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Geopolitics, Canada and Stephen Harper’s Majority

By David Dittman on February 18, 2011

We’ve ventured halfway around the world the last couple weeks to bring you a view of what’s happening in Egypt and the Middle East and how it might impact North America. Although Egypt’s connection to the international oil market it tenuous, its vital role in keeping an equally weak regional peace means the events since Jan. 25 in Cairo’s Tahrir Square reverberated around the world.

The uncertainty and fear of what may ensue from an Egyptian revolution played havoc with Asia markets, represented by the Hang Seng Index, which dove as much as 7 percent from a 2011 high established Jan. 19 during the turmoil before rebounding following President Hosni Mubarak’s resignation. Market action in North America has been, if anything, gravity defying, as the S&P 500 achieved the quickest double off a cycle low this week.

The broader consequences of Egypt’s liberation are now rippling through Iran, where “hundreds of thousands” are said to have marched in Tehran. Antigovernment resistance is also on the rise in Libya, Bahrain and Yemen. In the long term the price of oil will be determined by supply and demand. In the short term traders are reacting to provocations such as Iran’s request for two if its naval vessels to transit the Suez Canal en route, potentially, to Syria.

This is reflected in the price of Brent Crude, which has opened up an historically wide spread above West Texas Intermediate, the price most often quoted in the US financial press. If you look at Brent, we already have USD100 oil. Some of the difference is explained by the fact that abundant Canadian oil sands crude is reaching the Cushing, Oklahoma, terminal where the WTI price is set. There’s also an historic glut of crude awaiting transport to processing terminals from Cushing, which is holding down the quoted price.

A strong price for oil is, of course, bullish for the Canadian dollar and assets priced in that currency. The loonie is firmly above parity with its US counterpart, and factors other than the price of oil conspire to keep it on the climb for the near future.

Canada’s fiscal position is better than all of its G-7 peers, it’s the beneficiary of interest-rate differentials, particularly with the US, that stand to widen substantially, perhaps as early as this spring, and it looks good right now for investors looking to cycle out of similarly commodity-exposed currencies such as the New Zealand dollar and the Australian dollar.

The Great White North appears to be an oasis amid the political haze rising up from south of its border as well as halfway around the world.

Stephen Harper: Majority at Last?

Prime Minister Stephen Harper is on the cusp of winning his long-sought majority–provided, that is, that an election can be sprung before the one scheduled for October 2012.

An Ipsos-Reid poll conducted Feb. 8-10 for Canada’s National Post found support for Stephen Harper’s Conservative Party at 39 percent, up five points just since a similar poll at the end of January and a sign the prime minister is closer than ever to his long-coveted majority.

The Liberal Party, led by Michael Ignatieff, is down four points since the last survey to 25 percent, while Jack Layton’s New Democratic Party (NDP) has the support of 18 percent of Canadians, a two-point improvement from the last result. Elizabeth May and the Green Party are stuck on 10 percent. The provincial Bloc Quebecois has 9 percent national support but is losing ground in Quebec.

According to Ipsos Reid the Tories stand at 42 percent in the swing province of Ontario, a six-point improvement since January. Liberal support is down eight points to 32 percent; the NDP is unchanged at 15 percent, while the Greens gained three points to 11 percent.

The Bloc Quebecois is at 37 percent in its home province, while the Tories lead the Liberals, 21 percent to 17 percent, for the crucial runner-up spot. The NDP is at 15 percent in Quebec, the Greens 9 percent. Atlantic Canada supports the Tories by 38 percent to 31 percent for the Liberals, 18 percent for the NDP and 13 percent for the Greens.

The Conservatives are in complete command in western Canada. The Tories are at 39 percent in British Columbia, while the NDP is No. 2 there at 30 percent. The Liberals trail badly at 23 percent, and the Greens sit just below double digits at 9 percent. The Tories are well in front in their spiritual homeland, Alberta, with 65 percent. The Liberals register 16 percent support, the NDP 14 percent and the Greens 6 percent. The Tories are at 43 percent in Saskatchewan/ Manitoba, leading the Liberals (24 percent), the NDP (23 percent) and the Greens (9 percent).

Ipsos Reid’s Darrell Bricker told the National Post that 42 percent is the approximate threshold Harper and the Tories will have to cross before their majority can be realized.

The prime minister has said his government will table a budge in March that least one of the three main opposition parties can support. The Conservatives, with 143 seats in the House of Commons, need only 11 votes, which any of the Liberals, NDP or Bloc Quebecois can supply.

At this point in the game, given the relative weakness of his main opposition, it’s fair to move the question from “when will Mr. Harper command a majority?” to “what’s taking him so long?”

Stephen Harper: An Assange on His Shoulder?

I think Julian Assange is long oil. It’s one way to explain The UK Guardian’s publication of four secret cables on the topic of Saudi Arabian oil, just as China’s rate hike and Egypt’s eased tension threatened to bring the per barrel price of crude off its seemingly inexorable climb well into triple digits.

Or maybe he works for Mr. Harper, who pressed President Obama on TransCanada Corp’s (TSX: TRP, NYSE: TRP) Keystone XL project during an early February visit to Washington, DC. High-level diplomatic cables that lend support to the theory of “peak oil” can only bolster the case for developing sources of oil located somewhere other than Saudi Arabia.

(And access to data of this sort means it would be only too easy for the prime minister to get information sufficient preserve his power, unique for the head of what remains a minority government.)

The conspiratorial aspects of the foregoing are, of course, nonsense. That WikiLeaks released four cables on the topic of Saudi oil reserves is not.

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