To begin this week’s newsletter, we examine Ukraine’s recent offensive into Kursk, highlighting the geopolitical ramifications of the invasion. Then, we touch on markets, including what some analysts believe to be a “fools’ rally” as well as the end of the iron ore commodity boom. We then move on to look at authoritarian leaders wielding their power globally, from Turkey’s recent focus on African engagements to Orbán’s disruption in the EU. We end this week’s newsletter by looking at the recent events in Bangladesh, focusing on the consequences that the ousting of Prime Minister Sheikh Hasina has for the region.

Ukraine’s Kursk Offensive May Leave East Vulnerable

Ukraine’s Kursk Offensive Is a Turning Point in the War 

Carl Bildt, Foreign Policy

Russia Closes In on Key Eastern Ukrainian City Despite Kursk Incursion

Constant Meheut, New York Times

The Geopolitical Opportunity of Ukraine’s Kursk Offensive 

A. Wess Mitchell, Foreign Policy

Ukraine’s unexpected incursion into Russia, which led to the capture of Kursk, 70 additional Russian villages, and key infrastructure—covering about 386 square miles—has upended the narrative pushed by Putin and the Kremlin. They had suggested that Ukrainian defeat was inevitable, with Russia’s focus on steadily depleting Ukrainian forces and annexing small pieces of Ukrainian territory. However, Ukraine’s success has exposed significant gaps in Russia’s border defenses and demonstrated that Ukraine’s downfall is not preordained, especially if Western support for Ukraine intensifies, which could compel Russia to take a more favorable stance towards Ukraine at a future negotiating table. Experts believe that increased Western support and prompt action are crucial, particularly as other global conflicts—such as a potential Chinese invasion of Taiwan or greater conflict in the Middle East—loom. Since Russia’s invasion in 2022, the West has largely missed opportunities to swiftly supply Ukraine and has not sufficiently enhanced its own production capabilities. Currently, the US and the European Union (EU) are significantly outpaced by Russia in ammunition production. The US is producing only 80,000 155mm artillery shells monthly, barely meeting Ukraine’s needs, let alone preparing for potential future conflicts. To address these challenges, the US must urgently ramp up its defense industrial capacity, encourage the EU to bolster its defense capabilities, and equip Ukraine to effectively counter Russia. This will help stabilize Europe and ensure readiness for other potential global conflicts, relying on a strategic approach to avoid simultaneous major confrontations.

Conversely, the Ukrainian incursion into Russian territory has not had the desired impact of compelling Russian military commanders to reallocate troops from crucial areas in Ukraine. Russian forces continue their methodical advance toward the strategic town of Pokrovk, aiming to secure control over the entire Donetsk region in eastern Ukraine. There are growing concerns among US officials that Russia might intensify its efforts in eastern Ukraine in response to the embarrassing Kursk incursion. Moreover, it remains uncertain whether Ukrainian forces operating within Russia can maintain their presence and hold captured territory, especially with Russian reinforcements beginning to arrive. While the incursion has boosted morale among Ukrainian troops in the Donetsk region, there is increasing worry that the resources—such as weapons and ammunition—needed for defending against Russian advances are being diverted to sustain the incursion, potentially undermining their defensive capabilities moving forward and increasing the need for Western support.

Uncertain Market Measures & the End of the Iron Ore Boom

Markets Are Way Out of Line With Reality, According to These Measures 

James Mackintosh, Wall Street Journal

Welcome to the End of the Biggest Commodity Boom 

Javier Blas, Bloomberg

The current stock market rally, characterized as a “fools’ rally” by valuation measures such as the CAPE ratio, forward PE, and the Fed Model, reflects a stark disconnect between market prices and economic fundamentals. Long-term investors face a complex challenge: despite the popular advice to buy and hold, these valuation tools indicate that large US stocks are significantly overpriced. The CAPE ratio, which adjusts for inflation and averages earnings over a decade, shows the S&P 500 is at levels not seen since 1929, meaning the S&P is extremely expensive and the biggest companies’ stocks even more so. Similarly, forward PE ratios and the Fed Model also signal that stocks are expensive compared to historical norms and safer investments like Treasurys. This suggests that the recent rebound might not be sustainable, highlighting the need for cautious re-evaluation of investment strategies even for those with a long-term horizon. However, while these three measures fail to consider the economy, geopolitics, and domestic politics, the measures have been largely successful in explaining the change in returns for roughly the last four decades.

