Turkey: Erdogan wipes the floor.
Also: the US, Saudi Arabia, China, Bhutan, India, Serbia, Kosovo, Russia and Ukraine.
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TURKEY. Erdogan wipes the floor.
Having secured another term, Erdogan can now afford to court the West.
Incumbent Recep Tayyip Erdogan was announced as the winner of Turkey's presidential runoff early Monday, with 52.1% of the vote. The leaders of the US, UK, EU, Russia, Germany and France quickly offered their congratulations.
INTELLIGENCE. Following a bitter election battle, Erdogan’s call for unity was cold comfort for Turkey’s opposition. But a solid result for Turkey’s strongman on a nationalist campaign will give him the space for compromise on foreign and economic policies, which have riled NATO allies and battered the lira. Erdogan will continue to govern with an autocratic style, but entering his third decade of leadership, he faces the limits of diplomatic and fiscal insouciance.
FOR BUSINESS. Erdogan is Turkey’s most powerful leader since Ataturk and has reoriented his country from EU aspirant to Middle East powerbroker. There have been costs to Erdogan’s approach, with high inflation and negative foreign cash reserves, but the risks appear fully priced in and from a position of strength; he is now incentivised to win back investors and friends. Ever mercurial, Erdogan can present multiple faces to the world. Today he is smiling.
UNITED STATES. McCarthy hits the ceiling.
The Republican leader does a deal, and the base isn’t happy.
Asian stocks rose in early trade on Monday after Joe Biden secured a deal on the US debt ceiling with House Speaker Kevin McCarthy. The deal to raise the government's spending limit to $31.4 trillion will go to Congress for agreement.
INTELLIGENCE. Politics is the art of compromise, but for many Republicans, there is no point at this stage of the election cycle. McCarthy’s agreement with Biden, which caps non-defence discretionary spending at 2023 levels for two years, will get the necessary votes. Still, Freedom Caucus members keen to prove ideological purity (and secure Presidential appointments) will hold this over McCarthy, who took 15 attempts at becoming Speaker in January.
FOR BUSINESS. The US will avoid an economic cliff, but McCarthy’s career is now in jeopardy, as Republican hardliners add fiscal intransigence to their list of newfound virtues, alongside abortion restriction and gun rights. This poses a dilemma for Donald Trump, who has used the spectre of spending cuts and tax rises as a wedge against Ron DeSantis. With federal budgets an increasing part of the culture wars, firms will need to count their chickens.
SAUDI ARABIA. CHINA. Petro-yuan.
A pillar of Bretton Woods leans to China.
Saudi Arabia is in membership talks with the Shanghai-based New Development Bank, media reported on Sunday. The NDB was founded by the BRICS states in 2014 as an alternative to the Washington-headquartered World Bank and IMF.
INTELLIGENCE. The NDB, which aims to challenge Western-led financial and development architecture, has been more aspiration than provocation to date. But including oil-rich Saudi Arabia could change that, bringing in a wealthy exporter keen to put its cash to better use than greenbacks or boondoggles. It would also diversify the NDB’s registry amid Russia’s war in Ukraine and China’s slowing growth. In September 2021, the UAE joined the NDB.
FOR BUSINESS. The US dollar remains hegemonic, despite attempts by some in Congress and crypto. Yet its mantel rests on its use by net exporters, like Saudi Arabia, as a means of exchange and store of reserves. Besides the Euro, there is currently no alternative, with Chinese capital controls stymying RMB internationalisation. Initiatives like the NDB, however, could give Beijing a managed path to a yuan bloc, particularly if they can attract real sovereign wealth.
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BHUTAN. CHINA. INDIA. Mountain duel.
China’s border with Bhutan is really about its border with India.
China and Bhutan announced on Friday they had made progress on resolving their disputed boundary, with official talks to resume after a seven-year hiatus. In 2017, Chinese and Indian troops had a two-month standoff at the tripoint border.
INTELLIGENCE. While a breakthrough for the territory of Doklam, where China, India and Bhutan meet, this won’t relieve Delhi unless accompanied by an accord on the 4,000-kilometre Line of Actual Control, India’s disputed border with China. The 20-kilometre wide Siliguri Corridor, or ‘Chicken’s Neck’, adjacent to Bhutan, is all that connects India to its vulnerable northeast. There, India is fighting an insurgency in Manipur, where 40 were killed on Sunday.
FOR BUSINESS. Scene of the 1962 Sino-Indian War, and several clashes since, the mountainous LAC is less noticed by business than Taiwan or the South China Sea, but it is where many analysts see the greatest chance of superpower war. In 2020, India banned a range of Chinese firms, from ByteDance to Huawei, after at least 20 Indian troops were killed. In late 2022, the US and India held mountain warfare drills 100 kilometres from the boundary with Tibet.
SERBIA. KOSOVO. RUSSIA. Trouble in Ruritania.
An ancient conflict resurfaces, but it’s the bigger story that counts.
NATO's Secretary General called on Sunday for Kosovo to lower tensions with Serbia. Ethnic Serbs clashed with Kosovo police on Friday. Since the 1998-1999 Kosovo War, Pristina and Belgrade have participated in on-off EU-led talks.
INTELLIGENCE. Serbia put its troops on ‘maximum alert’ late Friday, but beyond a few cars set on fire, there is unlikely to be further violence between the Balkan neighbours, where 3,800 NATO troops keep the peace. The cause of escalation, if any, is likely to be Russia, which wants to keep Serbia in its orbit, as it did in the lead-up to World War I. On Sunday, President Aleksandar Vucic resigned as head of the Serbian Progressive Party amid mass protests.
FOR BUSINESS. Pro-Russian Vucic will remain head of state as he forms a larger coalition. Still, his resignation and anxiety over Kosovo suggest a threat to Belgrade’s balancing act in the wake of two mass shootings. Russia will not want to lose one of its remaining friends in Europe. It hosted Serbia’s intelligence chief last week. Normalisation with Kosovo would unlock EU funds and investment, but Moscow – and Beijing – can also offer inducements.
UKRAINE. RUSSIA. 459 days, 1,540 years later.
The red line of Western support starts to wear thin.
Russia launched 54 drones on Kyiv, Ukraine said, ahead of Sunday's celebration of Kyiv's founding in the year 482. The biggest daily strike since the 24 February 2022 invasion, Ukraine claimed it destroyed 52 of the Iranian-made drones.
INTELLIGENCE. As war becomes statistics, both sides have warned of prolonged conflict: beyond the near term, according to Joint Chiefs of Staff Chair Mark Milley; decades, in the words of ex-President Dmitry Medvedev. However, money and patience won’t last that long, particularly as cost-of-living and migration issues spur conservative parties across the West. Kyiv will need to pull the trigger quickly on its long-delayed counteroffensive.
FOR BUSINESS. Since Donald Trump promised on 11 May to end the war “within 24 hours” should he retake power, right-wing groups are trialling anti-war views. Russia-friendly Alternative for Germany has increased its support to a five-year high at 18% to the ruling Social Democrat Party's 20%, according to a major poll on Sunday. Marine Le Pen, who last week asserted Crimea belongs to Russia, leads Emmanuel Macron as France’s preferred leader by 5 points.
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