higher than it was a year ago. With gold hovering near $4,000 an ounce, the gold-to-silver ratio stands at approximately 69. The recent two-month pullback has largely been driven by macroeconomic forces, including a stronger US dollar and the Federal Reserve’s hawkish stance, while renewed US-Iran tensions have fueled oil prices and inflation concerns, rather than any major shift in silver market fundamentals.

    Beneath the recent price weakness, however, the long-term supply outlook remains largely intact. According to Metals Focus and the Silver Institute, the global silver market is expected to record its sixth consecutive annual supply deficit in 2026, with demand projected to exceed production by 46.3 million ounces. A key pillar of the bullish outlook has been the limited ability of silver supply to respond to higher prices. Around three-quarters of global silver production comes as a byproduct of mining for copper, lead, zinc, and gold, making it difficult to significantly increase output simply because silver prices rise. This week provided one of the clearest real-world examples of that constraint, as China’s safety-related mining restrictions forced measurable production cuts despite elevated silver prices.

    Silvercorp’s Production Cuts

    On June 29, Canadian-listed Silvercorp Metals announced that a tightening mine-safety campaign in China would significantly reduce its production during the July-to-September quarter. Output from its Ying mining district is expected to decline by 40% to 50%, while production at the GC mine is projected to fall by around 50%. Overall, the company estimates a quarterly production decline of 10% to 15%. Based on Silvercorp’s latest annual production of approximately 6.3 million ounces from Ying and 0.5 million ounces from GC, the reductions could remove an estimated 0.9 million to 1.1 million ounces of silver from supply during the affected period.

    The significance lies less in the company itself than in the cause of the disruption. The production cuts were not driven by weaker prices or operational decisions but by stricter government safety regulations. Following a fatal coal mine accident in Shanxi Province in late May, Chinese authorities expanded the country’s long-established “Six Major Safety Systems” requirements to cover all underground non-coal mines. The new rules are supported by a nationwide real-time monitoring network overseeing more than one million safety sensors.

    For Silvercorp, meeting the updated standards will require roughly $5.5 million in certified safety-system installations over about 50 days, along with an additional $6 million for facility and equipment upgrades. The nearly $11.5 million investment is aimed solely at maintaining regulatory compliance and keeping mines operational, rather than increasing production capacity, effectively raising the cost of every ounce of silver the company continues to produce.

    Silver’s China Supply Cut

    While Silvercorp is only one mining company, the regulations affecting its operations apply to every underground metal mine in China. As a result, the same safety enforcement that forced Silvercorp to scale back production could eventually reduce China’s overall silver output by several million additional ounces, although no confirmed figures beyond Silvercorp’s estimates are available yet. Given China’s position as one of the world’s largest silver producers and an even more significant refining hub, the broader regulatory trend carries greater importance than the impact on any single miner.

    What It Means for Silver Investors

    The immediate impact should be viewed in perspective. Silvercorp’s estimated production loss of 0.9 million to 1.1 million ounces is relatively modest compared with the roughly 846.6 million ounces of silver mined globally in 2025, representing only slightly more than one-tenth of one percent of annual supply. On its own, the reduction is far too small to meaningfully alter the global supply-demand balance. As such, portraying it as the catalyst for an immediate supply shortage would overstate its significance.

    What makes this development significant is not the scale of the production cut but the underlying mechanism. One of the strongest arguments supporting silver’s long-term outlook is that mine supply cannot quickly respond to higher prices. That theory faced a real-world test as silver surged to record highs in early 2026. Instead of increasing, however, production moved in the opposite direction. Supply contracted for reasons unrelated to market prices, as regulatory safety measures forced mines to reduce output. In this case, even substantially higher silver prices could neither prevent the shutdowns nor restore the lost production. If supply continues to tighten under regulatory pressure while remaining largely unresponsive to stronger prices, the industry’s ability to offset the market’s projected sixth consecutive annual deficit becomes even more limited.

