At the Intersection of Geopolitics and Geoeconomics

North America

• Demonstrating their united front in the Indo-Pacific region, leaders of the Quadrilateral Security Dialogue met in Washington for their first in-person meeting. Leaders of the group’s members – the US, Australia, Japan, and India –  discussed collaboration on security issues in the region, including Chinese aggression, as well as Covid-19 vaccines, and cooperation on infrastructure and technology.
• US lawmakers passed a stopgap measure last week narrowly preventing a government shutdown. The measure will fund government operations only through December 3rd as Congress continues debating the proposed additional $4.6 trillion in government spending. With debt levels reaching new highs, Republicans are also pressing Democrats to either suspend or raise the debt limit. Treasury Secretary Janet Yellen has warned lawmakers that the US will run out of funds to pay its bills by mid-October and has called on Congress to eliminate the debt ceiling entirely. Meanwhile, the anticipated vote on the $1 trillion infrastructure package was delayed. Debt concerns, the political gridlock, and inflationary fears have stirred up the markets, leading to increased volatility and a market downturn.
• The US and Russia held a summit in Geneva last month to continue the arms control and strategic security talks agreed to by US President Joe Biden and Russian President Vladimir Putin this summer. The talks aim to lay the groundwork for future arms control agreements beyond the New START treaty, a cornerstone global arms control agreement which was extended by Putin and Biden until 2026.
• Canadian Prime Minister Justin Trudeau’s Liberal Party won the country’s snap elections but failed to get enough seats to gain majority. The opposition has criticized Trudeau for calling an “unnecessarily” early vote to try to gain a majority when he was already leading a stable minority government. Despite a sizable lead in the polls, the Liberal Party ended up with about the same number of seats it held prior to the elections.

Europe

• Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan meet in Sochi last week as tensions between the US and Turkey grow. The two presidents discussed curbing violence in Northwest Syria and possibly expanding Moscow’s sales of military defense systems to Ankara, amongst other opportunities for trade and security collaboration. Erdogan praised ties with Russia after the meeting while just days before, he publicly criticized US President Biden for not meeting with him on the sidelines of the United Nations General Assembly.
• Germany’s future government hinges on coalition talks. The Social Democrat Party (SPD) narrowly beat the ruling Christian Democratic Union (CDU) party in parliamentary elections. The SPD edged out with a 1.6% lead over the CDU, which had its worst showing in national history. Both parties will attempt to form coalition governments by winning over potential partners like the Green Party and Free Democrats (FDP). Coalition negotiations kicked off this past weekend.
• On the heels of the AUKUS deal (see below), France and Greece signed a multi-billion euro deal for Athens to buy three French warships. French President Emmanuel Macron praised the deal as a major win for European defense autonomy. Macron has long pushed for “Europe’s strategic autonomy and sovereignty”, insisting less reliance on the US and further development of Europe’s defense capabilities. Greek Prime Minister Kyriakos Mitsotakis assured that the agreement is “not antagonistic” to the Greek-US relationship and is simply a decision to “upgrade” Greece’s bilateral defense cooperation with France.
• European power prices have surged to multi-year highs due to a variety of factors, from increasing natural gas and carbon prices to low wind output. The UK has seen the worst of it, with gas prices rising more than 250%. Some manufacturers are now considering temporary plant closures to conserve fuel and the British government is considering bailout loans for energy suppliers as prices have already forced some energy companies to shut their doors. Energy analysts warn the high energy prices are not expected to end anytime soon and market nervousness is likely to continue through the winter as prices remain volatile.

