To begin this week’s newsletter, we examine how Gulf States are trying to expand their economic horizons beyond oil. Then, we look at one of the less-examined conflicts, despite the incredible human suffering it has caused, the Sudanese civil war. We then move to analyze the growing threats to the international order from a collection of states that wish to undermine it. To end this week, we touch on some warning signs in US equities, and how a strong dollar plays into these concerns.

Gulf States Seek to Grow Influence beyond Petrodollars, but Oil is Still King

Gulf States Learn the Power and Limits of Petrodollar Persuasion – Bloomberg

Ziad Daoud, Bloomberg

Oil Tests Central Banker Nerves With Mideast on ‘Knife Edge’ – Bloomberg

Craig Stirling & Katia Dmitrieva, Bloomberg

Western anxieties about a major oil price hike due to conflict in the Middle East haven’t materialized yet, underlining the region’s ongoing dependence on the commodity and the need to keep oil flowing. Still, prices could rise if the conflict in Gaza expands in a way that negatively impacts Gulf oil production and forces the closure of the Strait of Hormuz—the channel in which a fifth of the world’s oil supply transits to enter global markets. According to Bloomberg Intelligence, if that scenario were to occur, crude oil could hit $150 a barrel. While the oil continues to flow, the Gulf states— particularly the United Arab Emirates, Qatar, and Saudi Arabia—are actively utilizing the profits earned to invest in new economic sectors for future prosperity and to increase their influence on the global stage.

The Gulf’s oil-fueled investments have seen acquisitions of American tech companies, European football clubs, and African mines all with the intent of transforming the regional economy away from a dependence on hydrocarbons to one fueled by gains made from investments. In 2016, Saudi Crown Prince Mohammed bin Salman stated his aim clearly that the Saudi intent is to “make investments the source of Saudi government revenue, not oil.” Despite these efforts to diversify, oil remains the primary driver of Gulf economies and the world’s fuel. Consequently, Western nations are particularly nervous as the potential for oil shocks rises with missile and drone strikes between Israel and Iran. Major oil price hikes could worsen Western efforts to control inflation as fuel costs push up prices for goods. Additionally, disruptions to oil production and shipment from the Gulf would hinder the economic aspirations of this still oil-reliant region.

Sudan: The Unseen War

The worst forgotten conflict in the world: Sudan’s civil war one year on  

Jehanne Henry, Middle East Institute

‘Death has become normal’: war closes in on Darfur’s besieged capital

Zeinab Mohammed Salih, Financial Times

Looking Ahead after a Year of Conflict in Sudan 

Cameron Hudson, Center for Strategic & International Studies

Civil War in Sudan

Ken Opalo, An Africanist Perspective

The ongoing civil war in Sudan has seen the Sudanese Armed Forces (SAF) and the paramilitary Rapid Support Forces (RSF) entrenched in a fierce conflict since mid-April 2023. The SAF controls the north and east, while the RSF holds sway over parts of the capital, Khartoum, as well as the south and west, including the Darfur region. This division is further complicated by international involvement, with a UN panel finding the UAE in breach of an arms embargo for supporting the RSF, and Egypt backing the SAF. Other regional powers like Saudi Arabia, Turkey, Russia, and Iran also seek to influence the outcome, with the latter two eyeing strategic gains such as a naval presence on the Red Sea along Sudan’s long coastline.

The human cost of this struggle is staggering, with tens of thousands dead and over 10 million displaced, creating the world’s largest displacement crisis and a looming hunger catastrophe. Despite this, ceasefire efforts have been futile, though the increased attention from the UN, the US, and the African Union, all sending special envoys, offers a glimmer of hope. The significance of Sudan’s stability is underscored by its position amidst volatile regions, with the potential to become a breeding ground for jihadism. The resurgence of local militias, often harbingers of civil violence, adds to the complexity. The external support to warring factions only exacerbates the conflict, with no clear path to peace. Sudan’s history of prolonged military rule and economic underdevelopment further complicates the situation. A concerted international effort towards a ceasefire, starting with reducing violence, is imperative for initiating a break from the cycle of military dominance and steering Sudan towards a peaceful future.

