The US, Middle East: Up in smoke
Also: Armenia, Azerbaijan, Germany, Russia, Vietnam, and China.
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UNITED STATES. MIDDLE EAST. Up in smoke
Washington's plans for a 'grand bargain' get demolished.
Benjamin Netanyahu scorned US threat to deny arms Thursday as ceasefire talks ended without a deal. "We shall fight with our fingernails," Netanyahu said as Israeli forces bombed Rafah. The UN said no aid had been let in for three days.
INTELLIGENCE. Washington is wedged on aid to Israel with its final point of leverage seemingly dismissed. Its hopes to facilitate a sustainable US-friendly order in the region, via an accord between Israel and Saudi Arabia, also seem in tatters. Riyadh is instead pursuing closer ties to Tehran. The first group of Iranian pilgrims in nine years arrived for the Umrah last month. Chatter has even increased of Iran resuming diplomatic relations with Egypt after 45 years.
FOR BUSINESS. US dominance of the Middle East hasn’t been smooth – for every Dubai there’s a Fallujah – but the alternative would be worse for Washington. While stable Saudi-Iran ties would reduce the risk of conflict in the Gulf (not to mention Lebanon, Syria, Sudan, and Yemen), they would accentuate Israel’s security dilemma and reduce Western influence, with consequences for US primacy (and firms) in other regions, like Africa and Southeast Asia.
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ARMENIA. AZERBAIJAN. Caucasus optimism
A sustainable peace may be in view.
Peace talks began in Kazakhstan Friday between Armenia and Azerbaijan. Ahead of a meeting in Russia, Armenia Monday expressed "cautious optimism" on the dialogue. Protests began in Yerevan over the return of Armenian villages.
INTELLIGENCE. Armenia vocally blamed Russia for abandoning it when Azeri troops entered the Nagorno-Karabakh enclave last year, and a doubtful genocide case has been brought to the International Criminal Court, but pragmatists in Yerevan know its feud with Baku was never sustainable, particularly with the international community recognising Azerbaijan’s claims. A peace deal will upset nationalists but could bring new prospects for trade and investment.
FOR BUSINESS. A pivot from Russia has also brought Armenia closer to the West. This won’t substantially change the country’s security or economic mix – NATO membership would be vetoed by Turkey; EU accession would almost certainly be opposed by pro-Azeri members like Italy – but it will allow some face to be saved amid the concessions. A question now hangs on whether Georgia’s shift to Moscow could likewise yield a deal on Russian-occupied territory.
GERMANY. Political risks
Voter rage is showing outside the ballot box.
Two far-right politicians were injured in Stuttgart late Wednesday. A former Berlin mayor was attacked Tuesday. Last week, a Social Democrat candidate was bashed in Dresden by youths who had earlier attacked a Greens party worker.
INTELLIGENCE. The attacks had earlier been exclusive to far-right activists but are now becoming bipartisan. Political violence isn’t new in post-war Germany, but it has shocked citizens used to the consensus of Angela Merkel. And while attacks won’t help extremists at the ballot box, they speak to a frustration likely underreported in the polls. Parties like the AfD have been losing support, but for as long as the economy stays flat their message will resonate.
FOR BUSINESS. A decision to lower Germany’s voting age for EU elections next month could also help the AfD, which is outpacing its rivals on TikTok, where many under-18s get their news. Charges of AfD conspiracy with China and Russia could backfire within online echo-chambers and heighten a paranoid style of politics, common in the US, otherwise confined to Germany’s fringe. Austria, Belgium, and Malta have also enfranchised those aged 16 and 17.
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VIETNAM. RUSSIA. So-Viet union
Hanoi looks to welcome an old friend.
The EU said Thursday it was disappointed Hanoi had delayed a visit from a senior sanctions official due to a likely visit by Vladimir Putin. Opposition increased to the US Commerce Department granting Vietnam market economy status.
INTELLIGENCE. Hanoi has been pressing Washington for better trade terms in the wake of widespread reforms, but unions close to Joe Biden oppose the move. In echoes of Barack Obama’s decision to walk from the Trans Pacific Partnership, which would have brought Vietnam and other players closer to the US orbit, Biden is at risk of alienating a potential ally again, just as an internal Communist Party struggle is pushing Hanoi closer to Moscow and Beijing.
FOR BUSINESS. Putin’s visit, the first since 2017, won’t herald a full pivot back to a historic partnership (though one, in some spheres, that never went away) but it could be another sign of a slowing integration into Western value chains as Vietnam seeks to repair ties with China and reinstate its traditionally non-aligned stance. For sensitive sectors hoping to ‘friend-shore’ out of China to Vietnam, they may need to look farther afield to closer, and costlier, partners.
CHINA. SEMICONDUCTORS. The chip has sailed
Indigenous technology improves despite US efforts.
A teardown of Huawei's most recent 5G phone Thursday found a Chinese-made flash memory chip and an improved 7nm processor. Washington revoked licenses Tuesday for Intel and Qualcomm, among others, to sell chips to Huawei.
INTELLIGENCE. China is getting more self-sufficient in cutting-edge technology in spite of (or perhaps because of) US efforts. This will in turn allow other Western adversaries, such as Russia and Iran, to access high-end products with fewer restrictions. As in the Cold War space and arms races, technological competition begets innovation. And while this is good for consumers in the short term, it lessens the West’s strategic advantages in the long term.
FOR BUSINESS. Chip restrictions, a key tool of US policy, may soon become redundant for all but the most niche areas. A key alleged driver for the invasion of Taiwan may likewise become redundant, though China’s claims to the island predate the tech race and have arguably bigger motivations, such as Pacific access. Rather than quality, the trade war is now focussed on quantity, with “excess” Chinese production currently in the US and EU’s crosshairs.