US, Pacific: Blue wall.
Also: China, Ukraine, Russia, Hungary, Slovakia and South Africa.
UNITED STATES. MICRONESIA. PAPUA NEW GUINEA. Blue wall.
The US builds a new island chain beyond Taiwan.
The US and Micronesia agreed to renew their Compact of Free Association on Monday. Media reported on the weekend that the US was close to finalising a defence deal with Papua New Guinea, to be signed during a visit by President Biden.
INTELLIGENCE. Facing the possibility of a Chinese move on Taiwan, the US is reinvigorating its alliances in the Pacific. Biden’s visit to PNG, following the G7 in Hiroshima, would be a first for Port Moresby, which hosted an APEC summit in 2018 that Donald Trump skipped out of. It would also complicate Beijing’s basing ambitions in the Pacific. A web of bases from Japan's Bonin Islands to Western New Guinea, via Micronesia, Guam and the Marshall Islands, would not just serve as an alternative to South Korea and Okinawa, out of the range of Chinese bombers, but could be a fallback strategic barrier to Hawaii and the US mainland under a worst-case scenario.
FOR BUSINESS. With tiny populations and poor infrastructure, rebuilding the Pacific’s World War II-era bases will be significant. The Pentagon will be keen to avoid Chinese contractors, which are otherwise active in the region.
UNITED STATES. CHINA. Down periscope.
An encounter at sea showcases the risk of naval black swans.
Media alleged on Monday that the US and Chines navies came close to clashing a day before the January 6 Capitol riot. Reports were based on a Chinese electronic warfare paper published late April, saying the US destroyed floating sonars.
INTELLIGENCE. If the allegations are true – that the navies engaged in a "dangerous encounter" off disputed islands near Taiwan – it is easy to imagine the path to escalation at a febrile time in 2021. The risk of ‘black swans’, or ‘grey rhinos’ as Chinese President Xi Jinping calls them, are all too often ignored by business despite high tensions in the South China Sea, through which one-third of global shipping transits, and in disputed waters off Japan, South Korea and Taiwan, a region where most of the world’s semiconductor production is concentrated. The risk also underscores the importance of clear communication between Washington and Beijing, lest accidents occur.
FOR BUSINESS. Recent US-China talks are a relief for business in the context of a near-miss 150 kilometres from Hong Kong. Still, ongoing sanctions on China’s defence minister continue to hamper military-to-military contact for the next crisis.
UKRAINE. RUSSIA. Drones of a dilemma.
Starving Moscow of weapons could rely on total trade restrictions.
Russian air attacks early Tuesday morning were "exceptional" in their density, according to Kyiv city officials. The Pentagon said on Monday that Russia and Iran were expanding an "unprecedented" partnership built on attack drones.
INTELLIGENCE. With troops bogged down in position and cyber defences hardened, both sides increasingly rely on air and drone warfare to gain the advantage. Amateur drone sales have risen twentyfold in Russia, and the Kremlin has seized on imports from washing machines to electric breast pumps that may have drone-enabling components. This is not just about Iran or direct arms sales. With the list of potential dual-use goods growing, G7 leaders will be considering whether to implement secondary sanctions on firms and countries, including Turkey, India and China, that have seen surging trade with Russia. This would endanger global growth but be pivotal in the war.
FOR BUSINESS.The West faces a ‘guns or butter’ dilemma on whether to move against China and India, which have kept Russia afloat. On the question of how much Ukraine matters, firms risk getting caught in the crossfire.
HUNGARY. RUSSIA. CHINA. Budapest vs the West.
Viktor Orban tests EU and NATO patience.
During a visit to Hungary on Monday, China's foreign minister said bilateral relations had entered their best period in history. European media on Monday reported that Budapest had blocked a €500 million weapons payment to Ukraine.
INTELLIGENCE. With historic ties to Moscow, a non-Indo-European language and a culture of individualism, Hungary has long been Europe’s odd man out, but Prime Minister Viktor Orban is taking Magyar exceptionalism to extremes. Though a member of the EU and NATO, Budapest is increasingly isolated in its approach to Russia and China. While once it could count on Poland’s conservative government for similar views on migration, culture and governance, Budapest is now risking ties with a hawkish Warsaw dismayed at Hungary’s unwillingness to reduce Russian energy imports. The Czech foreign minister said on Sunday nobody was forcing Hungary to be a part of Europe.
FOR BUSINESS. The EU and NATO offer too much cash and influence for Hungary to want to leave either, but on present trends, it isn’t impossible that one or both could kick it out, which would devastate the trade-exposed country.
SLOVAKIA. RUSSIA. Another pest.
A second central European country eyes a populist turn.
Slovakia swore in a caretaker administration on Monday after snap polls were called for September. The previous coalition government collapsed in December amid public divisions over Ukraine and high energy costs.
INTELLIGENCE. The pro-Russian SMER-SD party of former prime minister Robert Fico is currently leading in the polls. Fico, who police charged in 2022 with running a criminal syndicate (parliamentary rules prevented his prosecution), has longstanding ties to Moscow and was a member of the ruling Communist Party in his youth. While no friend of Hungary due to historic nationalist grievances, Slovakia under Fico could nonetheless give Budapest a like-minded peer. Like Hungary, Slovakia is highly dependent on trade with the EU bloc as a hub for European automakers. A pivot to Moscow would be economically risky, even if it appeals to Fico’s ‘pan-Slavonic’ and anti-Western base.
FOR BUSINESS.Dubbed the ‘Tatra Tiger’, Slovakia has been a European success story, but polarised politics risk harming its reputation. Watch for moves on Ukrainian grain imports, which Slovakia, like Hungary, recently banned.
SOUTH AFRICA. RUSSIA. Why, the beloved country.
Pretoria throws balance to the wind.
South Africa’s National Defence Force said on Monday that its army chief was in Moscow for talks. Earlier on Monday, President Cyril Ramaphosa said South Africa was non-aligned after US claims last week it had supplied arms to Russia.
INTELLIGENCE. Despite hosting the Brazil-Russia-India-South Africa (BRICS) Summit in Durban this year, Pretoria’s friendliness to Moscow has come as an affront to many, particularly among its Anglophone business elite. While denying claims it provided arms to Russia when a sanctioned vessel docked near Cape Town in January, the ruling African National Congress has done little to dissuade wider concerns of deepening Russian ties, with the rand dropping to a three-year low on fears of secondary sanctions and loss of access to the US market under the African Growth and Opportunity Act. Discontent with the ANC’s economic and political governance is steadily growing.
FOR BUSINESS.With Apartheid-era experience, South Africa would withstand Western sanctions for as long as Chinese commodity demand held up, but the disgrace would boost the opposition’s chances at elections next year.