    The broader significance, therefore, lies in what this episode demonstrates rather than in the number of ounces affected. In Issue #19, I highlighted the growing divergence between a replenished silver inventory in New York and persistently elevated physical premiums in Shanghai, suggesting that Western markets appear well supplied while buyers in Asia continue paying a premium for physical metal. Silvercorp’s production cut adds to that narrative, reinforcing the view that underlying physical tightness may be greater than paper prices imply. While this development does not point to any specific price target, it strengthens the long-term investment case for silver by providing tangible evidence that global mine supply remains structurally constrained and cannot be expanded quickly, even during periods of elevated prices.

  • Analyzing the Effects of Iran Tensions: Keep an Eye on Energy Markets

    Over the weekend, the United States and Israel launched coordinated missile and drone strikes on Iran, targeting key military facilities in an attempt to curb Tehran’s nuclear ambitions. The operation reportedly killed Iran’s Supreme Leader, Ayatollah Ali Khamenei, marking a dramatic escalation and sharply increasing regional tensions. Iran responded swiftly with a wide-ranging missile campaign aimed not only at Israel but also at several Gulf states, including Qatar, the United Arab Emirates, and Bahrain. The fallout rippled across the region, prompting multiple Gulf nations to close their airspace and suspend equity trading.

    Energy markets were also disrupted. Shipping activity through the Strait of Hormuz—a strategic chokepoint responsible for roughly 20% of global oil flows—slowed dramatically as tanker operators rerouted vessels for security reasons. Meanwhile, Qatar temporarily halted liquefied natural gas production at the world’s largest export terminal following a drone strike. U.S. President Donald Trump indicated that American military operations would persist, suggesting tensions could remain elevated in the near term.

    From a market standpoint, energy represents the primary transmission channel of this crisis into global financial assets. Prolonged or severe disruptions to oil and gas supply could push up inflation expectations, dampen business sentiment, and heighten cross-asset volatility. Simply put, the longer and more intense the geopolitical shock, the greater the potential market fallout.

    This dynamic was visible when markets reopened Monday. Brent crude briefly climbed to $82 per barrel amid concerns over tighter supply. Sustained price strength would likely reinforce inflation pressures, with knock-on effects for equities and interest rates. However, for oil to remain structurally elevated, investors would likely need confirmation of a more extended—or even complete—closure of the Strait of Hormuz. Such a development would mark a significant escalation beyond current disruptions and warrant a larger risk premium in energy markets. Political factors within Iran, particularly how the Islamic Revolutionary Guard Corps (IRGC) chooses to respond, will be critical. Whether the IRGC de-escalates or intensifies its actions will determine how much of the current market reaction reflects temporary risk pricing versus a genuine physical supply shock.

    Oil Rallies After Tanker Flows Stall in the Strait of Hormuz

    With developments unfolding quickly, tracking energy prices remains one of the clearest ways to gauge both the intensity and staying power of the geopolitical risk. Oil and natural gas markets typically react swiftly to new headlines, making them a real-time indicator of whether tensions are easing, stabilizing, or escalating further. As a result, close monitoring of these markets will be crucial in assessing how the conflict may shape global financial conditions in the coming days and weeks.

    Sources: Kristian Kerr

  • Global gas markets confront their most severe disruption since 2022 amid the conflict involving Iran.

    The global energy industry is preparing for its most serious upheaval since the 2022 invasion of Ukraine. As tensions in Iran intensify, the Strait of Hormuz — the world’s most vital transit route for liquefied natural gas (LNG) — has effectively come to a standstill.

    Vessel-tracking data shows that at least 11 large LNG carriers have suspended their journeys. Major Japanese shipping firms, including Nippon Yusen K.K. (TYO:9101) and Mitsui OSK Lines Ltd (OTC:MSLOY), have reportedly instructed their ships to remain in safer waters. Iranian state media has characterized the passage as “virtually closed,” leaving roughly 20% of global LNG supply stranded behind what amounts to a naval blockade. Unlike oil, which can sometimes be diverted through pipelines, the immense volumes of Qatari gas moving through this narrow corridor have no viable alternative route.

