Turkey, Russia: Black Sea backgammon.
Also: Ukraine, the Netherlands, China, the US, Solomon Islands and Israel.
TURKEY. RUSSIA. Black Sea backgammon.
Turkey risks what is left of the grain deal.
The Kremlin on Saturday said Turkey violated a prisoner swap deal when it returned five Ukrainian officers following a visit by Volodymyr Zelensky to Ankara. Turkey’s Recep Tayyip Erdogan said he hoped to host Vladimir Putin next month.
INTELLIGENCE. Ankara wants to balance ties with Kyiv and Moscow, but ahead of Tuesday’s summit, Erdogan needs to show he’s (mostly) on NATO’s side. The release of the prisoners and show of support for Ukraine’s future NATO membership – as opposed to Sweden’s – was met with jubilation in Kyiv. Yet Erdogan will likely pivot back to Moscow once the meeting is over. Putin will be just one of the million Russian visitors Turkey expects to welcome in August.
FOR BUSINESS. Erdogan is walking a fine line, including to salvage the Black Sea export deal he brokered between Kyiv and Moscow. The initiative is on life support. Ukraine accuses Russia of numerous violations. Russia has indicated it doesn’t need it, citing record exports to “friendly countries” in the year to June. As of last week, however, there were tentative signs the West could coax Moscow by lifting sanctions on the Russian Agricultural Bank.
UKRAINE. RUSSIA. Running low.
Biden says what everyone fears.
Joe Biden said late Friday “the Ukrainians are running out of ammunition” as he defended his decision to send cluster bombs. Ahead of a visit to Europe, Biden said Ukraine’s NATO membership would need to wait until after the war.
INTELLIGENCE. The controversial cluster munitions call was also likely a way to avoid giving air support, but Biden’s frank admission on supplies is correct. What was only implied, however, was that supply is also a problem for NATO’s European allies. Germany, in particular, has only several days’ worth of artillery at Ukrainian usage rates. But amid discord over Kyiv’s membership, admonishments on European defence expenditure will continue to fall on deaf ears.
FOR BUSINESS. Despite the strong strategic case for higher European defence expenditure, the political case for higher spending is weak amid stubborn price pressure and a public tiring of war. Washington’s decision on cluster bombs will only strengthen anti-war voices, as will the rising influence of parties at the extreme. A poll on Sunday forecasted a win for Spain's conservative People's Party on 23 July, but only with the support of the far-right Vox.
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NETHERLANDS. Dutch disunity.
The Dutch government collapses over migration.
Dutch prime minister Mark Rutte formally resigned on Saturday after his four-party coalition failed to bridge internal differences on asylum seeker policies. A new election is expected in November after a parliamentary debate on Monday.
INTELLIGENCE. Four-time leader Rutte will likely remain as caretaker, and may well win the next election, but the poll could be bad for moderates like the Democrats 66 party should it be seen as a referendum on migration. Divided between liberal cities and conservative towns, the Netherlands has been scarred by many of the issues that have provoked violence in nearby France. In 2015, Dutch villagers rioted over plans to build an asylum centre in their town.
FOR BUSINESS. The Netherlands is also divided over agriculture, which came to the fore on Sunday after the EU signed a trade agreement with New Zealand, a competitor in dairy. The deal follows a separate pact with Kenya but may foreclose more ambitious agreements with larger markets like the South American Mercosur bloc and Australia. One silver lining is that caretaker status may allow the Dutch to stall US pressure on restricting tech exports to China.
CHINA. UNITED STATES. Automatic stabiliser.
Data, as well as dialogue, points to an accord on trade.
US Treasury Secretary Janet Yellen on Sunday said her talks with Chinese officials had put the relationship on “surer footing.” Chinese producer prices recorded a 5.4% year-on-year fall on Monday, the steepest decline since late 2015.
INTELLIGENCE. Both powers want to dominate the other, but a trade war, let alone a hot war, would be disastrous. The US and China will thus likely agree a pause in hostilities until the next trigger is pulled. Amid the Chinese military’s refusal to reach out to the Pentagon, and with Moscow incentivised to pull Beijing away from the West, an accident cannot be ruled out. But for now, policymakers are inclined to prioritise economic stability over strategic inevitability.
FOR BUSINESS. The US and China have conflicting interests and a dangerous rivalry seems assured in the long term. In the short term, however, their slowing and mutually dependent economies mean a probable pause in trade tensions. In the wake of Yellen’s visit and ahead of a meeting between Xi and Biden, it is likely the steepest export curbs will be lowered, even if they’re raised again ahead of next year’s elections in the US and Taiwan.
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CHINA. SOLOMON ISLANDS. Solomon’s choice.
Honiara will choose self-interest in the competition for influence.
Solomon Islands Prime Minister Manasseh Sogavare arrived in Beijing on Sunday after pledging on Friday to “remain neutral” amid regional geopolitical competition. Honiara switched diplomatic recognition from Taipei to Beijing in 2019.
INTELLIGENCE. Sogavare’s visit will irk Washington and Canberra, worried about the potential for a recent Chinese security pact to lead to a military base, but the Solomons is more interested in infrastructure than superpower rivalry. And while Sogavare has in the past shown hostility to the West, he is also more interested in defeating the pro-Taiwan factions in Honiara’s parliament than in playing the role of post-colonial agitator he is often caricatured to be.
FOR BUSINESS. There’s every risk that Beijing will load up Honiara with dodgy investment and dud infrastructure if examples from Sri Lanka to Zambia are to be followed. But if Sogavare is falling prey to predatory lending then the West is as much to blame, failing to align its development spending with his domestic political interests. Huawei mobile towers are easier to sell to voters than governance workshops. Sports stadiums beat human rights reports.
ISRAEL. One extreme to the other.
Biden slaps down Israel’s coalition as turmoil continues.
Joe Biden told CNN on Friday that Benjamin Netanyahu’s government had some of the "most extreme" members he had ever seen. Protests against proposed judicial reforms entered their 27th week ahead of Knesset debate on Monday.
INTELLIGENCE. Having created a crisis in the West Bank, stymied rapprochement with the Arab world, spooked foreign investors, annoyed the US, and alienated swathes of society, Netanyahu’s six-month coalition with the far right may receive its comeuppance when a controversial bill to reduce judicial oversight of the government is considered by the Knesset this week. If the coalition and its law survive, Israel will enter a new, unknown era.
FOR BUSINESS. The Zionist fringe is not Israel’s only extremist movement. The conflict in the West Bank is as much a product of Iranian intrigue and Palestinian ineptitude. But Netanyahu may wish he had thrown in the towel rather than begin a sixth term allied with convicted terrorist supporters. Should the coalition fall, Israel will return to the polls for the sixth time in five years, but this may be seen by the markets as a sign of stability considering the alternatives.
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