At the Intersection of Geopolitics and Geoeconomics

February 20, 2024 | Volume 7, Issue 2 | The BlackSummit Team

Here is a summary of important events that unfolded over the last month, and which may affect economic, financial, and geopolitical issues in the months ahead:

North America

• The US military carried out retaliatory strikes against militant groups backed by Tehran in Iraq, Syria, and Yemen following an attack that killed three US soldiers in Jordan. While the US holds Iran responsible for funding and arming these militia groups, both countries are careful of direct confrontation. In Syria and Iraq, the US struck seven locations, targeting command and control headquarters and other military-related sites. Iran and its proxy groups aim to pressure Washington to influence Israel to end its invasion of Gaza, as Hamas – the terrorist organization responsible for the October 7th attacks against Israel – is one of Iran’s allied militant groups.

• Texas Governor Greg Abbot is defying a Supreme Court order declaring that the federal government has the authority to remove razor wire that the state installed on its border with Mexico, stating that he’ll increase the state’s patrolling of the border and add new barriers to crossing. Texas Attorney General Ken Paxton refused the federal government access to the border. Over 20 Republican governors are backing Governor Abbot, while the Department of Homeland Security reiterated that enforcement of immigration law is a federal responsibility. The development has heightened tensions between political parties over immigration. 

• In 2023, Mexico surpassed China as the US’s top trading partner with more than $798 billion in goods imported from Mexico. The development reflects the ongoing tensions between Washington and Beijing with Mexico becoming a top destination for “nearshoring” – the term being used for moving business, particularly manufacturing, closer to home. Figures released by the US Commerce Department show a 5% increase in the goods imported by the US from Mexico from 2022 to 2023, while Chinese imports plummeted 20% in the same period. The last time Mexican imports exceeded the value of Chinese imports was 2002.

• Residents of Mexico City have been protesting weeks of water shortages amid “unprecedented” low levels in one of the city’s main water systems which supplies water to millions in the metro area that more than 21 million call home. Protesters went so far as to force open Mexico’s National Water Commission building in a town more than 80 miles from the city center. The warning signs were there; the Mexican capital has struggled to supply its residents for many years as it relies on water pumped from its underground aquifer as well as reservoirs outside the city which have been dangerously low due to years of low rainfall blamed on climate change. Climate experts are warning that Mexico City is also at risk of a “whiplash effect” which occurs when an area experiences a rapid switch to wet conditions that can spark flooding. Further exacerbating the problem is outdated infrastructure and urban growth.

Europe

• Ukraine has struck bilateral long-term defense agreements with both France and Germany, which will be providing military support and training for Ukraine. Ukrainian President Volodymyr Zelenskyy claims that the agreements are a sign that Ukraine will eventually become a member of NATO. German Chancellor Olaf Scholz said that, with this agreement, Berlin’s total military support to Ukraine amounts to around 28 billion euros, making Germany the second-largest supporter of the country after the US. This comes alongside the news that the European Union (EU) agreed to a deal worth over $50 billion to support Ukraine, one that struggled to advance due to the impediment of Hungary’s Prime Minister Viktor Orban.

• The EU revealed plans to reduce net greenhouse gas emissions by 90% by 2040 after undergoing revisions due to complaints by European farmers. Farmers were displeased with the legislation that said agriculture would need to cut non-CO2 emissions by 30% by 2040 to comply, so the text was removed from the final plan. Upcoming EU parliament elections will likely test the public’s temperament regarding the green measures, analysts say. Meanwhile, EU policymakers have implemented new rules to promote European production of equipment for the green transition including solar and wind power, fuel cells, and more. The bloc’s goal is to produce 40% of the equipment needed to reduce emissions in the EU, as it is currently relying on Chinese imports and competing with American subsidization from the Inflation Reduction Act.

• Former Fox News personality Tucker Carlson interviewed Russian President Vladimir Putin in Moscow. As expected, Putin used the interview to press Russia’s narrative of the Ukraine war. He recommended that the US end its support to Ukraine and force Kyiv to the negotiating table. He rejected allegations that Russia planned to invade other NATO countries and discussed a potential negotiation of a prisoner exchange regarding the jailed Wall Street Journal reporter Evan Gershkovich. While the interview made headlines, the death of Alexei Navalny, the most prominent opposition figure to Putin, took the spotlight. His death, just before Russians head to the polls next month, has sparked outrage and renewed criticism of Putin’s regime and his crackdown on opposition figures. Recently, anti-war opposition leader Boris Nadezhdin was banned from running against Putin in next month’s election. 

• After two years without a functioning government, Northern Ireland’s Parliament has named Sinn Fein’s Michelle O’Neill as first minister. This development is historic for Northern Ireland, as this is the government’s first nationalist leader coming from the party that wants to unite the island into one country. O’Neill stated she would be a first minister for all sides, both for unionists who want to remain British, and for republicans who wish to unite with the Republic of Ireland. Unionists had blocked the government from functioning for two years, claiming displeasure with post-Brexit trade deals, but some analysts suspect they wished to keep Sinn Fein out of power. The breakthrough came in the form of a deal between the Democratic Unionist Party and UK Prime Minister Rishi Sunak’s government for minor changes to trade and customs regulations for goods crossing the Irish Sea.

Asia, Eurasia & the Pacific

• According to early results of the Indonesian presidential election, former army general Prabowo Subianto appears to have won 60% of the vote, avoiding a run-off election in June. Prabowo, once banned from the US over alleged human rights violations, has positioned himself as an ally of the outgoing president, Joko Widodo, a popular leader who focused on economic development. Analysts say that Prabowo will need to navigate the complex relationship Indonesia maintains with both the US and China, as well as its close neighbor Australia in the coming years. There are concerns, however, that he will increase the influence of the military in politics. Final election results are expected in March.

• Japan is leaning heavily into the development of its semiconductor sector, investing in both the public and private sector to develop advanced chip technology amid growing US-China trade tensions. Last week, Tokyo announced it will spend $300 million on a government-backed chip research center that was established last year. The funding will allow the center to focus on technologies including artificial intelligence-enabling chip design. This announcement comes just days after Taiwanese Semiconductor Manufacturing Company (TSM) reported that it will begin construction on a $7 billion plant this year in Japan, bringing the company’s total Japan venture to more than $20 billion. 

• President Ilham Aliyev of Azerbaijan won another 7-year term in office with over 92% of the vote, according to Azerbaijan’s electoral commission. Aliyev, who has been in power for over two decades, called an early vote after a surge in popularity following Azerbaijan’s swift conquest of the Nagorno-Karabakh region from Armenian separatists, who were entrenched for three decades. International election observers have cast major doubts about the election, claiming that opposition was restricted, and that Aliyev benefitted from the absence of independent media and a healthy civil society. Following the election, a skirmish between Azerbaijan and Armenia broke out on their border, with four Armenian soldiers killed. Both sides blame the other for instigating the firefight, which may complicate efforts at peace between the two.

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