July 21, 2023: Global News Roundup

A multipolar wildfire—Ukraine war smolders as geopolitical sparks fly in the Middle East and Pacific

Hello and welcome back to IPEwithSBB! Since I last posted, the Ukraine war entered a new (hopefully final) phase, the governments of France and the Netherlands faced political crises, economic competition and warfare between Western governments and Russia and China (and BRICS) intensified, and there were several worrisome standoffs in the Middle East and the Pacific. The most important takeaway for me from world news over the past three weeks is that the risk of a broader European war with Russia, as well the associated nuclear risk, has diminished significantly with NATO’s decision not to admit Ukraine at this time. This is good news.

But, just as a spark from a wildfire can ignite new blazes elsewhere, the potential for more geopolitical flare-ups is quickly becoming apparent. As I’ve mentioned before in these Roundups (e.g., here and here), fragmented, multipolar systems in which multiple powers compete for influence and resources are prone to rivalry, conflict, and war. The events of the past few weeks speak strongly to the ongoing structural shift in the international balance of power, with the US, Europe, Japan, and South Korea facing mounting military and economic pressure from Russia, China, Iran, and North Korea, as well as the BRICS organization.

International events have become so complex and are moving so quickly that I’ve started creating charts and other visuals in an attempt to present it all clearly. For today, I put together the abbreviated timeline below. It would have been a messier and less useful infographic had I included all relevant events, so instead I highlighted those most relevant for thinking about what’s happening now and where we may be headed next. The image should be of sufficiently high quality that you can easily zoom in on the smaller font. If it’s not, please be in touch and I’ll send another version. I also provide more detail and hyperlinked sources in the discussion that follows.

Now, the details.

War and political crisis in Europe

The US decision to send cluster bombs to Ukraine has drawn international condemnation, including from various US officials and members of Congress, and President Biden’s comments about the decision further indicated that it was a rather desperate choice. “The president said it had taken him "a while to be convinced to do it", but he had acted because "the Ukrainians are running out of ammunition,” reported the BBC. US National Security advisor Jake Sullivan “said Ukraine was running out of artillery and needed "a bridge of supplies" while the US ramps up domestic production”, indicating that it’s not only Ukraine that’s running out of ammunition. The decision comes amid growing concern that Ukrainian forces are failing to make headway with the counteroffensive that began last month, with even the US-based, pro-war New York Times now admitting as much. (I shared international reporting on this last month.)

NATO’s decision at the July 11-12 summit to indefinitely postpone membership for Ukraine is broadly understood as a concession to Russia and signal that NATO is unwilling to risk a broader European war (see here for coverage of the contentious NATO membership issue from Feb 2022 as the war began). “This means that a window of opportunity is being left to bargain Ukraine’s membership in NATO in negotiations with Russia. And for Russia, this means motivation to continue its terror,” Ukrainian President Zelensky said at the summit, “dubbing it “absurd” that no time frame was set for an invitation.”

(Image: President of Ukraine Volodymyr Zelensky at a NATO event on July 11 in Vilnius, Lithuania (Photo by Omar Marques/Getty Images), in the original here).

The decision about Ukraine was handed down at about the same time political crises unfolded in two of NATO’s founding members, France and the Netherlands. In France, protests and riots went on for over a week following a police killing of a teenager on June 27, prompting widespread criticism of President Macron and his government’s response (which included the use of violent police tactics against protestors and government threats of a social media blackout). In the Netherlands, Prime Minister Mark Rutte resigned, along with his cabinet, after an impasse over immigration legislation: “Rutte ultimately ran out of road, however, over his demands for a limit on family reunifications for asylum seekers, a move bitterly opposed by his coalition partners ChristenUnie, a Christian democratic party, and the centre-left Democracy 66.”

In both cases, observers reasoned that right-wing populist political parties in France and the Netherlands, which generally oppose the war in Ukraine (see here and here), will be empowered by the perceived failures of Macron and Rutte, respectively, who anchor more centrist political coalitions that have been supportive of the war in Ukraine. Other leaders essential to sustaining NATO support for Ukraine, for example German Prime Minister Scholz and US President Biden, are also facing increasingly stiff competition from politicians and parties that openly oppose NATO’s approach (see here, here, and here). An article last Friday in the Toronto Star noted the rising popularity of Germany’s right-wing AfD party (Alternative for Germany): “Aside from fears about growing migration, AfD has also benefitted from skepticism in parts of the electorate about the government’s plans to tackle climate change and Germany’s military aid to Ukraine.”