Asia, Eurasia & the Pacific

• In a security deal, dubbed AUKUS, the US and UK have agreed to help Australia build a fleet of nuclear-powered submarines. The alliance aims to boost Australia’s military capabilities in the Indo-Pacific and allow it to acquire other advanced technologies. The deal sparked backlash from France which had been in talks with Australia about submarines prior. In response to the announcement of the AUKUS partnership, French President Emmanuel Macron canceled a planned gala in Washington and recalled the country’s ambassadors to the US.
• Former foreign minister Fumio Kishida has been elected to be Japan’s new prime minister by the country’s ruling party, the Liberal Democratic Party (LDP). Kishida will likely continue promoting policies similar to those of his predecessor Yoshihide Suga who resigned last month. The new prime minister has signaled a continuation of “free and open Indo-Pacific” policies and has expressed concern over China’s recent aggressive behavior in the region.
• An ongoing regulatory crackdown, an energy crunch, and an insolvent property developer have sent Chinese markets spiraling, spilling over into the already volatile global markets. Over the last several months, Beijing has rolled out a variety of new legislation, cracking down on private companies across several industries including tech, education, and gaming, among others. Creating additional fear among investors, the Chinese government has recently mandated factory shutdowns due to major power shortages and has ordered state-owned energy companies to procure necessary supplies ahead of winter. Meanwhile, the massive property developer Evergrande is on the brink of default. China’s central bank has been adding large amounts of liquidity to the financial system to calm investors and cushion the impact of Evergrande’s insolvency.
• The Inter-Korean military hotline will be restored in October. North Korean leader Kim Jong-un cut off communications with South Korea in August but is now seeking to improve relations. Kim Jong-un announced the hotline restorations during a speech to parliament in which he also denounced US policy towards North Korea. Some foreign policy analysts see Kim Jong-un’s words and actions as an effort to drive a wedge between South Korea and the US.
• Days after China announced its bid, Taiwan has applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Taiwan’s move to join the trans-Pacific trade deal, initially negotiated by the US to counter Chinese influence in the region, is a clear act of opposition to China which views Taiwan as part of its own territory, not a separate country. Neither China nor Taiwan will be admitted to the trade alliance if their applications fail to receive unanimous approval from CPTPP members. It seems unlikely that China will be admitted given the original purpose of the deal and its icy relations with member country Australia. Taiwan’s most significant trade partners are members of the alliance but not all CPTPP have diplomatic relations with Taiwan.
• Indian farmers re-ignited nationwide protests last week, a year after controversial laws on the liberalization of the sector were introduced by India’s Prime Minister Narendra Modi. A body of over 44 farmers unions organized the protests to mark the one-year anniversary and renew the pressure on Modi’s administration to repeal the laws. The legislation in question deregulates the agriculture sector and allows farmers to sell produce to private companies. The farmers against the reforms say the changes make them more vulnerable to competition from big business and fear they could lose price supports for staple products. 

Middle East

• Israel and Bahrain cemented their agreement to establish diplomatic ties with a high-level visit last week. King Hamad bin Isa Al Khalifa of Bahrain hosted Israeli Foreign Minister Yair Lapid in Bahrain’s capital, Manama, where delegations were to sign bilateral agreements and discuss future cooperation. Bahrain was one of four Arab states that signed the US-brokered “Abraham Accords”, normalizing diplomatic relations with Israel.
• Tunisian President Kais Saied declared he will rule by decree, extending the freeze of parliament which he imposed in August. The decree enables Saied to further cement his one-man rule, allowing him to appoint cabinet members and set policy while setting aside parts of the constitution. Saied claims his actions are in the interest of national security and that his measures are aimed at upholding the rights of Tunisians. Political opponents have labeled the move a “coup”.
• Lebanon announced a new government in early September, ending a 13-month deadlock which contributed to the country’s economic crisis. Newly appointed Prime Minister Najib Mikati, who took over in July following Saad Hariri’s resignation, and President Michel Aoun signed a decree formally establishing the new government which consists of several new ministers.
• Over the last several weeks, the Taliban has laid out Afghanistan’s new government which includes many individuals who held authority when the group ruled the country in the 1990s. Though many actors in the international community have demanded the Taliban create an inclusive government, that gives representation to women and minority groups, in order to formally recognize their rule, the group seems to have no intention of doing so. The cabinet choices of Supreme Leader Sheikh Haibatullah Akhundzada signal that the conservative and theocratic core of the group has remained largely unchanged.

