RBCT Chapter 274 The Fuse of Crude Oil
Chapter 274 The Fuse of Crude Oil
Chantilly, Virginia, USA.
National Reconnaissance Office (NRO) Underground Mapping Center.
The cold white industrial-grade ceiling lights illuminated this vast space buried deep underground, casting a white glow. A giant electronic screen occupying an entire wall was projecting a digital terrain grid of the Persian Gulf region in real time.
Image analyst Davis sat at his console, his eyes fixed on the screen of the high-resolution terminal in front of him.
From mid-July 1990.
The Keyhole-11 (KH-11) reconnaissance satellite, operating in a low Earth orbit hundreds of kilometers away, continues to conduct high-frequency transit scans over the northwestern end of the Persian Gulf.
July 21. Optical layers show that the Iraqi Republican Guard's "Hammurabi" and "Medina" armored divisions left their permanent camps and began a large-scale maneuver south along Highway 80.
July 25th. High-resolution infrared sensors captured high-intensity heat radiation stretching for tens of kilometers. More than 100,000 soldiers, nearly 3,000 T-72 main battle tanks and heavy self-propelled artillery completed their tactical deployment in the desert less than ten kilometers from the Kuwaiti border.
July 31st. A massive supply convoy began its operation, forming a visible, dark gray line stretching north of the border.
Washington politicians held several closed-door meetings in the Oval Office, armed with these satellite images. Based on feedback from the US ambassador to Iraq and leaders of several Middle Eastern countries, the White House staff reached a largely unified conclusion. They generally believed that the T-72 main battle tanks stationed north of the border were merely a political blackmail tactic by Saddam Hussein to force Kuwait to forgive its debts from the Iran-Iraq War and to stop its excessive oil production. (This actually happened in history; at the time, not only the US, but also many Middle Eastern countries and even Kuwait itself believed that this war would not break out.)
Under this macro-level policy, the intelligence agencies' routine monitoring has entered a period of silence characterized by tight external controls but relaxed internal controls.
Davis picked up his coffee cup and took a sip of the now-cold black coffee.
The bitter, sour liquid slid down their throats, barely stimulating their weary nerves. Seven consecutive days of intense shift work had long since exhausted the analysts in this windowless center.
The briefing from his superiors had already set the tone: this was just a show of force on the border that was all bark and no bite. He was now just hoping that this tedious data surveillance would end soon. If he could just get through the last two hours of his night shift, he could go back to his apartment and get a good night's sleep.
He put the cup back in its place and turned his gaze back to the screen.
Large areas of high-intensity infrared heat sources, representing Iraqi armored formations, were visible as dense red pixel blocks on the north side of Highway 80.
Davis blinked his sore eyes.
The red block on the screen had extremely slight blurring at its edges.
He quickly sat up straight, placed his hands on the mechanical keyboard, and tapped a few command keys. The screen zoomed in.
Those previously static red pixel blocks suddenly began to move forward as a whole.
The massive cluster of heat sources swept across the physical coordinates of the border between the two countries without hindrance, heading straight for the heart of Kuwait along Highway 80.
Davis's brain experienced a brief pause.
He typed rapidly on the keyboard, retrieving multi-band optical comparison images.
"Infrared signal peak abnormal... Engine is running at full power." Davis stared at the constantly refreshing parameters on the screen, his Adam's apple bobbing with difficulty.
The Middle Eastern president did not seem to be satisfied with mere intimidation.
Their actions now constitute a full-scale invasion.
Almost instinctively, Davis grabbed the red Anti-Enemy Line (STU-III) telephone receiver from the edge of the console. His fingers quickly pressed a few numbers, connecting him directly to the Pentagon's National Military Command Center (NMCC).
The line is connected.
"This is the National Reconnaissance Office, Electro-Optical Analysis Division 4." Davis stared intently at the constantly refreshing parameters on the screen, speaking rapidly. "Send 'FLASH' level, highest priority intelligence. Authentication code: Oscar-Tango-Seven."
A brief military verification order came from the other end of the phone.
"Target: Iraqi Republican Guard's 'Hammurabi' Armored Division and 'Medina' Armored Division. Grid coordinates: 30°05'N, 47°42'E."
