We have decided to experiment with the idea of merging our Geopolitical Challenges and The Day After & the Era of Transformation publications, instead of rotating them every other week. We hope you will enjoy our first edition of Geopolitics & the Day After.

The articles we have chosen to highlight this week cover four different developments that will have major short-term and long-term impacts on the global economy, global security, and global politics. First, we dive into what is behind nationwide protests in Iran. Second, we analyze why Putin is wading deeper into what some say is an unwinnable war. Third, we explore the economic tradeoffs of central bank rate hikes. Finally, we review the LNG aspect of Europe’s coming energy crisis. 

Iran’s Hijab Protests Have Lit a Fire the Regime Can’t Put Out

Sina Toossi, World Politics Review

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The death of 22-year-old Mahsa Amini has sparked mass protests across Iran. On September 13th, Amini was taken into custody by the “police for moral security”, also known as the guidance patrol, for violating the theocratic government’s mandatory hijab law: a law that requires women to cover their hair with a scarf and wear loose-fitting clothes and an overcoat around their bodies. Iranian authorities deny reports that Amini was beaten while being arrested and claim she had previous health issues that led to her death. Her family has spoken against the government’s narrative and thousands across 80 cities in Iran are protesting against the guidance patrol and President Ebrahim Raisi’s conservative regime. During Raisi’s presidential campaign, he gave the impression that he would get rid of the morality police. On the contrary, his regime has doubled down on the unpopular policy by creating plans to use artificial intelligence to identify women breaking hijab code. Sina Toossi, the author of this article, argues this effort by the government “reflects its broader hard-line approach when it comes to compromising on the domestic and international stages.” On both the domestic and foreign sides – take the Iran nuclear deal, for example – Raisi’s government has been unwilling to compromise or concede to public demands because of its belief that concession will lead to greater demands, and ultimately the downfall of the regime. Today’s protests which have escalated into some calling for a new government, are starkly similar to the chain reaction of protests that led to Shah Mohammad Reza Pahlavi’s demise in the late 70s. It seems as though Iran’s clerical establishment has failed to learn the lesson that as public anger builds over time, it explodes into a fire that cannot be put out. 

Putin Wades Deeper into the Quagmire

Max Bergmann, CSIS

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“Putin is stuck in a quagmire, where the clearest way out is to stop, turn around, and go back out of Ukraine the way he came in. Yet leaders stuck in an unwinnable war often just wade deeper into the muck.” Russian President Vladimir Putin has failed in his initial objective to swiftly bring down Ukraine’s democracy. Now, it is evident that the Russian military is struggling and Ukraine has the advantage in both manpower and equipment, thanks to supplies from the West. Max Bergmann believes Putin’s latest announcement to mobilize an additional 300,000 troops is necessary for Russia to “hold the line and prevent collapse”. Bergmann also argues that by mobilizing these additional troops, Putin is betting that his regime can successfully wade through the quagmire. However, there are growing signs that Putin is going to lose this bet. His threats of a nuclear response are a sign that Russia’s military is in an even more dire situation than publicly known. A decision to use nuclear weapons would isolate Russia even more and it could bring the war home, risking the complete collapse of public support which is already beginning to wane: “Wars are popular until they suddenly are not.” Furthermore, Russians are increasingly feeling the economic costs of war as Western sanctions wear down Russia’s economy and weaken Putin’s war machine. The largest threat to Putin’s regime is not Ukraine or Western sanctions; it is the loss of the Russian people’s support. 

The Global Race to Hike Rates Tilts Economies Toward Recession

Rich Miller, Bloomberg

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After central banks were slow to the plate in battling the worst bout of inflation in decades, economists are worried that the Federal Reserve and its international counterparts will overcorrect the ship into a recession. The near-universal movement toward aggressive rate hikes has shifted the baseline upwards and decisively away from the cheap money regimes of post-2008 monetary policy. The banks understand the tradeoff and seem determined to push forward; Fed Chair Jerome Powell acknowledged that the Reserve’s moves will “bring some pain” to the US economy even as the bank proceeded with a third 0.75% hike. Analysts at BlackRock estimate that bringing inflation back down to the Fed’s long-term goal of 2% would increase unemployment by 3 million people and usher in a deep recession. The outlook is worse for Europe, where energy price inflation is only accelerating. A nontrivial contribution to the severity and pace of these moves is likely the Federal Reserve’s loss of credibility following its misjudgment of “transitory” inflation – the Fed may be overreacting to assure the economy that they are driving the car. With the majority of the world’s central banks slamming on the economic brakes, a global crash and recession may be inevitable.

As Winter Approaches, a Global Battle for Liquefied Natural Gas has Begun

Marjorie Cessac, Le Monde

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Since the beginning of Putin’s war in Ukraine, European imports of liquified natural gas (LNG) have increased by 60% as supplies from Russia dried up. This has been further exacerbated by the alleged sabotage of the Nord Stream pipeline in the Baltic Sea. With natural gas pipelines offline, much of Europe’s gas supply has been diverted from Asia, leading to a global scramble for diminishing stocks of LNG as winter closes in on the northern hemisphere. Chinese demand is a key element of the dynamic – even with the country’s coal plants online, China may choose to stockpile LNG and sell it back to countries with greater need at a huge profit. With little infrastructure in place to aid the flow of natural gas to Europe outside of Russian assets, EU policymakers are scrambling to ensure supply will meet demand.