NATO, the US: Long in the tooth.
Also: Iran, Turkey, Cyprus, Russia, Pakistan, China and nuclear weapons.
NATO. UNITED STATES. Long in the tooth.
At age 74, the alliance still has growing pains.
The alliance's largest-ever air exercise began on Monday, involving 250 aircraft from 25 countries. On the same day, President Biden was forced to postpone a meeting with NATO's secretary general due to an unplanned root canal.
INTELLIGENCE. Exercise Air Defender 23 will be an impressive show of force. Still, while the US prevaricates on exporting F-16s to Ukraine, and as Sweden's accession remains held up by Turkey and Hungary, the alliance looks frayed. Due to step down in October, NATO chief Jens Stoltenberg will have lots to discuss when he meets Biden on Tuesday. Front runners to replace him include the UK’s defence secretary and Denmark’s prime minister.
FOR BUSINESS. The larger NATO gets, the more diluted its mission becomes, or so goes the concern. But in reality, NATO must grow to stay relevant. Its European members must also spend more. In 2022, the US defence budget was larger than that of all other members combined. The Luftwaffe led this year’s Exercise Air Defender, but Germany’s spending promises, in particular, remain largely unfulfilled. NATO ministers will meet with industry on Thursday.
IRAN. UNITED STATES. Persian catch.
Rumours of a deal seem far-fetched.
Washington and Tehran had not held talks over an interim nuclear deal, a US official said on Monday. The Iranian rial was up 8% on the US dollar Monday after Baghdad received a US waiver to release $2.76 billion in payments to Tehran.
INTELLIGENCE. The release of oil payments does not equate to normalisation of US ties. Still, Tehran certainly hopes that its strategy of regional rapprochement and missile development will force Washington to negotiate. Rumours are longstanding of a US return to the Joint Comprehensive Plan of Action, the nuclear deal reached in 2015. But to do this before the 2024 election, and amid Iran’s cosying ties with Russia, would cost Biden major political capital.
FOR BUSINESS. It is hard to divine the multi-party negotiations that would make a new US-Iran agreement possible. Beyond Tehran and Washington, there are the interests of Riyadh, Moscow, Beijing and Tel Aviv to consider. Further, within Iran, the Islamic Revolutionary Guard Corps will not want a deal without maximum concessions. As much as a deal would boost its prestige, companies linked to the IRGC enjoy a tidy profit through sanctions busting.
TURKEY. CYPRUS. Cyprian deviance.
Ankara rubs salt in a Mediterranean wound.
President Recep Tayyip Erdogan visited the disputed territory of Northern Cyprus on Monday, in his first trip abroad since Turkey's 28 May election. Erdogan called again for a two-state solution, which has been rejected by the EU.
INTELLIGENCE. Erdogan’s visit only illustrates his distance from European allies, particularly Greece, for which a unified (Greek-majority) Cyprus is totemic. He will likely judge the provocation worthwhile as he seeks to barter a deal with the US to supply F-16s and lift sanctions imposed after Turkey’s 2019 purchase of Russian S-400 missile systems. Athens, however, won’t be happy after attempts to repair ties. Greece returns to the polls on 25 June.
FOR BUSINESS. Erdogan’s visit also provokes questions on whether his promises of a return to monetary orthodoxy can be believed. If Turkey is still going rogue in diplomacy, it can hardly be trusted on economic policy. JPMorgan said on Monday it expected Turkey to this month hike interest rates from 8.5% to 25%, following the appointment of former Goldman Sachs and First Republic executive Hafize Gaye Erkan as governor of Turkey’s central bank.
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RUSSIA. Chaining the dogs of war.
Moscow wants to rein in its mercenaries.
Russia's defence ministry said on Monday the Akhmat group of Chechen special forces had signed a "volunteer unit" contract with the Kremlin, a day after the leader of the powerful Wagner Group paramilitary refused to do so.
INTELLIGENCE. Though indispensable in a chaotic war in Ukraine, the autonomy of Russia’s paramilitary groups is becoming a headache for Moscow. Wagner’s Yevgeny Prigozhin has become increasingly strident in his criticism of Defence Minister Sergei Shoigu, whether in an attempt to curry favour with Putin or indirectly signal his disapproval of the president. Either way, the airing of grievances is getting beyond the Kremlin’s narrative control.
FOR BUSINESS. The Kremlin has a tradition of using mercenaries, from the Cossacks of imperial Russia to post-Soviet privateers in Africa and the Middle East. Many see Prigozhin as a potential threat to Putin, but Moscow also has a tradition of clamping down when needed. The Akhmat group, named for the then chief mufti of Chechnya, was a separatist militia until it switched sides. Today their leader, Ramzan Kadyrov, is one of Putin's most ardent devotees.
PAKISTAN. Over a barrel.
Islamabad finds new ways to keep the lights on.
Pakistan's prime minister said on Monday the arrival of a cargo of Russian oil was a "transformative day" for the country. The petroleum minister said its purchase of 100,000 tonnes of Urals crude had been paid for in Chinese yuan.
INTELLIGENCE. Pakistan will be increasingly beholden to Chinese and Gulf-brokered economic lifelines unless the IMF agrees to release the next tranche of bailout funds, which otherwise expire at the end of June. Islamabad handed down its 2023 budget on Friday, a step the IMF required, but experts believe it will do little to allay the fund’s doubts over Pakistan’s fiscal viability. Forex reserves have fallen below the $4 billion required to cover a month of imports.
FOR BUSINESS. Pakistan’s political viability will also be in doubt if the IMF doesn't act. Financial turmoil is worsening tensions between supporters of former prime minister Imran Khan and the military establishment. Foreign firms are pulling out, following airline Virgin Atlantic, which cancelled flights in February. Islamabad said on Monday it had no intention of freezing foreign currency accounts, as it did in 1998, but the fact that it had to say so is warning enough.
CHINA. NUCLEAR WEAPONS. Keeping up.
Beijing’s spending hits a new record.
Analysts said on Monday that China's stockpile of nuclear weapons increased by 17% in 2022 and was expected to grow further. A separate report released the same day said China spent $11.7 billion on its nuclear arsenal last year.
INTELLIGENCE. The reports, by the Stockholm International Peace Research Institute and the International Campaign to Abolish Nuclear Weapons respectively, suggest that Beijing could have as many intercontinental ballistic missiles as either Moscow or Washington by 2030. China wants to match its superpower rivals, but the game theory of nuclear deterrence for three major players will be more complicated than the binary US-Soviet problem of the Cold War.
FOR BUSINESS. There are theories that nuclear deterrence acts as a break on war. Still, firms relying on those assumptions should be perturbed by the lack of military dialogue between Washington and Beijing. As the US did in 1963 with the Partial Test Ban Treaty, Washington may need to offer an olive branch to forestall a new arms race, irrespective of security concerns. Whether it can do so in the current political environment, however, is in question.
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