The US: First farce, then tragedy
Also: Israel, Lebanon, African debt, drugs, and Afghanistan.
Geopolitical Dispatch is the daily global intelligence and risk briefing of Geopolitical Strategy, an advisory firm specialising exclusively in geopolitical risk.
UNITED STATES. First farce, then tragedy
Hopes are dashed for the Democrats.
Joe Biden and Donald Trump sparred Thursday in the election’s first debate. Betting markets spiked 10% in favour of Trump winning the vote to 63% at one point. Bets on California's Democratic governor Gavin Newsom also spiked.
INTELLIGENCE. Democrats can’t blame video editing for the president’s halting delivery and signs of age. Irrespective of policy preferences, records, or assessments on character, Biden appeared uncertain and confused. Campaign staff said he had a cold (which won’t make him seem stronger). Many have speculated he will be replaced (unlikely). There’s a real risk from this point on his adversaries, domestic and foreign, will begin to treat him like a lame duck.
FOR BUSINESS. The next presidential term doesn’t begin until January. A lot can happen in markets and geopolitics between now and then. It otherwise now appears Trump’s election to lose. The Republican candidate is ahead by an average of one point in the nationwide polls, but in states likely to swing the vote he is ahead by more. Top forecaster Nate Silver predicts he has a 66% chance of winning, which matches estimates from The Economist and others.
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ISRAEL. LEBANON. Danger zone
Preparations for war accelerate.
Israel has created a five-kilometre "dead zone" across the Lebanese border, the Financial Times said Thursday. Defence Minister Yoav Gallant said Israel didn't want war with Hezbollah but could "take Lebanon back to the Stone Age."
INTELLIGENCE. Almost 100,000 Lebanese civilians have fled the border region, with around half that number evacuated from Northern Israel. Foreign governments have warned their citizens to leave Lebanon. The US has sent Marines to the region to prepare for emergency evacuations. A war is still unlikely on balance, but preparations are being accelerated in case. Both sides have many reasons not to go to war, but, worryingly, also reasons to escalate.
FOR BUSINESS. Despite a series of legislative fudges, Israel’s Supreme Court has ruled ultra-Orthodox seminary students must be drafted, which has brought thousands of Haredim to the streets and threatens Benjamin Netanyahu’s governing coalition. As the war in Gaza approaches, a likely denouement a war with Hezbollah could at least prolong his political survival. There’s otherwise no upside. The prospect of dragging the US in seems unrealistic.
AFRICA. Debts without gratitude
What riots in Kenya say about global finance.
Protests continued Thursday despite President William Ruto pledging to block a contentious tax bill designed to raise funding for Kenya's fiscal debt. The Paris Club of rich world sovereign lenders released its annual report on Wednesday.
INTELLIGENCE. The Paris Club heralded an end to a wave of COVID-era debt crises but a wider issue over the global financial system’s popular legitimacy was not examined. US allies like Kenya are reliant on the Eurobond market and cognisant of their obligations, but people on the street, suffering from residual inflation, have other ideas. Alternative lenders like China, willing to explore other arrangements (like buying strategic assets) no doubt sense an opportunity.
FOR BUSINESS. Just as Russia has begun replacing Western powers in Africa’s security architecture (thanks in large part to its blind eye on human rights) China, the UAE, and Saudi Arabia are playing a greater role in the economic architecture. Whereas Western bond vigilantes could once rely on their powers to coerce on policy and repayment, such geopolitical shifts could upset entire market structures. This has been particularly acute in Zambia and Ethiopia.
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NARCOTICS. The strategies don’t work
Regional elections could bring allies to blows.
Synthetic opioid deaths have spiked due to Afghanistan's 74% decline in opium production, the UN said. Myanmar had "severe" challenges controlling poppy cultivation, the junta said. Three major drug traffickers were nabbed by China.
INTELLIGENCE. Since the Taliban took power the centre of global heroin production has moved to Myanmar but for many markets it’s cocaine, fentanyl and nitazenes posing the biggest challenge. Cocaine control is hampered by deals Colombia is making with its gangs (which has had flow-on effects in Ecuador and elsewhere). Control of synthetics is hampered by the distributed nature of production, complex supply chains and opaque cryptocurrencies.
FOR BUSINESS. Demand factors, notably a broken US healthcare system and rising medical costs across the rich world, are as much to blame as supply-side issues. And for every ungoverned production hotspot doused, whether by Western-backed police or Islamist extremists, another site pops up (or as in the case of fentanyl and heroin, another product). US-China rivalry also hampers cooperation, whether in the Americas, Central Asia, or Myanma.
AFGHANISTAN. Return from Talibanishment
The mullahs gain tentative signs of recognition.
The UN said an upcoming international meeting with the Taliban in Doha would not confer recognition of the group. Nicaragua became the second country after China to establish diplomatic ties with the Islamic Emirate of Afghanistan.
INTELLIGENCE. An informal UN meeting and a Sandinista envoy do not make for international legitimacy, but they do cover for more consequential moves, notably by Beijing and Moscow, to reintegrate Kabul as it is, not as most would like it to be. China is pursuing a range of economic projects in Afghanistan, which gives it a degree of leverage on security in Pakistan. Russia invited Taliban officials to the St Petersburg International Economic Forum in May.
FOR BUSINESS. With concerns about terrorism, it is harder for Moscow and Beijing to shun Kabul than it is in Western capitals (some of which nonetheless retain junior diplomats and aid officials in country). It is also harder for Afghanistan’s neighbours to ignore its role in regional connectivity plans, such as the "Lapis Lazuli Corridor" to Europe, the proposed Uzbekistan-Afghanistan-Pakistan rail line, or the Turkmenistan-Afghanistan-Pakistan-India pipeline.