Israel, Palestine: Tunnel vision.
Also: Portugal, arms control, Japan, and the Pacific Islands Forum.
ISRAEL. PALESTINE. Tunnel vision.
Minds turn to the future of Gaza, though plans remain unclear.
The IDF penetrated deep into Gaza early Wednesday, targeting Hamas tunnels. There are reports the US is taking a plan to Israel for a temporary truce, including ‘tactical pauses’. In the north, Hezbollah fired rockets into the Golan Heights.
INTELLIGENCE. Israel said it was targeting Hamas’s most senior leader in Gaza, Yahya Sinwa, who is trapped inside a bunker. But finding Sinwa is no small feat – there are hundreds of kilometres of tunnels below Gaza, where Israel’s technological advantage is diminished. The war toll on both sides is starting to weigh, but both Israel and Hamas have rejected calls to stop fighting. The ‘temporary truce’ is unlikely to be heeded while anger remains so high.
FOR BUSINESS. Israel’s long-term plan for Gaza remains unclear should Hamas be removed. Netanyahu stated Israel would seek security responsibility for an ‘indefinite period’ after the war. This would return a permanent Israeli presence in Gaza for the first time since 2005. Other options include a UN enclave, a role for neighbouring Arab states, a new Palestinian Authority (minus Hamas), a permanent buffer zone in the north, or a mixture of all these.
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PORTUGAL. Out of energy.
Portuguese politics is thrown into chaos.
Portugal’s prime minister abruptly resigned on Tuesday. His decision came just hours after his chief of staff was detained by prosecutors in an investigation relating to alleged corruption in lithium and hydrogen projects.
INTELLIGENCE. Prime Minister Antonio Costa said his ‘conscience was clear’, but given ongoing investigations he would stand aside. His socialist party holds a majority in Parliament, but it’s now up to the president to decide whether to dissolve the parliament and call a snap election. The allegations relate to lithium concessions in northern Portugal. The personal involvement of Costa, a protégé of UN Secretary General Antonio Guterres, is yet to be established.
FOR BUSINESS. The Portuguese economy has been firing recently, and consumer confidence hit a high since the Ukraine war, but weak export demand is likely to hit in 2024 resulting in a slowdown. The 2024 Budget Bill was to be voted on this month, but Costa’s resignation throws that into doubt, along with the privatisation of the national airline TAP. Portugal has an estimated 60,000 tons of lithium reserves, critical to Europe’s electric vehicle push.
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ARMS CONTROL. No way to treaty.
The withdrawal from a major arms treaty is largely symbolic.
Russia withdrew from the Treaty on Conventional Armed Forces in Europe (CFE) on Tuesday, prompting the US to suspend its own CFE obligations, effective 7 December. Russia earlier left the Comprehensive Test Ban Treaty.
INTELLIGENCE. The US response to the withdrawal was swift, citing the “fundamentally altered circumstances” impacting US consent to be bound by the CFE. The treaty was originally negotiated during the Cold War. It sought to maintain limits on the allowed amount of conventional military equipment in Europe (such as tanks, helicopters or artillery pieces) and provided for the destruction of excess equipment, as well as joint verification visits.
FOR BUSINESS. The move by Russia is not overly significant, given that Russia first suspended the treaty’s operation in 2007 and withdrew its participation in 2015. And in 2011, the US ceased carrying out certain obligations with regard to Russia, due to Moscow’s 2007 repudiation. While US/Russia talks falter, talks with China are at least open. The US and China said on Tuesday they held talks at officials’ level on arms control and non-proliferation, the first since 2019.
JAPAN. One for me, won for yen.
Japan’s currency woes deepen.
The Japanese yen hit recent lows against the euro, won, Singaporean dollar and Australian dollar following a slide against the US dollar last week. Support for Prime Minister Fumio Kishida's Cabinet fell to 28.3%, a poll showed Sunday.
INTELLIGENCE. The yen briefly hit 161 against the euro on Tuesday; the weakest it’s been since August 2008. It fell to a low against the Singaporean dollar last seen in 1985. And the yen is trading weakly against the South Korean won (lowest since 2008) and the Australian dollar. The yen has been devaluing against the USD (30% since May) as higher US interest rates drew investors, but the spread had been felt less keenly across other currencies.
FOR BUSINESS. While the US and Europe have significantly tightened interest rates, the Bank of Japan has maintained yield curve control since 2016, leaving a widening yield gap. Confused investors wonder whether the BoJ’s intention is to increase domestic demand (by keeping rates low), or tackle inflation (by raising rates). The BoJ challenge is huge – correcting depreciating without causing debt distress while maintaining its 2% inflation target.
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THE PACIFIC. Blue ocean thinking.
There is as much interest outside, as from within, for the Pacific Island Forum.
The Pacific Island Forum, the principal decision-making body for the Pacific region, began this week in the Cook Islands. Along with Forum members, the US, EU, Britain, India and China sent senior officials as ‘dialogue partners’.
INTELLIGENCE. This year’s PIF has already faced setbacks, with the prime ministers of Solomon Islands, Papua New Guinea, New Zealand, and Vanuatu all absent. There is almost more interest outside the Forum than for the 18 members in it, given the wide range of senior envoys attending from the 21 dialogue partners. As in recent years, the agenda will be dominated by two issues: climate change ahead of COP 28, and geostrategic competition.
FOR BUSINESS. Both climate change and geostrategic competition are being tackled through pledges for more money. It’s likely the PIF will announce $50 million for the Green Climate Fund and even more for the Pacific Resilience Facility. The PIF’s 2050 strategy, including economic development, should be endorsed. But economic divisions remain, including over deep-sea mining, as well as energy emissions from Australia and New Zealand.