Israel, Palestine: Storm in a port
Also: Ukraine, Russia, Turkey, India, and global trade.
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ISRAEL. PALESTINE. Storm in a port
Biden announces a bridgehead into Gaza.
Joe Biden said the US would build a "temporary pier" off Gaza in his State of the Union address Thursday. He also urged Israel not to hold up aid for political purposes. CIA chief William Burns visited Qatar after hostage talks broke down.
INTELLIGENCE. The pier idea immediately raised questions. How will it be funded? Will US personnel be safe? Does it undermine Israel? But while it will be weeks before the first piling is driven, Biden has an immediate need to staunch a Democrat revolt against his policies on Gaza and put more pressure on an intransigent Benjamin Netanyahu. Talks to release hostages have stalled, with both sides digging in. A Ramadan ground assault on Rafah looks inevitable.
FOR BUSINESS. The pier may allow more aid, but air and sea deliveries won’t make up for what could be trucked via Israel or Egypt. The conflict is set to otherwise continue to a bloodier conclusion. This exacerbates risks elsewhere – though de-escalation talks with Hezbollah seem more likely to succeed – and delays any return to normalcy in Israel’s politics or economy, which before October was 20% bigger than it is today – a decline of around $100 billion.
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UKRAINE. RUSSIA. Marching orders
Zelensky moves to avoid a revolt from the ranks.
Former military chief Valery Zaluzhny was made Ukraine's envoy to Britain on Thursday. Volodymyr Zelensky said conscripts serving for two years could be discharged. A poll showed Zaluzhny winning 67.5% in a hypothetical election.
INTELLIGENCE. Zelensky has received a burst of support from Britain and Europe in recent weeks but sending Zaluzhny to London is less a vote of thanks than an attempt to neutralise a potential political threat. For despite fresh promises of arms – the UK has pledged another 10,000 drones – Kyiv is losing. Ukrainians increasingly blame Zelensky and Zaluzhny’s unpopular replacement, Oleksandr Syrsky, who lost the city of Avdiivka during his first week.
FOR BUSINESS. Besides changes at the top, Zelensky needs to relieve troops on the ground, though it will be tricky if there’s nobody to replace them. Ukraine’s human capital is depleted, and its economic recovery will only get harder the longer it fights. Suing for peace rewards bad behaviour, but the paths to victory below total NATO involvement are few. Even threats to seize Russian reserves – now on the table in Switzerland – won’t change facts on the ground.
TURKEY. Istanbuls and bears
Erdogan walks a fine line on Russia and the economy.
Turkey's foreign minister was due to meet Antony Blinken in Washington Friday as Volodymyr Zelensky visited Istanbul for talks with Turkey's president. Turkish inflation hit 67% on Monday. Authorities promised relief later in the year.
INTELLIGENCE. Repeating his approach before last year’s presidential polls, Recep Tayyip Erdogan hopes to delay anti-inflation policies until after this month's local elections, which he’s expected to trounce. It is proving harder to sequence his geopolitical balancing act, with the US applying pressure despite Turkey agreeing to Sweden’s NATO membership, which began Thursday. Hosting Zelensky, not Putin as once planned, is designed to appease the US.
FOR BUSINESS. Putin will likely visit later this year and the pirouette will continue. In the meantime, Turkey needs to retain access to Western capital and markets, even as it enjoys Russian visitors and energy. A similar balance must be struck with China, which Turkey needs for its ambitious Eurasian trade corridor plans, despite differences over China’s ethnically Turkic Uyghurs. Balance was once sought too with Israel, but Gaza has put paid to that (for now).
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INDIA. Kashmir control
Modi doubles down on the Hindu vote.
Narendra Modi heralded Kashmir's transformation Thursday during his first visit since its special status was revoked in 2019. Pakistan protested this week after India seized a ship suspected of carrying goods for Islamabad’s military.
INTELLIGENCE. We’ll never know if the seizure of a Malta-flagged ship carrying a commercial lathe was a legitimate attempt to stall the development of ballistic missiles, or a political signal at a sensitive time in India’s – and Pakistan’s – democracy. Either way, Modi’s electoral message on Kashmir is clear: India is primarily a Hindu state and special dispensations for minorities are at an end. And judging from the polls, most Indians, for better or worse, agree.
FOR BUSINESS. Modi’s victory in May is all but certain. After then, however, it’s unclear whether he’ll ease his Hindu-first rhetoric. India’s constant cycle of state elections make majoritarianism a winning formula, but religious unrest spooks investors. And despite India’s share market boom, it remains reliant on foreign capital, including from the Gulf. India also relies on US strategic support, and this looks shakier amid campaigns against Sikhs in the West.
TRADE. Rules and reality
The trade system is in trouble, but trade lives on.
Analysts heaped scorn on WTO talks this week after member states failed to achieve substantial progress in Abu Dhabi. The EU flagged retroactive tariffs on Chinese EVs. Yet Germany and China also saw faster-than-expected export growth.
INTELLIGENCE. There’s reason to be gloomy about global trade policy. Yet global trade is something else, as data, people, goods, and capital continue to seek the most efficient inputs despite government efforts. The situation may worsen for US-China trade should Trump win the US election (as seems increasingly possible), yet as water finds its level, trade – in the medium-term at least – will continue to find its loopholes, especially in unpoliticised sectors.
FOR BUSINESS.The survival of sanctioned economies like Russia’s should, if anything, give succour to capitalists worried about the effect of preferential trade measures. If goods and investment can get to Moscow they can get anywhere. But in sectors like technology, the bifurcation is real and is spreading to EVs and renewables, harming energy transition goals. These sectors are also among the most richly valued. Trade policy risk is not fully priced in.