"Mapping and comparison complete. All high-intensity infrared heat sources have crossed the physical border between the two countries and are advancing at full speed southward along Highway 80."
"The advance force made no tactical stop. A substantial incursion has been confirmed."
Davis slammed the Enter key down.
"Relevant multi-band optical and infrared telemetry data are being synchronously transmitted to the command center's underlying gateway. Please check immediately."
……
As night fell on Wall Street in New York, a torrential downpour began.
Dense raindrops were whipped up by the gale-force winds blowing from the Atlantic Ocean and slammed against the bulletproof glass curtain wall of SA Investment's headquarters.
The atmosphere inside the trading hall was extremely tense.
Dozens of core traders, wearing communication headsets, sat at their respective trading desks. In front of them were "Dealing 2000" information terminals provided by Reuters. Beside each of them lay a thick stack of client code books, densely filled with the names and authorization numbers of different Cayman Islands Special Purpose Vehicles (SPVs).
Inside the Squawk Box on the desktop, the voices of over-the-counter derivatives brokers, quoting and inquiring, created a noisy cacophony.
"Goldman Sachs raised its December call option price for WTI crude oil by two cents at the over-the-counter market."
"Lehman Brothers has released 500 forward contracts and is looking for buyers to take them over."
Chief actuary David stood in front of the main control panel, his eyes fixed on the underlying liquidity monitoring radar on the auxiliary machine screen.
"We've got it." David spoke very quickly. "Quantum Fund and Tudor Investments have entered the market. Goldman Sachs, Morgan Stanley, and Lehman Brothers' OTC desks are seeing a massive influx of inquiries."
Frank, wearing a dark striped suit, stood beside David.
He stared at the soaring money flow bars on the data panel. These rising bars represented the massive amounts of money pooled by major US macro hedge funds, which were dumping huge orders on market makers at any cost.
News of the outbreak of war in the Middle East had clearly reached the desks of these Wall Street giants through certain special channels, before the mainstream media.
Frank raised his right hand and made a crisp gesture in mid-air.
"Cut into their tails," Frank ordered. "Make direct lines."
Dozens of traders in the hall started moving at the same time.
They picked up the phone and, according to the pre-assigned list, connected with the over-the-counter derivatives counters of nine top investment banks, including Goldman Sachs, Merrill Lynch, and Lehman Brothers.
"Goldman Sachs OTC counter. This is Caribbean Breeze Trust (pseudonym)." A trader stared at the code book in front of him and quickly spoke into the microphone, "Um... referencing ISDA master contract number 4092. Buy 2,000 lots of December WTI OTC call options with a strike price of $25."
A few rows away, another trader was also giving instructions into a microphone.
"Morgan Stanley Derivatives. Atlantic Alpha Fund. Master Agreement No. 7105. 5,000 lots of December WTI bullish options, full payment over-the-counter. Yes, you're in charge of Delta hedging."
Dozens of separate phone calls, representing offshore SPV entities, were made simultaneously.
These buy orders were broken into thousands or tens of thousands of pieces, mixed in with the panic buying frenzy stirred up by Soros and other domestic giants.
On the other end of the phone, the market maker's trading desk was experiencing an extreme liquidity shock. The massive inquiries from macro hedge giants like Soros left Goldman Sachs and Morgan Stanley's order takers with no time to catch their breath.
In this frenzied window of opportunity where profits are calculated in seconds, no market maker trader bothers to investigate the actual controllers behind these offshore funds. This is because SA Group had already signed standard ISDA (International Society for Swaps and Derivatives) master agreements with these investment banks through its offshore legal team long before.
The extremely cumbersome KYC (Know Your Customer) and anti-money laundering compliance reviews were already completed in the compliance departments of investment banks during peacetime.
At that moment, when the SA trader recited the ISDA agreement number, consisting of letters and numbers, over the phone, the market maker system only displayed a green pass indicating "creditworthiness."
Now, investment bank order takers are glued to the NYMEX (New York Mercantile Exchange) open market. As long as there is sufficient liquidity in the open market's crude oil futures pool to allow them to instantly buy a spot position and complete a Delta-neutral hedge, they will mechanically accept this off-exchange total return swap, risk-free pocketing the hefty option spreads and commissions.