Risks to the International Order Rise as America’s Enemies Coalesce

The Axis of Upheaval: How America’s Adversaries Are Uniting to Overturn the Global Order 

Andrea Kendall-Taylor & Richard Fontaine, Foreign Affairs

How escalating tensions in Middle East threaten Asia’s security 

Hiroyuki Akitta, Nikkei Asia

The current liberal international order, dominated by the United States and the West, faces growing challenges from strengthening ties between China, Russia, Iran, and North Korea. Each nation has areas of influence that clash with US interests. They’ve sought cooperation to counterbalance American power, despite the US remaining the world’s leading military and economic force. These deepening ties, evident through increased trade (including weapons) and shared disillusionment with the US-led order, have accelerated in recent decades. The Russian invasion of Ukraine has further solidified this convergence. However, the Russian invasion of Ukraine has provided an accelerant to the convergence of these nations as Russia has come to rely on China, Iran, and North Korea for both economic and military support as the West has sought to isolate the state with sanctions. These nations also leverage Russia’s military expertise: China receives advanced weapons, intelligence, and training; Iran gets advanced aircraft, air defense systems, and enhanced intelligence capabilities; North Korea benefits from Russian knowledge to bolster its missile program. This strategic convergence of American adversaries is of major concern to the West and capabilities being gained by these states could stoke conflicts within the spheres of influence they seek to claim.

Russian military exports to Iran could embolden Iran as its offensive and defensive capabilities improve in a way that further inflames the conflict in the Middle East. North Korea has also been launching missiles at a much faster pace as it receives support from Russia, increasing tensions on the Korean Peninsula. China remains the power player of the four based on its economic prowess and ever-improving military capability and could spark a conflict in East Asia as it seeks to reclaim primacy in Taiwan and the South China Sea. In the event of an invasion or expansion of conflict being perpetrated by any one of these states, they have evidence that they can rely on one another to sustain their efforts. The United States and its Western partners can still maintain an advantage in terms of military and economic power, stability, values, and geography. However, they must collaborate, recognize these adversarial threats as interconnected, and leverage their advantages to influence middle powers like Brazil, India, Indonesia, Saudi Arabia, South Africa, and Turkey to support the existing international order. Additionally, preventing Ukraine’s fall to Russia and stopping wider war in the Middle East is crucial, as these events would only embolden these adversaries and further weaken the current order.

Warning Signs in US Stocks

The Stock Market Is Flirting With Trouble. Watch These Key Price Levels. 

Jacob Sonenshire, Barron’s

US stocks rally could falter in face of strong dollar, warn analysts 

Stephanie Stacey & Ray Douglas, Financial Times

US stock markets are experiencing significant declines following a disappointing GDP report and concerns about the tech sector, particularly after Meta Platforms reported unsatisfactory revenue and spending projections. The S&P 500 index fell by 1.3%, with Meta’s 12% drop influencing other tech giants like Alphabet, Amazon.com, and Trade Desk to also decline. This downturn is affecting various sectors, including consumer, retail, and financial. Overstretched valuations after prolonged gains, coupled with high inflation and the Federal Reserve’s stance on interest rates, are contributing to the market’s struggles. The S&P 500 is teetering above a crucial support level near 5,000, specifically at 4,967. If it falls below this threshold, it could lead to further losses. The index is also below its 50-day moving average of 5,121, which historically precedes a fall to its 200-day moving average, currently at 4,686—a potential additional drop of over 6%. While there’s a pattern of recovery near the 200-day average, strategists suggest more short-term declines are likely as the market adjusts to these risks.

The relative strength of the dollar may also be cause for concern. While both US stocks and the dollar have risen this year (bucking historical trends), analysts are skeptical about how long stocks can maintain their levels alongside a strengthening dollar. High interest rates have propelled the dollar’s rise, which previously weighed down stocks in 2022. A strong dollar can reduce the value of US companies’ international earnings, impacting profits and stock valuations. However, the market has better absorbed the dollar’s ascent this year, and central banks may shift to easing strategies (although not yet, given the Fed’s statements yesterday), which could affect the dollar’s strength. Despite reduced expectations for US rate cuts, stocks have held, but strategists caution that continued dollar strength could challenge the equity market’s resilience. The impact of a strong dollar varies across sectors, with major tech stocks potentially less affected than others. If the dollar’s rise persists, some analysts predict that it could shift the performance balance in favor of non-US equity markets, which have trailed behind Wall Street’s gains in the past year.