In Geopolitics Today: Thursday, April 4th
Iraq Blames IOCs for Ongoing Kurdish Oil Embargo, Danish Strait Closed After Naval Missile Malfunction, and other stories.
Iraq Blames IOCs for Ongoing Kurdish Oil Embargo
More than a year after the Federal Government of Iraq (FGI) imposed an embargo on oil exports from the semi-autonomous Kurdistan region, Baghdad is now blaming international oil companies (IOCs) for the ongoing impasse. Baghdad likely wishes to erode Kurdistan's independence and financial autonomy, with the ultimate goal of reintegrating the region into a unified Iraq under a new oil law administered from Baghdad.
The FGI's stance is supported by regional powers Iran, Russia, and China, who oppose an independent Kurdistan due to concerns over their own Kurdish populations and the desire for greater control over Iraq's vast oil and gas resources. The embargo, which began shortly after the Iran-Saudi Arabia rapprochement deal in March 2023, is seen as a means to bankrupt Kurdistan and force it to accept a deal that would effectively strip it of its autonomy. By blaming IOCs for the ongoing embargo, Iraq's Oil Ministry can continue to delay the resumption of Kurdish oil supplies until the region capitulates to Baghdad's demands.
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Turkey and Iran Deepen Energy Ties
Turkey and Iran have kicked off technical talks aimed at bolstering energy cooperation, with a particular focus on natural gas trade. Turkish Deputy Minister of Energy and Natural Resources Alparslan Bayraktar met with Iranian Oil Minister Javad Owji and his counterpart, Ali Akbar Mehrabian, in Tehran to discuss expanding the long-standing energy partnership between the two countries. Iran, which has exported 156 billion cubic meters of natural gas to Turkey over the past 28 years, remains Ankara's second-largest natural gas supplier, meeting 16% of its needs in 2023.
The talks come as Turkey seeks to secure new gas contracts with Iran and explore opportunities for increased electricity trade and renewable energy collaboration. Despite the geopolitical rivalry between the two regional powers, particularly in Syria where they support opposing sides, economic ties have remained strong. In 2023, Turkey-Iran trade volume reached approximately $5.5 billion, overshadowing trade with several of Turkey's other neighbours. Presidents Recep Tayyip Erdoğan and Ebrahim Raisi have reaffirmed their shared goal of increasing bilateral trade to $30 billion in the near future, underscoring the importance of economic cooperation in navigating the complex regional dynamics of the Middle East.
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Danish Strait Closed After Naval Missile Malfunction
Denmark has closed a portion of the Great Belt strait, a crucial shipping lane, after a missile failure on a Danish navy ship triggered concerns about falling debris. The National Maritime Authority warned vessels to avoid the area due to the risk of “falling missile fragments” and instructed ships to drop anchor if necessary. The incident occurred during a mandatory test on the Niels Juel frigate, part of NATO's standing naval force, when the missile launcher was activated but could not be deactivated.
The closure of the Great Belt strait, a key passageway between the Baltic Sea and the Atlantic Ocean, has significant implications for global shipping, particularly for Russia's shadow fleet of oil tankers seeking to circumvent sanctions. With over 3 million barrels of oil passing through the Danish Strait daily, the incident highlights the challenges of enforcing EU sanctions against Russia in the region. The Danish military emphasized that while the missile contained 150 kg of explosives, it was not armed and would not detonate if it crashed into the sea. The incident comes amid a turbulent week for the Danish navy, following the dismissal of its chief of defence for failing to report malfunctioning weapons systems on another frigate in the Red Sea.
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Somalia Expels Ethiopian Envoy
Somalia has expelled Ethiopia's ambassador and ordered the closure of two Ethiopian consulates in the breakaway regions of Somaliland and Puntland, accusing Addis Ababa of “bluntly interfering” in its internal affairs. The move marks a significant escalation in the diplomatic rift between the two Horn of Africa nations, stemming from a controversial maritime deal signed between Ethiopia and Somaliland in January.
Under the agreement, Somaliland leased 20 kilometres of coastline near the port of Berbera to Ethiopia for 50 years, granting the landlocked country long-sought access to the Gulf of Aden for military and commercial purposes. Somalia, which claims Somaliland as its territory despite the region's de facto independence since 1991, has vehemently opposed the deal, viewing it as a violation of its sovereignty. The dispute has stoked fears of prolonged instability in the already fragile region, with Somali President Hassan Sheikh Mohamud warning that his country will “defend itself” if Ethiopia proceeds with the agreement. As tensions simmer, the international community, including the United States, has called on both nations to resolve their differences through dialogue and avoid further conflict in the Horn of Africa.
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EAEU Expansion Efforts Face Headwinds
The Eurasian Economic Union (EAEU) has sought to expand its influence and membership in recent months, despite the challenges posed by Russia's ongoing war in Ukraine and the resulting Western sanctions. The bloc, comprising Russia, Kazakhstan, Belarus, Armenia, and Kyrgyzstan, has initiated negotiations on a free-trade agreement with India, established a permanent free-trade zone with Iran, and encouraged Uzbekistan to pursue full membership. These moves aim to strengthen the EAEU's economic ties and create new opportunities for trade and investment.
However, the EAEU's long-term prospects have been clouded by the fallout from Russia's actions in Ukraine. While the bloc has served as a means for Moscow to circumvent sanctions, key members like Kazakhstan have signalled their intention to comply with certain restrictions, potentially limiting the EAEU's effectiveness as a sanctions-busting tool. Moreover, Russia's deteriorating financial situation, exacerbated by the depletion of its National Welfare Fund and the outflow of skilled workers, may diminish its ability to drive investment and economic integration within the bloc. As a result, the EAEU's attractiveness to current and prospective members may wane, hampering its efforts to expand and deepen economic cooperation in the region.
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US Grapples with Fiscal Constraints as Defence Needs Rise
The United States government faces a challenging fiscal landscape as it seeks to balance growing defence requirements with rising debt levels and budgetary constraints. The Congressional Budget Office projects significant fiscal deficits and a steady increase in the debt-to-GDP ratio. While the dollar's pivotal role in global finance and the relative attractiveness of US assets mitigate financing risks, the long-term economic implications of this fiscal trajectory are profound.
The confluence of modest economic growth and substantial fiscal deficits is set to exert increasing pressure on defence spending in the coming years. Mandatory outlays on entitlement programs are projected to consume a growing share of GDP, while discretionary spending, including defence, is expected to decline. Reforming entitlement programs like Social Security could create more fiscal space for defence, but such measures face political obstacles. Consequently, policymakers will confront difficult trade-offs between investing in national security and managing the economic and financial ramifications of escalating debt, with these constraints poised to intensify over time.