Week signals: The power of one
Week signals: The power of one
Plus: watch points for the UN, the US, Germany, Sri Lanka, and Southeast Asia.
This week:
IN REVIEW. The reasons behind the escalation in Lebanon.
UP AHEAD. Pezeshkian in Manhattan, the Quad in Delaware, Potsdam declares, Colombo votes, and ASEAN prevaricates.
The Week in Review: Netanyahu’s result
The week began with the threat of war between NATO and Russia. It ended with the reality of one between Israel and Lebanon. In between, there was another assassination attempt on Donald Trump, an arsenal explosion in Russia measuring 2.8 on the Richter scale, big changes at the top of Europe, and fresh tensions in the South China Sea.
In any normal week this would have been huge, but with the markets focussed on the Fed’s 50-point rate cut, and US voters mesmerised by the latest ephemera of the election campaign, the reaction has been muted.
Still, once the new monetary reality is priced in, we expect traders will turn their attention back to geopolitics. As we outline in the second half of this report, eyes will be on a series of key diplomatic meetings, which will likely force a response from the Biden Administration – so far largely absent from the week’s events.
Attention, in particular, will be on how Washington acts on rising risks in the Middle East. Israel’s mass pager attack (followed by the remote detonations of walkie-talkies and other equipment) was just the beginning of a broader campaign to destroy Hezbollah’s command structure and remove it from southern Lebanon, allowing Israelis (in theory) to return to their homes in the north. Over the last 24 hours, this has involved the deaths of at least 10 more senior officials in Beirut. Over the next, it could involve the crossing of Lebanon’s de facto border by Israeli special forces. The US has removed the second of its aircraft carrier groups from the region. It probably regrets doing so.
The attacks were audacious, and while not particularly high-tech, present a new watermark in spycraft. After its failure to anticipate October’s Hamas attacks, Israeli agencies have redeemed themselves. And so has Benjamin Netanyahu, despite a mixed record in bringing hostages home and subduing Gaza (though this second objective is speeding up).
The decision to go to war with Hezbollah at this stage in the conflict – when IDF troops could have otherwise been home for Hanukkah – can thus be seen as a political one.