At the Intersection of Geopolitics and Geoeconomics

April 13, 2022 | Volume 5, Issue 4| Rachel Poole

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

North America

• This month, the US ramped up sanctions on Russia as Moscow’s invasion of Ukraine continued and reports of atrocities committed by Russian forces emerged. Congress voted to strip Russia of its preferential trade status, and the US assets of two of Russia’s largest banks were frozen. In addition, Washington imposed sanctions on the family members of Putin and Russian Foreign Minister Sergey Lavrov and banned new American investment in the country. While visiting Europe to address the crisis, US President Joe Biden announced a natural gas deal with the EU in which the US has committed to help guarantee at least 15 billion cubic meters of additional natural gas supplies for Europe by the end of this year.

• Washington’s security partnership with Australia and the United Kingdom (UK) has expanded to include the development of hypersonic missiles. The announcement comes amid Russia’s alleged use of hypersonic weapons in Ukraine and concerns of China’s military build-up in the Pacific prompted by its recent military pacts with the Solomon Islands and Cambodia. Hypersonic missiles are weapons that move so fast they cannot be intercepted by any current missile defense system. The US budget for 2023 already includes $4.7 billion for the research and development of hypersonic weapons. This deal with Australia and the UK will expand and accelerate this development.

• The US has agreed to remove the Trump-era steel and aluminum tariffs on the UK. In response, the UK will suspend the retaliatory tariffs on various US products which had affected nearly $500 million worth in annual trade. The tariff will be rolled back beginning on June 1st. The tariff removal is yet another step in the Biden administration’s efforts to repair relationships with allies. 

• The Biden administration is reportedly planning to lift pandemic-related border restrictions in May. The lifting of the restrictions, which were put in place at the beginning of the pandemic by the Trump administration, will restore the right of migrants to request asylum once they cross the border into the US. The public health order has given US border officials the authority to quickly deport undocumented migrants – even those seeking asylum – in order to prevent the spread of Covid-19 at border facilities.

Europe

• Ukraine continues to seek a diplomatic solution to Russia’s invasion of its country despite Russian attacks on civilians. However, Putin declared two days ago that peace talks cannot proceed. So far, negotiations have been limited and have not included Russian President Vladimir Putin. Moscow has refused to pause its military operation for peace talks. The US and EU have been increasing their support, and deliveries of US weapons have been accelerating, but Ukrainian President Volodymyr Zelenskyy says it is still not enough. While Russia seems to have adjusted its strategy, moving forces away from Kyiv after failing to seize the capital, it has increased its attacks in the Eastern part of the country. In response to several attacks on civilians and “gross and systematic violations and abuses of human rights”, the United Nations General Assembly voted to suspend Russia from the UN Human Rights Council and international condemnation of Russia has heightened.

• French President Emmanuel Macron and far-right leader Marine Le Pen will head to a runoff election on April 24^th. In the first round of France’s presidential election this past weekend, President Macron won 27.6 percent of the vote while Le Pen received 23.4 percent. This isn’t the first time Macron will be taking on Le Pen. Polls suggest Macron will be able to retain the presidency, but this is Le Pen’s highest ever showing in the first round (she has run three times), so the second round is expected to be much closer the result of the 2017 election. The outcome of the election could impact the perceived reliability of France as an ally in the fight against Russia’s war in Ukraine. While Le Pen has condemned Moscow’s invasion of Ukraine, she has long had close relations with the Kremlin and has received party loans from a Russian bank. She is widely regarded as a Euroskeptic and has controversial views of NATO. All eyes will be on France next weekend.

• Germany and Austria took their first steps towards gas rationing as they struggle with the energy crisis created by Russia’s invasion of Ukraine. Both countries, which are heavily reliant on Russian gas, are preparing for a worst-case scenario where Russia completely cuts off gas deliveries. If attempts to lower gas consumption fail and supplies fall short, the German government will cut off parts of industry from its gas network, giving priority to households. G7 nations rejected Putin’s demand that “unfriendly countries” pay for Russian gas exports with rubles, saying it would violate contract terms. In a potential compromise, European gas customers can continue to pay in euros via Gazprombank which has not been sanctioned by the EU.

• Hungary’s authoritarian leader Victor Orban was re-elected this month, marking his fourth consecutive term in power. He flaunted his victory as a rebuke of liberalism and called Ukrainian President Zelensky an “opponent” he had to overcome to win the election. Though Orban’s close relationship with Putin came under scrutiny during the campaign, it was not enough to shift leadership over to the opposition and Orban’s Fidesz party won comfortably across much of the country. 

