To begin this week’s newsletter, we look at a historic shift in the Beijing-Moscow relationship, where Russia’s dependence on China has drastically grown. Then, we examine the role that minerals critical for the green transition will have for geopolitics and the fight against climate change. We then move to a discussion of global financial markets, including the strong US dollar, China’s offloading of a record amount of US debt, and European economic growth. To end this week, we examine the impact that the death of Ebrahim Raisi, the president of Iran, may have on Iran and the region as a whole.

Sino-Russian Relations Enter New Era with China as the Senior Partner

Vladimir Putin and Xi Jinping vow to co-operate against ‘destructive and hostile’ US

Joe Leahy, Max Seddon, and Demetri Sevastopulo, Financial Times

Xi Jinping Embracing Vladimir Putin in Defiance of the West

David Pierson, New York Times

Vladimir Putin and Xi Jinping: No longer a partnership of equals

Laura Bicker, BBC

During President Vladimir Putin’s two-day state visit to China, the Russian leader and his Chinese counterpart Xi Jinping affirmed their commitment to cooperate against perceived US hostility, emphasizing their strategic partnership amid Western pressure over Russia’s actions in Ukraine. The leaders pledged to strengthen military ties and expand economic cooperation, with a joint statement denouncing US policies deemed threatening to both Russia and China’s security interests. While China has faced pressure from the US to withdraw support for Russia, particularly regarding the Ukraine conflict, Xi’s warm welcome to Putin signals Beijing’s willingness to defy Western pressure and maintain its partnership with Moscow, despite potential economic repercussions.

Putin’s recent visit to China also showcased his desire, and Russia’s need amid its global pariah status, to strengthen economic ties with China. It also highlights a shift in the dynamics of their relationship, where Xi and China are now the senior partners as Russia becomes dependent on Chinese dual-use technology and banks to fuel the war machine. While Putin emphasized camaraderie with China, Xi Jinping’s responses were more reserved, indicating China’s cautious approach and recognition of its interests. Chinese interests, not Russia’s will drive Xi’s decision-making. If a Russian defeat in Ukraine appears imminent, analysts expect Xi to distance China from Russia, as he does not want China to be isolated from the global economy as Russia has become. Still, Putin was afforded the opportunity to visit Xi in his official residence Zhongnanhai, and continues to have the attention of the Chinese leadership. Many experts see this signaling the importance that Xi continues to place on China’s relationship with Russia, especially as he seeks to craft a new world order not dominated by the United States and the West.

Critical Mineral Shortfall Creates Geopolitical Challenges and Investment Opportunities

How to Break China’s Hold on Batteries and Critical Minerals 

Brian Deese, Foreign Policy

Green Transition Set to Face Critical Minerals Shortfall, IEA Says 

Joseph Hoppe, Wall Street Journal

The global transition to electric vehicles (EVs) and renewable energy sources is reshaping geopolitical dynamics, with significant implications for energy security and international relations. China’s dominance in EV production and its control over critical minerals supply chains, including lithium, cobalt, and rare earth elements, has positioned it as a key player in the green energy transition. This dominance has raised concerns among other nations, particularly the United States, about dependency and strategic vulnerabilities in the supply of critical minerals necessary for EV batteries and renewable energy technologies. China’s strong presence in the global EV market, bolstered by government support and investment in infrastructure, gives it considerable leverage over the supply and pricing of critical minerals. As the world accelerates its shift towards clean energy, the demand for these minerals is expected to skyrocket, potentially leading to supply shortages and price volatility. For example, International Energy Agency (IEA) analysts predict that the world’s current projected lithium supply will meet only 50% of global demand by 2035, while copper will only meet 67%. The concentration of mineral reserves in a handful of countries, coupled with geopolitical tensions and trade disputes, further exacerbates concerns about supply chain security and reliability. The recent warning from the IEA about a critical mineral shortfall underscores the urgent need for strategic planning and international cooperation to address supply chain vulnerabilities.

Diversifying sources of critical minerals, investing in domestic production and recycling technologies, and fostering innovation in materials science are key strategies to reduce dependence on a limited number of suppliers and mitigate the risks associated with supply disruptions. Moreover, the competition for access to critical minerals is likely to intensify, leading to geopolitical competition and potential conflicts over resource-rich regions. Countries with abundant mineral reserves, such as those in Africa and South America, may become focal points for geopolitical rivalries and investment in mining and processing infrastructure. Efforts to secure access to critical minerals and build resilient supply chains will be crucial for countries seeking to transition to a low-carbon economy while minimizing geopolitical risks. International collaboration and multilateral initiatives aimed at promoting sustainable and responsible mineral extraction practices can help ensure that the green energy transition contributes to global energy security and geopolitical stability.

