Trump on Monday said Iran and the US had very good talks to end the raging war in the Middle East, and announced that the US is postponing all military strikes against Iranian power plants and energy infrastructure for five days. After the announcement, oil futures crashed up to 15% to fall below the key $100 per barrel mark, while Wall Street rallied.
Iran, however, denied the claims that it engaged in any such talks with the US. “Sad to say, in this case…the fanatical, brutal Iranian regime is more credible than the president of the United States. Is he lying or living in a fantasy world? Neither possibility is comforting,” Paul Krugman said in a blog post published earlier this week.
What are these ‘mystery’ bets
While Trump’s announcement on alleged talks with Iran brought much-needed relief to stock markets and oil prices, some traders may have benefited from the news even before it was out. ‘Mystery’ bets in oil futures and S&P 500 futures made just before Trump’s announcement have raised eyebrows over possible insider trading. Just five minutes before Trump’s announcement, S&P 500 futures worth $1.5 billion were bought, while oil futures worth $192 million were sold, according to trading platform Unusual Whales.
Around 6,200 futures contracts linked to Brent and WTI crude were traded in a few seconds before Trump’s announcement, according to a report by the Financial Times. The notional value of these trades was estimated at $580 million, the report further said, adding that it remains unclear whether the trades were executed by a single or multiple participants.
Hence, S&P futures were bought at significantly lower levels minutes before they rallied sharply after Trump’s announcement, according to reports. Oil futures, meanwhile, were sold at sharply higher levels just before they tumbled.
Paul Krugman called Trump’s sudden climb-down startling. “Who could have seen this coming? The answer is, the person or people who bought large quantities of stock market futures and sold large quantities of oil futures around 15 minutes before Trump’s announcement,” he said.
The American economist noted that the sudden sharp surge in volume is suspicious, as there were no major news items to drive sudden big market transactions. “The story would be baffling, except that there’s an obvious explanation: Somebody close to Trump knew what he was about to do, and exploited that inside information to make huge, instant profits,” he added.
Krugman noted the pattern of such mysterious trades just before Trump made any such announcements in the past as well. Similar bets were seen just before the US launched a military strike in Venezuela and captured incumbent Venezuelan president Nicolás Maduro.
Not just insider trading, this is treason!
“When officers of a company or people close to them exploit confidential information for personal financial gain, that’s insider trading — which is illegal. But we have another word for situations in which people with access to confidential information regarding national security — such as plans to bomb or not to bomb another country — exploit that information for profit. That word is ‘treason’,” the economist said.
Why is profiting from insider information about national security decisions effectively a form of treason? Krugman listed reasons why. He said that it is one of the most fundamental principles for officials, especially those involved with national security. “Second, financial trading based on what should be closely held secrets reveals information to current or potential foreign adversaries. To exaggerate a bit, but only a bit, who needs to bribe agents within the government, or recruit them with honey traps, when you can infer the same information by keeping track of transactions on futures markets?” he added.
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Lastly, Krugman explained that there isn’t that big a gap between using knowledge of national secrets to make lucrative financial trades and simply selling those secrets to the highest bidder. “Once you’ve breached the line that says you shouldn’t profit personally from access to information that is or should be highly classified, the line between trading based on state secrets and selling those secrets directly is a blurry one,” he wrote.
The Nobel laureate questioned who the people were involved with these mystery bets – were they well-known people, or billionaires who paid people for tips. “However, I do believe that the culprits will be easy to determine once Democrats are back in power, and they must apply the full force of law to the people responsible,” he said.
Are war decisions being taken to manipulate market?
However, Krugman went on to a grim question – could the possibility of insider trading actually have influenced policy? “Are decisions about war and peace in part serving the cause of market manipulation rather than the national interest? If you dismiss this as unthinkable, you just haven’t been paying attention,” he said.
Also read: Crude oil above $100 again as Iran rejects US proposal to end war. $150 in sight?
The American economist alleged that the Trump administration is corrupt and cannot be trusted to protect national security. “When we do a post-mortem on how the Iran debacle happened, arrogant ignorance may still get top billing. But grotesque venality will come a close second,” he concluded.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