Asia, Eurasia, & the Pacific

• China has extended what was supposed to be only a staggered, nine-day Covid-19 lockdown of Shanghai. The lockdown has quickly gotten out of hand, with reports of food and healthcare shortages emerging. According to Shanghai officials, the lockdowns will be lifted in areas of the city that report no Covid-19 cases for two weeks. The restrictions are causing major supply chain disruptions for the country as Shanghai is its largest city. The lockdown measures are quickly creating global supply chain issues as well. Wait times for semiconductor deliveries have increased and three major Apple suppliers have suspended production around Shanghai. While China has conducted other zero-Covid lockdowns in the last two years, the Shanghai lockdown is the largest in scale, impacting manufacturing, financial, and logistical hubs at the same time. 

• India is exploring a trade agreement with Russia which will allow for the continuation of existing trade obligations amidst Western sanctions on Russia. Indian authorities have been considering a dedicated payment mechanism that would enable Indian importers to pay in rupees for goods to the accounts of Russian banks in India which would then make the payment in rubles to Russian exporters. India maintains a substantial trade deficit to Russia and is a major importer of Russian oil. The West has increased pressure on India to abandon such a trade agreement with Russia and condemn Moscow’s invasion of Ukraine. In their strongest statement yet on the war, India’s envoy at the UN Security Council condemned Russian atrocities in the Ukrainian city of Bucha and called for an independent investigation. US President Biden met with Indian Prime Minister Narendra Modi ahead of ministerial talks on Monday to discuss India’s position on the conflict.

• North Korea tested an intercontinental ballistic missile for the first time since 2017, stoking fresh tensions with the US and its allies in the region. The test is considered a major escalation of North Korea’s weapons program. Japanese Prime Minister Fumio Kishida called the move “absolutely unacceptable” and an “unforgivable outrage”. South Korea swiftly responded to North Korea’s missile test with its own tests of sea and air missiles. The White House also condemned the test and said it was working in close coordination with allies.

• Sri Lanka is facing a major political and economic crisis, prompting protesters to take to the streets. Crippling inflation combined with years of government mismanagement have resulted in skyrocketing prices for basic goods, many of which are being rationed by the government. The discontent has simmered over into protests which began in late March. Since then, the government has imposed a curfew and declared a nationwide state of emergency, giving authorities the power to block social media platforms and detain protesters without warrants. While most of the protests have been peaceful, some have turned violent. President Gotabaya Rajapaksa’s entire cabinet has been dissolved due to resignations by its top ministers who disagree with the president’s handling of the crisis. The ruling Sri Lanka People’s Front Coalition have also lost its majority in parliament. President Rajapaksa has refused to step down despite calls for his resignation.

• Pakistani Prime Minister Imran Khan was ousted in a no-confidence vote on Sunday. The following day, opposition leader Shehbaz Sharif was elected prime minister in a vote boycotted by lawmakers from Khan’s party. Before the vote, Khan’s party announced its mass resignation from the lower house of parliament. Khan’s popularity had been declining amidst soaring inflation and clashes with military leaders. However, tens of thousands took to the streets to support Khan on Sunday night, chanting anti-American slogans after Khan claimed the US was involved in a conspiracy against him. He is expected to run for prime minister again in the next general elections and he has called for them to be held early.

Middle East & North Africa

• An official from Iran’s foreign ministry said a revived version of the 2015 Iran nuclear deal is in the “emergency room”. The official says Washington has yet to decide on some of Tehran’s demands, including lifting sanctions and removing the terrorist designation for the Islamic Revolutionary Guard Corps. Negotiations between Iran and the US on the agreement seemed to be nearing a close a few weeks ago but were suddenly paused. Top negotiators from France, Germany, and the UK have indicated that Russia may be standing in the way. Russia has reportedly demanded that trade with Iran not be subjected to new sanctions imposed on Russia for the war. However, Iranian officials have insisted the cause of the delay was the US’ unwillingness to lift sanctions.

• Yemen’s president has stepped down in an effort to push forward the peace efforts of Yemen’s civil war. The two sides of the conflict – the Saudi-backed Yemeni government and Houthi rebels – began observing a two-month ceasefire after an escalation of attacks over the last few weeks. The nationwide truce is the first coordinated effort between the warring parties since 2016, opening the door for a revival of peace talks. President Abd Rabbu Mansour Hadi’s departure could mend political divisions among the war’s anti-Houthi coalition. Saudi Arabi and the UAE have pledged $3 billion in aid to support the transition of power to a governing council. 