The Dollar and Global Financial Markets

The Dilemmas of the Dollar 

Barry Eichengreen, Project Syndicate

China Sells Record Sum of US Debt Amid Signs of Diversification

Masaki Kondo & Iris Ouyang, Bloomberg

At long last, Europe’s economy is starting to grow

The Economist

The strong dollar is causing jitters in financial markets. The US dollar has surged, particularly against Asian currencies like the Japanese yen (down 13% this year, and down over 50% since 2021) and the South Korean won. This strength is due to a robust US economy while the Federal Reserve keeps interest rates high. Meanwhile, other central banks with weaker growth are keeping rates lower, leading their currencies to weaken against the dollar. While concerns exist about a potential collapse in confidence and hyperinflation in Japan, their history with deflation makes this unlikely. The US, still battling inflation, is unlikely to cut rates or weaken the dollar intentionally through measures such as the 1985 Plaza Accord. At the same time, China offloaded a record $53.3 billion of US Treasury holdings in the first quarter, a move seen as a shift away from US assets. This record sale comes despite an anticipated US interest rate hike, suggesting China is deliberately diversifying its reserves. This aligns with China’s rising gold holdings, which hit a record high of 4.9% of their reserves in April.

Across the Atlantic, Europe’s economy is beginning to show signs of improvement after a long period of stagnation. While growth hasn’t been spectacular compared to the US, the Eurozone did escape recession with 0.3% growth in Q1 2024. Inflation is also under control, hovering around the ECB’s target of 2%. This progress comes with low unemployment and is particularly positive for Southern Europe. With inflation tamed, central banks are starting to cut interest rates, further aiding the recovery. However, long-term challenges remain. Europe needs to boost productivity and investment to truly thrive, or risk falling further behind the US in terms of GDP per capita.

Raisi’s Death Creates Transition Complications

After President Raisi’s Death, Iran’s Elections Pose Tricky Test for Rulers  

Erika Solomon, New York Times

The death of Iran’s president will spark a high-stakes power struggle 

The Economist

Iran President Raisi’s death injects new uncertainty into the Middle East

Takeshi Kumon, Nikkei Asia

The death of Iran’s President Raisi, as well as of Foreign Minister Hossein Amirabdollahian, poses a significant geopolitical challenge with implications extending beyond Iran’s borders. As the country gears up for constitutionally mandated elections, the intensifying power struggle within its political elite is not only shaping domestic policies but also influencing regional dynamics. Iran’s pivotal role in the Middle East, its relationships with neighboring countries, and its involvement in regional conflicts could undergo shifts depending on the outcome of this internal power struggle. Moreover, given Iran’s central position in global energy markets and ongoing nuclear negotiations, the leadership transition carries implications for international diplomacy and regional stability, particularly in its interactions with outside powers like the US.

Accordingly, the death of President Raisi has sparked speculation and concern among international observers, given Iran’s influential role in shaping geopolitical dynamics in the Middle East. Any internal instability or strife within Iran could have ripple effects across the region, potentially exacerbating existing conflicts in Gaza and Yemen and complicating efforts toward regional peace and security. Additionally, the outcome of Iran’s leadership transition is likely to shape the country’s foreign policy approach, impacting its alliances and interactions with other global powers, thus influencing the broader geopolitical landscape in the Middle East and beyond. Despite the influential position of the president, the ultimate authority regarding foreign policy lies with the Supreme Leader, meaning that candidates will have to be regime-aligned. The New York Times suggests that potential successors to Raisi include Mohammad Baqer Ghalibaf, a career technocrat and current Speaker of Parliament, and regime hardliner Saeed Jalili, a former Revolutionary Guard fighter and nuclear negotiator. The Guardian Council, responsible for vetting presidential candidates, is expected to restrict candidacy to those aligned with the regime, as seen in the 2021 election where hundreds of candidates were barred from running, paving the way for Raisi, a close ally of the Supreme Leader, to win. Additionally, ever-decreasing voter turnout due to voter frustration over the prohibition of certain candidates could hurt the regime’s legitimacy which has historically relied on high turnout for credibility.