Meanwhile, in early July, US news outlets reported about a secret meeting between US and Russian officials back in April while Russian Foreign Minister Sergei Lavrov was in New York for a United Nations meeting. The Biden administration denied the report. According to The Guardian,

President Joe Biden’s administration did not sanction or support secret meetings that former top US national security officials held with the Russian foreign minister, Sergei Lavrov, and other Russians on potential talks to end the Ukraine war, the White House and state department have said.

NBC News reported that the former US officials met Lavrov in New York in April, joined by Richard Haass, a former US diplomat and outgoing president of the council on foreign relations, and two former White House aides…

“The Biden administration did not sanction those discussions,” a state department spokesperson said on Thursday in response to questions. “And as we’ve said repeatedly, nothing about Ukraine without Ukraine.

Interestingly, Russia state media also denied the meetings were held, calling the report “fake news”. There was also some new energy on peace talks from an important NATO ally, France, in conjunction with India’s prime minister Modi. During their meeting in France last week, French President Macron agreed with Modi to put forward a peace plan that they say will be different from prior proposals.

(French President Emmanuel Macron and Indian Prime Minister Narendra Modi discussed the issue of a peace agreement for Ukraine (Photo:Francois Mori/Pool via REUTERS/File Photo, in the original here.)

For its part, Russia appears to be well aware that the US-led coalition in Ukraine is struggling. All last week, Russia refused to confirm that it would renew the Black Sea Grain deal, the initiative that allows for safe passage of Ukrainian grain exports, even after the UN, EU and US offered to partially re-admit Russia into the SWIFT system (the international dollar-based payments system Russia was kicked out of last year).

Then on Monday, following an early morning attack on the Kerch Bridge for which Russia blamed Ukraine, Russia withdrew from the deal and subsequently launched missile attacks on the Ukrainian Black Sea port of Odessa (the assault has been ongoing all week). Back in October, a similar attack on the same bridge did not result in a retaliatory counterattack nor did Russia ultimately back out of the grain deal at that time (they threatened to). This shift in response indicates Russia believes the momentum of the war has shifted in its favor, as does the movement of Wagner troops into Belarus, which borders Poland (a member of NATO). Yesterday, Wagner troops were reported to be conducting training exercises with the Belorussian military.

Recall also that the African delegation that visited Europe in June to advocate for a negotiated peace had among its top goals the reduction of geopolitical risk in global food and energy markets. Food and energy price increases partly stemming from the war and sanctions on Russia have punished especially poorer countries dependent on food imports. The collapse of the Black Sea Grain deal may thus result in renewed pressure on NATO and Russia to embrace diplomacy, as wheat and other grain prices rise (see here and here for recent coverage of how the war, peace talks, and food prices intersect).

In related news, the EU announced last week that it was considering new sanctions on Russian aluminum. And this week, the Russian government seized the Russia-based assets of two major European companies, Danone (a French yogurt company) and Carlsberg (a Danish brewing company). According to Reuters, “Moscow's action highlights the vulnerability of other consumer products companies that still have operations in Russia, some of which have announced plans to leave. Dove soap maker Unilever and Swiss food giant Nestle remain in Russia, as well as British American Tobacco, which is trying to sell its unit.” It was then reported yesterday that the EU decided to postpone until September the release of a proposal for the use of seized Russian assets. The report was previously expected in August.

Standoffs in the Middle East

With the Ukraine conflagration apparently entering its final phase, I was dismayed, but certainly not surprised, to see fire and smoke elsewhere in the world. On July 5, US officials reported that they prevented Iran from seizing two oil tankers near the Strait of Hormuz: “US Naval Forces Central Command said Wednesday that a guided missile destroyer, the USS McFaul had driven off Iranian vessels attempting to intercept two oil tankers off the coast of Oman, including one incident in which Iranian forces reportedly fired on one of the tankers.”

However, Iranian officials stated that they had a court order to seize the vessel: “An Iranian coastguard agency told state-run media on Thursday that the incident in the Strait of Hormuz was triggered by a collision between an oil tanker and an Iranian vessel, contrary to the US version of events. The Richmond Voyager, managed by the oil company Chevron, collided with an Iranian vessel and the navy had a court order to seize it, the Maritime Search and Rescue Centre of Iran's Hormozgan Province told Irinn news agency.”

Another incident this week, in which the US alleges that a Russian fighter jet “dangerously approached” a US surveillance plan over Syria, also made headlines. The IB Times reported that “The intercept, performed by a Russian Su-35, posed a severe hindrance to the safe operation of the U.S. crew's MC-12 aircraft…Over the past few weeks, there have been instances of Russian fighter jets persistently harassing U.S. unmanned MQ-9 drones, prompting the drones to take evasive maneuvers and deploy flares. The most recent incident has raised significant concerns as it directly endangered the lives of crew members aboard the U.S. aircraft.” The US has since deployed F-35 fighter jets and a Navy destroyer to the Middle East, in order to “bolster its defenses”.