Latin America & the Caribbean

• Venezuela’s central bank announced a new currency in an attempt to simplify the monetary system. Prior to the adjustment, the highest denomination of bolivars was 1 million. Now, the new bills top off at 100 bolivars so as to make bookkeeping simpler. The Venezuelan bolivar has been made nearly worthless by years of the world’s worst inflation and government mismanagement. While President Nicolas Maduro insisted the currency adjustment would not result in price increases, currency exchange differences demonstrate a rise in prices. Consumers have come to rely on US dollars and digital payment methods to make purchases as using the national currency has become inconvenient and unreliable. The International Monetary Fund estimates Venezuela’s inflation rate will be 5,500% at the end of 2021.
• Venezuela has reportedly inked an oil export deal with Iran. The agreement allows Venezuela to swap its heavy oil for Iranian condensate which it can use to improve the quality of its tar-like crude. The swap contract officially began last week when a 2.1-million-barrel cargo of condensate from the Iranian National Oil Company discharged in Venezuela. The oil sectors of both Iran and Venezuela are under US sanctions. The deal violates these sanctions, but the nations face few additional penalties for doing business with each other.
• The Pan American Health Organization announced the selection of two centers in Argentina and Brazil to be regional hubs for the development and production of mRNA-based vaccines in Latin America. Argentinian biopharmaceutical company Sinergium Biotech will partner with mAbxience to develop and manufacture the active vaccine ingredients while the Bio-Manguinhos Institute of Technology on Immunobiologicals at the Oswaldo Cruz Foundation will manufacture vaccines in Brazil. The regional hubs will be critical to tackling Covid-19 in the region and to dealing with future infectious disease challenges.
• Thousands of Salvadorans took to the streets of El Salvador’s capital last month for the first mass march against President Nayib Bukele. Protesters say the Bukele administration has concentrated too much power and weakened the independence of the courts. Some demonstrators also marched against the government’s controversial decision to make Bitcoin legal tender.

Sub-Saharan Africa

• Ethiopia said it will expel seven top United Nations (UN) officials from the country for “meddling” in domestic affairs. The announcement has sparked international backlash, prompting a UN emergency meeting and a sanctions threat from the US. Back in June, Ethiopia imposed restrictions on humanitarian aid in the war-torn Tigray region. The UN called these restrictions a “de facto humanitarian aid blockade” and the UN aid chief warned that the government’s actions are contributing to famine conditions for an estimated 400,000 people. 
• South Africa raised its carbon emissions targets, aiming to limit emissions to no more than 510 million metric tons by 2025 and 420 million tons by 2030. The new goals are much more ambitious than those set forth in 2016, signaling a shift in the country’s prioritization of climate change policies.
• The head of Islamic State in the Greater Sahara, Adnan Abu Walid al-Sahrawi, was killed by French forces in Africa’s Sahel region. The jihadist leader was behind the killing of French aid workers in 2020 and was also wanted by the United Nations for his involvement in an attack on US troops in Niger in 2017. The French military has killed several high-ranking members of the terrorist group since the beginning its military intervention in the region eight years ago. In June, French President Emmanuel Macron announced France would scale back the number of its troops in the Sahel.

World

• Rising energy and oil prices, skyrocketing shipping costs, and intensifying supply chain bottlenecks have wreaked havoc on the global economy. All of the pressure on prices, while demand is also increasing as people have become more comfortable leaving their homes, has sparked fear that high inflation rates are not just transitory. Global equities have faltered the last few weeks as inflationary fears mount.
• COVAX will not be able to meet its vaccine target this year. The United Nations-backed Covid-19 vaccine program originally aimed to deliver 1.9 billion doses to low and lower-middle income countries, but by the end of the year, the program will only deliver 1.4 billion doses due to manufacturing and supply constrictions. While 81 percent of shots administered globally have been in high- and upper-middle-income countries, less than one percent have been given to low-income countries. As COVAX struggles to meet its goals and low vaccination rates persist in many regions of the world, the World Health Organization has called for a moratorium on booster shots at least until the end of the year.

Suggested Reading

The strategic reverberations of the AUKUS deal will be big and lasting

The Economist

Why Are Haitian Migrants Gathering at the U.S. Border?

Edward Alden and Alex Tippett, Council on Foreign Relations

A “Green Arms Race” Could Be Great for Latin America

Pedro Abramovay and Heloisa Griggs, Americas Quarterly