Ukraine, Russia: Deluge.
Also: European agriculture, Poland, Iran, the Gulf, the Philippines, the South China Sea and Central America.
UKRAINE. RUSSIA. Deluge.
A dam equivalent to Utah’s Great Salt Lake is destroyed.
The Nova Kakhovka dam in Russian-held Kherson province was blown up early Tuesday. Both sides blamed the other. Kakhovka supplies Crimea and the Zaporizhzhia nuclear plant. It could be the war’s biggest act of destruction to date.
INTELLIGENCE. Destroying the dam causes more problems for both Russia and Ukraine, but an act of this scale was unlikely accidental. While Russia has denied that Zaporizhzhia faces immediate danger, the secure supply of water to the cooling systems at Europe’s largest nuclear power station has been of ongoing concern. Meanwhile, securing water for Crimea, more arid than the rest of Ukraine, was one of the justifications for Russia’s invasion.
FOR BUSINESS. It is too soon to assess the cause, reasons, damage or impact, but evacuations had begun at the time of writing. Kherson, recaptured by Ukraine in November and home to 300,000 before the war, lies downstream. The Kakhovka’s reservoir spans the Dnipro River and forms a front in the conflict. Its hydroelectric plant, seemingly destroyed, had an installed capacity of 351MW; enough to power Kherson and Zaporizhzhia’s backup generators.
UKRAINE. AGRICULTURE. Against the grain.
Though giving it arms, Europe doesn’t want Ukraine’s wheat.
Brussels extended restrictions on Monday on the sale of Ukrainian grain in five EU states until 15 September. Russia said Monday it saw no prospect of extending the UN-brokered Black Sea grain export deal, due to expire in mid-July.
INTELLIGENCE. While Europe has admitted refugees, donated arms, bolstered Kyiv’s treasury and applied diplomatic pressure, risking the Common Agricultural Policy was a step too far. Poland, Hungary, Slovakia, Romania and Bulgaria complained that cheap Ukrainian imports hurt their producers. Whether true or not, Brussels fears nothing more than angry farmers, even if the extension contradicts the EU’s other sacred cow: free movement of goods.
FOR BUSINESS. Black Sea exports were already dead in the water, so the EU’s extension will doubly hurt Ukraine ahead of this month’s harvest. Unless infrastructure to enable greater Danube exports can be improved, crops risk spoilage, let alone Russian bombs. Wheat futures are down from 2022 highs but have rebounded since the beginning of June. Drought in the US and a dry El Niño outlook for Australia, forecast early Tuesday, are also boosting prices.
POLAND. EUROPE. Divided we stand.
Tensions with the EU won’t mean a Polexit.
The EU’s highest court ruled on Monday that Poland’s 2019 justice reforms infringed European law. On Sunday, Warsaw saw its biggest protests since 1989 over foreign interference laws many see aimed at ex-prime minister Donald Tusk.
INTELLIGENCE. Moscow will welcome the growing discord within Poland and between Brussels and Warsaw. Just as Ukraine’s counteroffensive appears to have finally begun, the Kremlin will want to see Kyiv’s most vocal ally distracted and divided. Yet the Law and Justice Party’s enduring success is as much a product of pragmatism as of ideology. If the law in its current form is too extreme for voters, the legislation will be redrafted or withdrawn.
FOR BUSINESS. This is not Warsaw’s first attempt at illiberal democracy and won’t be its last, but the trial balloon has burst for now. Poland needs EU funding, and for this reason, membership has been backed by a consistent 80% of Poles since 2014. By contrast, Law and Justice’s support has fallen to 31%, within the margin of error of support for Donald Tusk’s Civic Platform at 28%. Poland’s embrace of EU values – and industrial demand – seems secure.
Written by former diplomats and industry specialists, Geopolitical Dispatch gives you the global intelligence for business and investing you won’t find anywhere else.
IRAN. THE GULF. Poacher turned gamekeeper.
The source of insecurity wants to form a security pact.
Beijing said on Monday that it backed a move announced by Tehran on the weekend to form a joint naval group with Saudi Arabia, the UAE, Oman, Qatar, Bahrain, Iraq, India and Pakistan. Iran will reopen its embassy in Riyadh this week.
INTELLIGENCE. The move seems improbable – particularly if India and Pakistan both join – but the mere idea will irritate Washington, particularly after the UAE left the US-led Combined Maritime Forces last week. To make the point, the US Navy on Monday said it and the Royal Navy came to the aid of another bulk carrier in the Strait of Hormuz "harassed" by Iran's military. US Secretary of State Antony Blinken visits Riyadh this week. Iran will be on the agenda.
FOR BUSINESS. Traders just want their ships left alone, but any sense of calm could in time be overshadowed by the increased risk of Iran shutting down the Strait in event of attack. On Sunday, Israel held major drills to plan a multi-front war with Iran. The same day, Benjamin Netanyahu accused the International Atomic Energy Agency of “capitulating” to Tehran. Israel has promised action should Iran get closer to developing a nuclear bomb.
THE PHILIPPINES. SOUTH CHINA SEA. Return to the fold.
Manila bucks a trend of emerging markets shunning the West.
Manila appointed China hawk Gilberto Teodoro as defense secretary on Monday. On Saturday, it joined Japan, the US and Australia for inaugural defence minister talks. The four are reportedly eyeing joint patrols in the South China Sea.
INTELLIGENCE. Last year’s election of Ferdinand “Bongbong” Marcos Jr has brought closer ties between Manila and Washington, as well as other Pacific allies, bucking a trend seen beyond the region. Yet, like previous presidents, who also relied on the US to buttress their claims to contested islands in the South China Sea, Marcos will feel the pull of China’s economic gravity. Beijing pledged $23 billion in new investment during Marcos's visit there in January.
FOR BUSINESS. Manila is now strategically closer to Washington, but China will remain irresistible in the long term unless the West can offer greater trade and investment inducements. Japan is currently the top investor, and Manila hosts the Japan-backed Asian Development Bank, but China is gaining ground. Similarly, the Philippines has free trade agreements with China through ASEAN but not with the US or Europe. Manila can only defy gravity for so long.
CHINA. CENTRAL AMERICA. Centre stage.
Beijing pops up in Washington’s backyard.
Honduras's president on Monday said she would visit China, after the opening of its embassy in Tegucigalpa. Honduras switched recognition from Taiwan in March after 81 years. Beijing wants Belize and Guatemala to make the switch too.
INTELLIGENCE. Overwhelmingly linked to the US economy, most of Central America maintained relations with Taiwan into the last decade. But as in the Pacific, another neglected US sphere of influence, Beijing has been on a charm offensive, offering a level of investment, aid and trade that Washington, let alone Taipei, hasn’t matched. Honduras reportedly switched allegiance after Taiwan rebuffed a $2.5 billion loan request.
FOR BUSINESS. Beijing’s debt diplomacy risks exacerbating the region’s economic fragility, but shiny infrastructure will be popular and benefit businesses that can bring in hard currency. The impact on political stability is harder to quantify. El Salvador and Nicaragua were already rickety before they switched in 2018 and 2021, respectively. Nearby Haiti, which still recognises Taiwan, is a failed state. Being friends with a rich democracy doesn’t make you one.
Emailed each weekday at 5am Eastern (9am GMT), Geopolitical Dispatch’s Daily Assessment gives you the situational awareness to stay ahead in a changing world.