Conflict and saber-rattling in the Pacific

North Korea launched missiles twice in the past two weeks. The first was an ICBM launch in Japan’s direction last week, which a North Korean envoy defended as a self-defense measure "to deter dangerous military moves of hostile forces and safeguard the security of our state”. The US, Japan, and South Korea held joint military drills over the weekend in response. The second North Korean launch occurred this past Wednesday, and was also framed by the government as self-defense, apparently in response to the docking of a US nuclear-armed submarine at port in South Korea.

China, North Korea’s long-time ally and most important trading partner, continued to clash with the US over the past couple of weeks, though there were some bright spots, too. On the heels of US Secretary of State Blinken’s visit to China last month, US Treasury Secretary Janet Yellen followed suit and met with her counterparts in Beijing during the first week of July. I was especially intrigued (and a heartened, just a little) by a bit of cryptic coverage of the meeting from the South China Morning Post, which noted that the meeting “avoided ‘worse than the worst’ scenario”, and referred appreciatively to Yellen’s “candid, pragmatic” approach as a “breath of fresh air”. This week, the well-known former US Secretary of State Henry Kissinger is also visiting officials in Beijing, indicating what one report deemed a “sense of urgency” on the part of the US to “improve military ties with China”.

This rapid succession of diplomatic overtures is welcome news in a context of rapidly deteriorating US-China relations. Not only have military buildups in and around Taiwan by both China and the US raised the specter of military conflict, but in recent weeks the economic war between the two nuclear-armed superpowers ratcheted up. The day before Yellen landed in Beijing, China imposed restrictions on exports to the US of two rare-earth metals used in manufacturing computer chips and national defense, gallium and germanium: “The decision, widely seen as retaliation for U.S. curbs on sales of technologies to China, raised concerns that China might eventually limit exports of other materials, notably rare earths, whose production China dominates…Beijing said the curbs were based on environmental concerns.” Just this week, the US Congress approved a new US-Taiwan trade bill designed to improve trade relations between them, a bill that Chinese state media asserted “may damage ‘fragile thawing’ of ties with China”.

In other news, wildfires continue to ravage Canada, blanketing huge swaths of North America in smoke. As of the time of this writing, some 120,000 people have been displaced and roughly 25 million acres have burned. Seventy percent of Canada’s firefighters are volunteers.

Things I’m keeping an eye on:

1.     Bond and currency markets: Yields on 10-year gilts in the UK are rising over investor fears about inflation and growing government borrowing costs. China’s holdings of US government bonds fell to a 13-year low, associated with a worldwide “de-dollarization wave”. Japan has been selling off US Treasuries to raise funds to defend the yen from severe downward price pressures.

2.     Crypto, the SEC, and BlackRock: When the world’s largest asset manager gets super excited about something, I like to pay very close attention. Two weeks ago BlackRock CEO Larry Fink likened crypto to “digital gold”, saying it would “revolutionize finance”. The news immediately put upward pressure on crypto prices. Moving forward, I’m especially interested in whether the SEC approves BlackRock’s Bitcoin ETF proposal, and, if so, the kinds of regulatory concessions BlackRock makes to secure approval, especially reporting and surveillance provisions. I’m also keeping a close eye on legislation, with more than 35 bills introduced in the US Congress so far to regulate crypto, as well as on the ongoing regulatory crackdown on Binance by US and European regulators. Over the last roughly 3 months, regulators in the US, Belgium, France, Australia, Canada have all clamped down on the world’s largest crypto exchange. It's significant that all of this new crypto activity in the West is occurring parallel to the growing use of crypto to evade Western sanctions (e.g. Russia, Iran), as an exit from troubled Western financial markets, and as an alternative to the US dollar.

3.     BRICS summit: The annual summit of the BRICS—Brazil, Russia, India, China, South Africa—is set for late August. More than 40 other countries have expressed interest in joining the organization, and Russian officials announced in early July that some kind of new BRICS currency, backed by gold, will be unveiled. Should such a currency manifest, it would pose a substantial threat to the dollar. The US gold standard collapsed in 1971, and since that time the dollar has lost over 85% of its purchasing power. As I’ve discussed previously (here), non-Western central banks have been heavily stockpiling gold over the past couple of years, with sanctions and seizures of Russian assets associated with the Ukraine war supercharging international interest in de-dollarization.