    Asia’s exposure and price shock

    Asian nations are at the forefront of the fallout. Buyers in China, India, and Japan — the largest importers of Qatari gas — are said to be urgently seeking substitute cargoes from other suppliers. Yet in an already tight market, traders expect a sharp surge in spot LNG prices, potentially undoing a year of relative price stability within days.

    The strain extends beyond spot purchases. Many long-term LNG agreements are linked to crude benchmarks, so any spike in Brent Crude would quickly drive up costs even for contracted volumes, raising energy bills for households and industrial users alike.

    Supply risks and broader regional strain

    The disruption is also creating operational risks for producers. LNG export terminals depend on a continuous rotation of tankers to maintain cooling systems; without outbound shipments, producers in Qatar and the UAE could face partial or full production shutdowns.

    The ripple effects are spreading beyond the Gulf. With Israeli gas fields closed and Iranian pipeline exports to Turkey under pressure, countries such as Egypt are being pushed into the higher-cost seaborne LNG market.

    The result is a global scramble for the limited cargoes still available, setting the stage for an international bidding war. Whether the conflict widens or remains contained, the financial burden is likely to be passed on to consumers around the world.

    Sources: Simon Mugo

  • Oil prices remain under pressure amid supply glut outlook; U.S. CPI data in focus.

    Oil prices were mostly stable in Asian trading on Friday but remained on course for a weekly loss after plunging nearly 3% in the prior session, as expectations of a substantial supply surplus and rising inventories pressured sentiment. By 21:07 ET (02:07 GMT), Brent crude for April delivery was up 0.1% at $67.56 a barrel, while WTI crude also edged 0.1% higher to $62.87. Both benchmarks had dropped close to 3% previously, leaving them down about 1% for the week.

    IEA projects oil supply surplus and weaker demand growth outlook.

    The International Energy Agency, in its latest monthly report, projected that the global oil market could see a surplus exceeding 3.7 million barrels per day in 2026, pointing to a pronounced supply overhang.

    It also noted that global stockpiles grew last year at one of the fastest paces since the pandemic, reflecting comfortable supply levels. The agency lowered its forecast for global demand growth, citing a softer economic outlook and moderating consumption, even as non-OPEC production stays strong. This combination of weaker demand and resilient output has intensified concerns about prolonged oversupply.

    In the U.S., the Energy Information Administration reported an 8.53 million-barrel increase in crude inventories this week—well above expectations and the largest build since January 2025—indicating sluggish refinery demand and abundant supply.

    U.S.- Iran nuclear talks under scrutiny; U.S. CPI data awaited.

    Meanwhile, investors monitored geopolitical developments after Donald Trump said negotiations over a potential U.S.-Iran nuclear deal could last up to a month.

    The possibility of extended talks eased immediate fears of supply disruptions in the Middle East, reducing the geopolitical premium that had previously supported prices. Attention is also turning to U.S. CPI data due later Friday, which may provide further insight into the Federal Reserve’s rate outlook after strong January employment figures dampened hopes for near-term rate cuts.

    Sources:

  • Global Climate Tax Proposal Targets Big Oil

    The United Nations is considering a global tax framework that would tie oil and gas industry profits to climate compensation, though deep divisions among member states leave the outcome uncertain. Attempts to hold major energy producers financially accountable for climate change are not new. However, as the costs of the energy transition mount and legal efforts deliver mixed results, taxation is increasingly being viewed as an alternative policy instrument.

    The United Nations is currently weighing the creation of a new international tax cooperation framework that could, among other objectives, channel funds from the oil and gas industry toward climate-related compensation. While the proposal reflects a familiar ambition to hold the industry financially accountable for climate change, its prospects remain uncertain.

    The initiative falls under the Framework Convention on International Tax Cooperation, which is being negotiated at UN headquarters in New York. The broader goal is to strengthen global tax collection mechanisms and increase taxation on the world’s wealthiest entities and individuals. Sustainability features prominently in the discussions, with many countries—particularly those experiencing frequent climate-related disasters—supporting efforts to make major oil producers contribute financially. At the same time, resistance remains strong among other member states that oppose assigning climate liability to the energy sector or implementing a global wealth tax.