• At a summit hosted by Israel, US Secretary of State Antony Blinken and the foreign ministers of Israel, Bahrain, Egypt, Morocco, and the United Arab Emirates (UAE) met for talks centered around regional and global security concerns. The group discussed how to coordinate efforts against Iran, Washington’s continued engagement in the region, and the need to maintain calm in regard to the Israel-Palestine conflict. During the summit, several Arab participants pressed Israel on creating a sovereign Palestinian state, reiterating that they had not abandoned the Palestinian cause when they normalized ties with Israel. The historic summit was the first Arab-Israeli diplomatic meeting on Israeli soil.

Latin America & the Caribbean

• Peru has been hit by a wave of violent protests. Rising fuel costs are what initially triggered the protests the first week of April, but demonstrations have quickly escalated into large anti-government protests. Peru’s protests demonstrate how Russia’s invasion of Ukraine is sparking unrest as it affects energy and food markets around the world. Peru imports most of its oil, so it has been more exposed to the recent price shocks caused by the war in Ukraine than other South American countries. Peruvian President Pedro Castillo, who just survived a second impeachment attempt, issued a curfew in response to the protests, but it backfired, and he quickly revoked it. The government’s concessions, which include cutting fuel taxes and increasing the minimum wage, have yet to quell protests.

• Rodrigo Chaves won Costa Rica’s presidential election, beating former President José María Figueres by nearly 6 percentage points. The election had the lowest turnout seen in Costa Rica since the 1940s as both candidates were hurt by scandal. Costa Ricans seem to be increasingly turning away from political parties which will make it all the more difficult for Chaves to come in and address the country’s major challenges, including its large public sector and social spending commitments, restoring its service-dependent economy following the pandemic, and protecting its world-renowned environment from climate change.

• The British royal couple, Prince William and Kate, were met with protests on their recent visit to Jamaica. Prominent Jamaican leaders have been demanding reparations from the UK for enslaving millions of Africans during its 200-year rule over Jamaica. During the royal couple’s visit, Jamaican Prime Minister Andrew Holness announced that Jamaica wants to be fully independent and would be breaking ties with Queen Elizabeth II, removing her as its head of state. The move comes just a couple months after Barbados removed the Queen as its sovereign and became a republic. 

Sub-Saharan Africa

• The Ethiopian government announced an “indefinite humanitarian truce” on March 24^th and Tigrayan leaders have provisionally accepted. The Semera-Mekele highway, a 500 km road which runs from Semera in Afar to the capital of the state of Tigray, has been authorized by the government for aid shipments into Tigray. No food has moved along this highway since December. If the ceasefire holds and this humanitarian corridor proves successful, it could be the first step towards a formal peace agreement between the Tigrayan rebels and Ethiopian government. However, news of fighting in Afar may stand in the way of peace talks.

• The EU’s foreign policy chief announced it would reduce its security training operations with Malian forces due to continued cooperation between Russian mercenaries and Mali’s military. The EU said it has not received the appropriate guarantees from the transitional Malian authorities that Kremlin-linked mercenaries would not interfere with EU operations in the region. The EU has been involved in UN peacekeeping missions in the Sahel for several years and reiterated that it continues to be committed to the region despite having to suspend some of its training operations with Mali.

• Food prices in West Africa have increased by up to 30 percent this year, creating a food crisis. 27 million people in the region will need emergency food aid, according to a report published by nearly two dozen international organizations. Aid agencies warn that this number could jump to 38 million by June if action isn’t taken soon.  Trade interruptions from the war in Ukraine, droughts, and conflicts have culminated in a food security crisis in West Africa.

World

• In a new report, the UN Intergovernmental Panel on Climate Change (IPCC) called for the immediate transition away from fossil fuels, saying renewable energy technologies are widely available and cheaper than ever. The report condemned the global financial system’s “systemic underpricing” of climate risk and calculated that $4 trillion worth of fossil fuels and infrastructure would need to be abandoned by 2050 to limit global warming to 2°C. The energy crisis sparked by the Russia-Ukraine conflict has very quickly sidelined climate discussions. 

• Despite calls from Western nations to increase oil production, OPEC+ refuses to be drawn into the Russia-Ukraine crisis and has not changed production plans. Russia is a member of the OPEC+ group, and recently the UAE’s energy minister said “Always, Russia is going to be part of that group and we need to respect them.” This week, the secretary-general of OPEC told EU officials that current and future sanctions on Russian oil could create one of the worst oil supply shocks in history and that OPEC would not be able to replace sanctioned Russian oil. 

Suggested Reading

Putin’s War on Ukraine Is Spreading Global Shockwaves

Frida Ghitis, World Politics Review

Putin’s War on History

Anna Reid, Foreign Affairs

Europe’s Economy on a Knife Edge

Barry Eichengreen, Project Syndicate

Yemen’s Tragedy: War, Stalemate, and Suffering

Kali Robinson, Council on Foreign Relations