The world has been devastated by the news coming out of Israel and Palestine this week, with hundreds of civilians killed and tens of thousands caught in the middle of Hamas’ attack on Israel. In our first set of articles this week, we look at recent Israeli political events that may shed some light on the factors that have led to this bloody period in the Israel-Palestine conflict. Moving on, we read about the end of a different regional conflict, one between Armenia and Azerbaijan that may actually be ushering in a new chapter of tensions between the two nations. Then, we take a turn to the markets to assess the high yields we are experiencing in bonds. To wrap up this week’s newsletter, we review the economic and security challenges facing Europe as competition from China and Russia mounts.

Hamas’ Attack on Israel Exposes Netanyahu

Netanyahu Bears Responsibility for This Israel-Gaza War

Haaretz Editorial

The lessons from Hamas’s assault on Israel

The Economist

How Hamas staged Israel lightning assault no-one thought possible

Sean Seddon & Daniele Palumbo, BBC

Hamas’ attack from the Gaza Strip was launched from the land, sea, and air, and has seen hundreds of innocent lives killed. Not only has it brought the human tragedy that is the Israel-Palestine conflict back into the spotlight, but the recent events have also shown how Israeli leadership may have recklessly endangered its own people. Israel’s Prime Minister Benjamin Netanyahu oversaw the country’s most right-wing governing coalition ever, with ministers pushing increased Jewish settlements, attempts to annex parts of the West Bank, and efforts to undermine the authority of the country’s judiciary. After Hamas’ attack, he swore retribution. But what price would Israel pay? Israeli forces, if sent into Gaza, would face horrific urban warfare in one of the most densely populated areas of the world. Civilian casualties would mount and violence would be more likely to spread to the West Bank or Lebanon. Netanyahu’s attempts at weakening the courts to avoid corruption charges came hand-in-hand with sidelining important intelligence officers, which could help explain Israel’s surprise at the attack. As the featured articles suggest, his policy of arrogance, of ignoring the Palestinian question while going about its business in the Middle East, has failed to disastrous effect. Events are still in motion, but it’s likely that Netanyahu’s gamble – his partnering with right-wing elements, his judicial reforms, and his reckless domestic and foreign policy – may have helped set the course of today’s tragedy.

Armenia & Azerbaijan Conflict

Armenia’s Mortal Calculus

Susan Barba, The New York Review



The End of Nagorno-Karabakh

Thomas de Waal, Foreign Affairs

After over thirty years of on-and-off war between Azerbaijan and Armenia over the breakaway Nagorno-Karabakh region, an Armenian enclave internationally recognized as a part of Azerbaijan, the conflict is coming to an end. With it, the eviction of almost, if not all, ethnic Armenians from this tumultuous slice of the Caucus mountains, as many ethnic Armenians flee rather than subject themselves to the whims of Azerbaijan. While this resolves one issue between Azerbaijan and Armenia, it has not engendered a lasting peace. Azerbaijan, having resolved its territorial dispute within Nagorno-Karabakh, has now set its gaze on “Western Azerbaijan,” or the region situated between the Azerbaijani exclave region of Nakhichevan. Whether Azerbaijan seeks to annex more land or simply open the Zangezur Corridor connecting Azerbaijan with its exclave remains to be seen. Further, the role Western governments, Russia, and Turkey may play is also up for grabs, as Russia shows signs of distraction from the Caucuses, while Turkey and Western governments increase their role. So while the chapter on Nagorno-Karabakh has come to an end, conflict between Azerbaijan and Armenia may only have entered the next phase.

Can Higher Yields Reconnect the Market to Main Street?

Pax Volckeriana Is Done. Welcome to the New Order

John Authers, Bloomberg

Five lessons from today’s bond market turmoil

Gillian Tett, Financial Times

Welcome Back, Bond Market

Editorial Board, The Wall Street Journal

What do high long-term bond yields mean for the United States?

After Nixon killed the gold standard, the global financial system weathered a decade of chaos, one which was slain by the Federal Reserve’s Paul Volcker. He showed that he was willing to force the US into a recession in order to control inflation, lending much-needed credibility to the greenback. A steady downward trend in 10-year yields followed for three decades, up to the point where a 4.8% yield, which was fairly normal for most of the 20th century, is now considered outrageous. This came to an end when pandemic spending-fueled inflation soared, sending the Fed on a crusade to quash it through raising interest rates and quantitative tightening. Yields have seen a new upward trend – a new era, not necessarily of rising yields, but one marked with more uncertainty and geopolitical tensions, and thus fundamentally different, than the years after Volcker. Financial conditions are tightening, and money is becoming more expensive. This may not be a bad thing; the era of cheap money, especially after the 2008 financial crisis, brought a lot to Wall Street and left little to Main Street. People (and firms) tend to spend money in more disciplined ways in tighter conditions. Higher yields – once seen as normal – can help un-distort markets which have been floating further and further away from reality.

EU Economic and Security Competition

Macron Is Pushing Europe Into $900 Billion Fight With China

William Horobin & Ania Nussbaum, Bloomberg

The Promise and Peril of EU Expansion

Carl Bildt, Foreign Affairs

The European Union (EU) is facing both economic and political challenges as competition with China and Russia takes on new proportions. Regarding competition with China, French President Emmanuel Macron has spearheaded an initiative to investigate Chinese electric vehicle subsidies that may be making European electric vehicle manufacturing non-competitive. The purpose of these measures is to level the playing field with China, rather than commit to economic combat. Still, the move faces the risk of Chinese retaliation, in line with the “dissatisfaction” that their foreign minister has expressed upon the EU opening its investigation.

Meanwhile, security competition stemming from Moscow after Russia invaded Ukraine has reiterated the need for the EU to secure its Eastern flank. In order to do this, the most viable option is to offer EU membership to both Ukraine and Moldova. In so doing, the EU can buffer its flank against Moscow, while setting the stage for another ex-Soviet bloc success story, similar to Poland’s emergence as a powerful economy after the collapse of the USSR. While accession has certain pitfalls and Ukraine and Moldova both must contend with corruption and problems pertaining to rule of law, the upside is significant and would improve Europe’s security position in the long term.