In the global commodities market, the iron ore sector is witnessing the end of a historic boom driven by China’s rapid industrialization. From the late 1990s to early 2024, iron ore prices soared nearly tenfold and trade volume tripled, but as China’s steel demand peaks and its economy shifts away from heavy construction, the market faces an oversupply crisis. Prices have already dropped significantly from their peak and are expected to decline further as new low-cost mines enter production and high-cost producers are squeezed out. Hu Wangming, chairman of China Baowu Steel Group Corp., largest steelmaker in the world, has predicted a ‘severe winter’ for the sector overall. The shift signals not a collapse but a recalibration of the market (as iron ore prices are almost certain to drop due to oversupply and lowered demand), with substantial implications for global mining companies, countries dependent on earnings from the export of iron ore, and smaller iron ore producers who are likely to be forced out due to the probable decline in prices.

The Expanding Influence of Authoritarian Regimes

Flexing its Muscle, Turkey Is Spreading Its Influence in Africa 

Simon Marks and Mohamed Sheikh Nor, Bloomberg

Make Europe Great Again

Jan-Werner Muller, The New York Review

Turkey’s pursuit of global influence and resources is increasingly evident in its recent engagements in Africa. As Turkey aims to reduce its reliance on less reliable energy providers like Russia and Iran, it is turning to Western and Middle Eastern sources while seeking opportunities to take advantage on potential resources in countries such as Somalia and Niger. Turkey’s relationship with Somalia is particularly strong, marked by significant Turkish economic influence: Turkish companies operate both the sea and airports, Turkish goods are widely available, and Turkey is actively exploring for oil of the Somalian Coast. Additionally, Turkey’s soft power initiatives facilitate travel and educational exchanges for Somalis, while Somalia has allowed Turkey to maintain its largest overseas military base on its territory. In Niger, Turkey has taken advantage of the departure of French and American troops forced out by the country’s military regime by signing numerous agreements with the state and the apparent deployment of the Turkish private military company SADAT to partially fill the security vacuum left by the exit of Western troops. This strategy aims to enhance Turkey’s influence and access to valuable resources and is being played out across the continent in other countries like Algeria and Burkina Faso.

Meanwhile, in Europe, Viktor Orbán, Hungary’s longest-serving leader, has expressed a desire to expand his influence by “occupying Brussels” to reshape the European Union (EU) from within rather than exiting it. His ambitions, which began with his hardline stance on migration during the 2015 refugee crisis, are rooted in his “Christian Democracy” ideology. This ideology promotes traditional values and nationalism while opposing liberalism and has been used to justify rights restrictions and political manipulation in Hungary. Despite his unpopularity in Europe, Orbán’s methods have resonated with some American right-wing figures, including Republican vice-presidential nominee JD Vance. However, Orbán faces internal challenges, such as corruption scandals and dissatisfaction with his economic policies, which could affect his political future. He also faces renewed opposition from Péter Magyar, a fellow conservative and nationalist whose Tisza Party won 30% of the vote in the recent EU elections.

Bangladesh PM Ousting Leaves New Delhi and Beijing in Limbo

Nobel winner Yunus picking up ‘mess’ left by ousted Bangladesh PM

Faisal Mahmud, Nikkei

India faces major foreign policy challenge with Bangladesh crisis

Kiran Sharma, Nikkei

For China, Bangladesh crisis spells opportunity and awkward social echoes

Cao Li, Nikkei

The recent political upheaval in Bangladesh, marked by mass protests in which over 400 people died, resulted in the ousting of the autocratic Prime Minister Sheikh Hasina. Her removal from office as well the continued state of unrest in the country has significant implications for both regional and global players. Just weeks before her ouster, Hasina was in Beijing, solidifying a series of agreements with China, including a substantial $140 million aid package and advancements in their “comprehensive strategic cooperative partnership.” However, with her government ousted and new interim leadership in place until elections can be administered, China is left in a delicate position. While Beijing has invested heavily in Bangladesh’s infrastructure and military cooperation, the uncertainty surrounding the new interim government could either present new opportunities or significant risks. China remains cautious, observing the unfolding situation while hoping for a stable transition that could favor its interests more than Hasina’s pro-India stance did.

For India, the crisis in Bangladesh poses a substantial foreign policy challenge. Hasina’s regime, known for its close ties with New Delhi and its efforts to enhance trade and connectivity, has been replaced by an uncertain interim administration that could potentially shift towards anti-India elements. The fallout from Hasina’s departure could strain the robust economic and political relationship between the two neighbors, particularly affecting crucial infrastructure projects and trade dependencies. As India navigates this volatile situation, its primary concern remains maintaining stability and securing its interests amidst a potential realignment in Dhaka’s foreign policy, which could see increased Chinese influence and possibly a strengthening of ties with Pakistan.