"Agreement 4092 confirmed. 2,000 lots, Done."
"Five thousand hands, hedging complete, Done."
Confirmation messages gradually came through the traders' headsets.
After accepting these over-the-counter options, Wall Street market makers were burdened with extreme one-sided risk. Having signed bullish betting agreements, they would have to personally cover the huge payout gaps should oil prices surge.
Therefore, in order to maintain their own capital security and achieve "Delta neutrality," major investment banks must immediately take hedging actions. Huge amounts of compliant funds flowed out of the internal accounts of institutions such as Goldman Sachs and Morgan Stanley, directly entering the NYMEX (New York Mercantile Exchange) public trading pool to buy up corresponding crude oil futures positions to mitigate risks.
This forced act of self-preservation triggered the core legal misalignment of the entire covert operation.
Under the financial rules of 1990, the over-the-counter (OTC) derivatives market was a dark pool lacking a centralized clearing mechanism. Swap agreements signed between institutions on a peer-to-peer basis did not require mandatory reporting to regulators. This led to a highly deceptive outcome: when the Commodity Futures Trading Commission's (CFTC) position limit radar swept across the open market, all Washington regulators could see was a frenzy of massive buy orders from American oligarchs.
As for who exactly is behind the scenes forcing these giants to desperately build up their positions?
The trail to the source was completely severed here. Those dozens of genuine betting contracts bearing the Cayman Islands offshore trust heading had already been locked in the investment banks' physical risk control vaults, physically isolated from the data networks of the public market.
Through this information gap between on-exchange hedging and off-exchange betting, the Saionji family's enormous capital was naturally hidden in the trading noise stirred up by Wall Street giants.
Several thermal fax machines next to the control panel started running.
"Sizzle—"
The sound of friction rang out in rapid succession.
Rolls of ISDA confirmation letters bearing the letterheads of oligopolistic institutions such as Goldman Sachs and Morgan Stanley were continuously ejected from the paper output and landed in the collection tray.
Billions of dollars in notional principal were precisely divided and anchored in less than twenty minutes.
……
Tokyo time, 10:00 AM.
Marunouchi, Chiyoda-ku. Mitsui headquarters building.
The double mahogany doors to the top leader's office were pushed open. A layer of fine sweat covered his forehead as the secretary strode to the rosewood coffee table and placed a Middle East war intelligence telegram marked "Top Secret" on the table.
Yagi, the head of the Mitsui zaibatsu, sat upright on a leather sofa.
"Your Excellency. Urgent coded telegram from the Middle East branch." The secretary lowered his voice.
Yagi's gaze fell on the cover of the briefing. He leaned forward and picked up the few pages.
The Iraqi Republican Guard crossed the border and launched a full-scale invasion of Kuwait.
Yagi's pupils contracted slightly.
This is serious.
Japan relies on the Persian Gulf for over 70% of its crude oil supply. If war were to cut off supplies from Kuwait and Saudi Arabia, global spot crude oil would be subject to panic buying in a short period. The resulting surge in crude oil prices would directly lead to a significant increase in the cost of raw materials for heavy industry and chemical manufacturing.
These high industrial costs will quickly be transmitted to the consumer end, turning into malignant imported inflation. In order to suppress runaway prices, the Bank of Japan will inevitably adopt a tight monetary policy and continue to raise the fixed rate.
This is precisely the fatal trap that shatters a company's cash flow.
Faced with soaring raw material costs, domestic companies urgently need substantial amounts of readily available cash to purchase crude oil and keep their factories running. However, under the Ministry of Finance's "Total Credit Regulation," these companies are unable to obtain life-saving bridging loans from banks for their stockpiled land assets. Meanwhile, the Bank of Japan's interest rate hikes are causing their existing debt interest to continue to rise.
On one hand, there's the standstill of real industries due to a lack of funds to purchase expensive crude oil; on the other hand, there are illiquid assets and high-interest debt that continue to drain liquidity. This closed loop of inflation and policy tightening will directly sever the lifeline of domestic manufacturing.