    Recent proposals have suggested linking oil and gas profits directly to climate compensation payments. However, critics argue that these ideas lack sufficient clarity and enforcement power, limiting their viability. Supporters note that such measures could have generated as much as $1 trillion in additional revenue since the 2015 Paris Agreement, highlighting the scale of the opportunity lost if no agreement is reached.

    Any move to formally tax Big Oil for its alleged role in man-made climate change would almost certainly provoke a strong response from the industry, likely through legal challenges. This would build on an already extensive record of climate-related litigation, where activist groups have achieved mixed results.

    In the United States, California launched a lawsuit against major oil companies in 2024, accusing them of downplaying the climate risks associated with fossil fuels. The case targets companies including Exxon Mobil, Chevron, BP, and ConocoPhillips. State Attorney General Rob Bonta later strengthened the case by adding a provision aimed at forcing companies to surrender profits derived from alleged wrongful conduct. However, the lawsuit’s progress remains unclear, and California officials have recently softened their rhetoric toward oil companies in an effort to keep refineries operating and prevent fuel price spikes.

    Maine has pursued a similar legal path, filing a “climate deception” lawsuit against several oil majors and the American Petroleum Institute. A federal judge allowed the case to proceed last year, with plaintiffs alleging that the defendants concealed information about the environmental and economic consequences of fossil fuel use.

    This wave of so-called climate lawfare has become a favored strategy among activists seeking to penalize the fossil fuel industry. Yet given the uncertain outcomes of court cases, taxation is increasingly viewed as a more reliable alternative. The energy transition has proven far more expensive than initially anticipated, and governments are searching for sustainable funding sources.

    Big Oil remains an obvious target due to its substantial profits from essential energy commodities that are widely blamed for climate change. Whether the UN negotiations ultimately result in a binding global tax remains to be seen. Even if they do, governments hoping for swift revenue may need patience—because the oil and gas industry is unlikely to accept such measures without a prolonged fight.

    Sources: Irina Slav

  • Markets Rattled as U.S. Eyes Control of Venezuela’s Oil Industry

    Oil prices weakened yesterday after President Trump said Venezuela would supply large volumes of sanctioned crude to the United States.

    Energy

    Developments in Venezuela remain in the spotlight, adding further downside pressure to oil prices. President Trump said Venezuela is prepared to sell up to 50 million barrels of sanctioned crude to the United States, a move that could also immediately weigh on Canadian crude exports to the U.S.

    Such a deal would effectively open a release channel for Venezuelan oil, which has struggled to reach global markets due to a U.S. blockade on sanctioned tankers entering and leaving the country. Redirecting these barrels to the U.S. could ease storage constraints and reduce the need for Venezuela to curb production.

    The U.S. Department of Energy confirmed that Venezuelan crude is already being marketed internationally, while Trump’s energy secretary stated that Washington intends to maintain long-term control over future Venezuelan oil sales. This strategy is reinforced by the continued tanker blockade, with two additional vessels reportedly seized yesterday.

    Washington’s growing influence over Venezuela’s oil sector also raises uncertainty about the country’s future role within OPEC.

    Meanwhile, Energy Information Administration (EIA) data showed U.S. crude inventories fell by 3.83 million barrels last week, the sharpest draw since late October. However, product balances were more bearish, as gasoline stocks rose by 7.7 million barrels and distillate inventories increased by 5.6 million barrels.

    These inventory builds point to refinery utilization remaining firm, while implied demand for both products softened somewhat over the past week.

    European gas prices moved higher yesterday, with TTF closing more than 2.5% up on the day. Colder conditions across parts of Europe, along with forecasts for below-average temperatures in the days ahead, are supporting the market. The current cold spell has also accelerated storage drawdowns, with EU gas inventories now at 58% of capacity, compared with a five-year average of 72%.

    The latest positioning data show that investment funds cut their net short exposure in TTF for a third straight week. Funds purchased 6.2 TWh during the latest reporting period, reducing their net short position to 72.4 TWh.

    Sources: ING Economic and Financial Analysis