At the Intersection of Geopolitics and Geoeconomics

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

• US support for Ukraine continues to ramp up as Russia’s invasion of the country continues. During a visit to Kyiv, US Secretary of State Antony Blinken pledged $2 billion in long-term aid to Ukraine and 18 other countries – including Albania, Bulgaria, Greece, Poland, Romania, and others – that are at risk of a Russian invasion. In a separate announcement, the Department of Defense promised an additional $675 million in security aid for Ukraine. The latest aid brings total US aid to Ukraine to $13.5 billion.

• The US hosted the first in-person meeting of the Indo-Pacific Economic Framework (IPEF) in Los Angeles this month. Ministers from 14 countries were in attendance to discuss the US-led initiative which is aimed at competing with China in the region. At the two-day conference, a new digital skills training initiative – the IPEF Upskilling Initiative – was announced, but because the IPEF is not a formal trade agreement, tariffs and market access were not topics of discussion. The Upskilling Initiative has support from 14 American companies –  including Amazon, Apple, Google, and Microsoft – to provide education and training opportunities for women and girls over the next 10 years.

•  Secretary of State Antony Blinken visited Mexico last week to continue the U.S.-Mexico High-Level Economic Dialogue which was relaunched last year by US President Joe Biden and Mexican President Andrés Manual López Obrador. Officials addressed economic cooperation, migration challenges, and arms/drug trafficking. The US-Mexico relationship has been strained in recent months as President Obrador snubbed President Biden by refusing to participate in the Summit of the Americas, and as Washington challenged the Mexican government’s support for state-owned companies which limits the ability for US firms to enter the Mexican market and which may be in violation of the USMCA trade agreement. 

• Rail workers and companies reached a tentative labor agreement shortly following a White House intervention. The deal averts a nationwide rail strike that was set to go into effect last Thursday night. President Biden was personally called into negotiations on Wednesday night to discuss a deal and express the economic catastrophe that would result from a rail system shut down. The deal gives union members an immediate 14% raise with back pay dating to 2020 and raises totaling 24% during a 5-year contract (2020-2024). Once the deal is ratified, union members will also be given an average of $11,000 per person in bonuses. The crisis shook up stock markets this week as investors and businesses feared a strike would threaten the wider US economy. 30% of US freight is moved by rail.

Europe

• Russian President Vladimir Putin confirmed that the stoppage of gas flows through the Nord Stream 1 pipeline (which has been shuttered since last September) was not due to “maintenance,” but that the pipeline was in fact being used as a political weapon against Europe. The Kremlin stated gas would only begin flowing through the pipeline once European nations dropped their sanctions on Russia. Putin’s statements have sent the European Union (EU) into overdrive as it attempts to prevent an all-out energy crisis this winter. European Commission President Ursula von der Leyen has proposed a new set of energy market reforms to reduce energy prices. Meanwhile, Germany has taken control of Russian-owned refineries located in the country, and it has nationalized its largest natural gas importer, Uniper, in a $29 billion takeover.

• Last week, Ukraine’s military announced it has recaptured 3,000 square kilometers of Russian-held territories in the Kharkiv region following a weekend blitz. Since the beginning of September, Ukraine has reclaimed more than 8,000 square kilometers total, perhaps marking a turning point in the war. As Ukraine attempts to keep up the momentum, Russian President Vladimir Putin announced a new mobilization of troops yesterday, calling up 300,000 reservists to join the fight against Ukraine. Putin also said Russia “will use all the means at its disposal” to defend its territorial integrity, supposedly hinting at his willingness to use nuclear weapons.

• Italy will be holding snap elections on September 25^th following the collapse of Mario Draghi’s unity government two months ago. Giorgia Meloni’s far-right Brothers of Italy party, with support from League and Forza Italy, is leading in the polls and heading for a majority coalition in both houses of parliament. Enrico Letta is the center-left Democratic Party candidate running against Meloni. Meloni says she has no time for Putin and is pro-NATO and pro-Ukraine, unlike some of her right-wing allies, but some other Western leaders are concerned a far-right government in Italy could create cracks in European unity and weaken the Western front against Russia and China.

• Ulf Kristersson has been given a mandate to form Sweden’s next government after winning the majority vote in the general election earlier this month. Kristersson’s party, the Moderates, along with their right-wing bloc allies – the Sweden Democrats, Christian Democrats, and Liberals – won 176 seats in parliament, narrowly beating the center-left’s 173 seats. Kristersson is widely expected to form a minority government. The election has been seen as a watershed moment for Swedish politics because of the influence the anti-immigration, far-right Sweden Democrats have gained.

• The United Kingdom’s Queen Elizabeth II died on September 8^th at 96 years old. Having been coronated in 1953, her 70-year reign was the longest of any monarch in British history, and the longest recorded for any female head of state. Her son Charles III succeeds her. The Queen’s death comes two days after Liz Truss became the UK’s new prime minister. As much of the UK has gone into mourning, the nation faces its worst bout of inflation in 40 years, potential fuel shortages due to the conflict in Ukraine, and a trade battle with Northern Ireland over Brexit.

Asia, Eurasia, & the Pacific 

• Chinese President Xi Jinping met with Russian President Vladimir Putin at a regional security summit in Uzbekistan this month in a clear display of their support for one another. Putin applauded Xi for his “balanced” position on the war in Ukraine and affirmed Moscow’s support for Beijing’s policy towards Taiwan, accusing the US of stirring up tensions over the island.

• At the end of August, China announced new Covid-19 lockdowns for nearly 4 million people. Tens of millions of people are now under weeks-long lockdown mandates in China even though the number of active cases is reported to be less than 3,500. Residents across China are reporting food shortages and the inability to get proper medical care. The economic hardship of the lockdowns is intensifying as residents can’t work and industry is shut down. For the first time in 30 years, the economic growth outlook for China this year is slower than the growth of all other emerging Asian economies.

• Uncharacteristic monsoon rains in Pakistan caused catastrophic flooding that resulted in the deaths of more than one thousand people and the displacement of more than 3 million. Pakistani Climate Change Minister Sherry Rehman called it a “climate catastrophe” and explained the country is currently experiencing its eighth rainy period when it usually sees only four. Preliminary estimates put the cost of damages at $4 billion. Pakistani officials have appealed for international aid as the disaster has come amidst an ongoing economic crisis.

• A deadly border clash erupted between Armenia and Azerbaijan this month. The long-running conflict between the two countries over the disputed Nagorno-Karabakh region was reignited after both sides blamed each other for the flare-up. It is the deadliest bout of violence between the sides in two years. The US and Russia (a long-time ally of Armenia) have called for an end to the violence while Turkey has unsurprisingly aligned itself with Azerbaijan, accusing Armenia of violating an existing peace settlement. A fragile Russian-brokered ceasefire is currently holding but further peace talks are needed.  

• Fighting between Kyrgyzstan and Tajikistan broke out last week, killing at least 94 people and injuring more than 100 others. There is a long-standing border dispute between the two nations and tensions over roads, land, and water resources frequently escalate into violence. A third of their shared 1,000 km border is disputed. Amid international pressure, the two sides signed a ceasefire agreement on Friday.

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