Yagi felt a chill run down his spine.
He suddenly remembered the meeting in the private room of the ryotei last month.
At the time, he offered up a plot of land with deep-water berths in Shibaura, Minato Ward, in an attempt to win over the Saionji family to co-invest.
Xiu Yi, holding his teacup, refused rather curtly.
"The Saionji family simply doesn't have the appetite anymore."
"My daughter has been suffering from the summer heat lately and has gone to Karuizawa to escape the heat. ... I will not add another yen to my bank debt."
If Mitsui had used its massive cash reserves to buy that deep-water berth at the time...
Faced with soaring crude oil prices, Mitsui & Co. will completely lose the dollar liquidity needed to purchase physical crude oil. In this extremely volatile market, international sellers will inevitably demand exorbitant margins, or even refuse to accept letters of credit (L/Cs) issued by Mitsui Bank. Unable to convert these funds into dollars, the large number of Very Large Crude Carriers (VLCCs) that Mitsui has chartered at high prices will be left idle in various ports, incurring hundreds of thousands of dollars in demurrage fees every day.
Furthermore, a disruption in crude oil supply would instantly sever the lifeblood of these conglomerates. Mitsui Chemicals and Mitsui Toysuk's ethylene cracking units would be forced to shut down due to the loss of feedstock, leading to a complete supply disruption for downstream plastics, synthetic fiber, and automotive parts production lines. Mitsui would not only face massive claims for breach of contract from global buyers, but its market share, painstakingly built over decades, would also be rapidly eroded by Mitsubishi and Sumitomo.
Even more devastating is the double whammy of macroeconomic policies. The surge in oil prices will inevitably lead to malignant imported inflation, and the Bank of Japan will certainly continue to raise the fixed exchange rate in order to suppress prices.
Under the heavy pressure of ever-increasing interest rates, Mitsui was forced to sell its Shibaura deep-water berths at a discount in order to raise the life-saving funds to purchase crude oil. However, the Ministry of Finance's "Total Lot Regulation" had cut off the financing channels for real estate, and in the stagnant waters of credit blockade, there were simply no buyers on the market willing to pay in full.
The chemical industry has defaulted and halted production, the real estate sector is completely locked up, and the trading companies are suffering severe financial losses.
The chain reaction triggered by these three crises will ultimately flood Mitsui Bank's balance sheet. The rapidly soaring bad debts will directly breach the bottom line of capital adequacy ratio, dragging the entire Mitsui empire into a dead end of disintegration.
Yagi's fingers slowly tightened on the leather armrest of the sofa.
Karuizawa as a "summer retreat"?
What a wonderful way to escape the summer heat! Did she even predict the exact month when the war broke out in the Middle East?
How did they manage to do that? Several previous predictions had shown that the Saionji family's actions were incredibly precise.
This has already gone beyond the scope of "prediction"; it would be more appropriate to call it "prophecy".
How did she do that? Where did she get the information? She can't exactly say she traveled back from the future, can she?
It truly lives up to its reputation.
What a "witch" Saionji is!
He took a deep breath and stood up.
In any case, we must be extremely careful in dealing with anything involving the Saionji family in the future.
We should strive to establish a cooperative relationship with them, but under no circumstances should we become their enemy, provided that it does not jeopardize the group's core interests.
He strode to the large mahogany desk and pressed the internal telephone communication button on the desktop.
"Connect with Mitsui & Co., Ltd., Energy Trading Division."
Two seconds later, the line was connected.
"I am Yagi."
"Immediately allocate all available foreign exchange reserves."
"Go to the spot markets in Singapore and London. Lock in the available Very Large Crude Carrier (VLCC) capacity at the highest premium."
"In addition, we made full purchases of Indonesian Minas crude oil and North Sea Brent crude oil spot."
Yagi stared at the Middle East briefing on his desk.
"Before global panic spreads, we will fill the industrial crude oil gap for Mitsui's chemical plants in the second half of the year."
After issuing the instruction, Yagi disconnected the call.
He looked out the window at the bustling street scene gleaming in the sunlight and let out a long breath.
Alas, the situation is turbulent... Will Mitsui be able to weather this storm?