In Geopolitics This Week
European Energy U-Turn Angers African States, Ukraine Counterattacks in Kherson as First State Entity Defaults, The European Union to Ration Natural Gas, and other stories.
European Energy U-Turn Angers African States
Last year a group of industrialised nations came together for the Climate Conference in Glasgow where the leaders present committed to halting the funding of oil and gas extraction projects abroad. This political promise meant that it would be more difficult for countries in Africa to use natural gas as a source of energy.
Now, in a desperate attempt to diversify away from Russian energy, the European Union has suddenly changed its policy by insisting on increased natural gas supplies from African countries. In response, sharp criticism is being raised by numerous African states, a continent where 600 million people still have no access to electricity. Natural gas is considered a suitable source of energy for rectifying this issue with the least possible impact on climate if African states can harness this energy for their own people. However, increased natural gas demand by EU member states is working to syphon off supplies from the African population.
Nigerian Vice President Yemi Osinbajo highlighted this trend in a recent op-ed in the Economist, where he called out European leaders for their insistence that poorer nations maintain current levels of carbon emissions, which richer countries have not committed to doing in real terms themselves. Osinbajo argues that this is due to “a naïve belief in leapfrogging,” suggesting that EU pressure on African states to bypass fossil fuel production by investing in renewable infrastructure is a failed endeavour for the continent. Osinbajo and other African leaders argue that such pressure by developed nations amounts to an attempt to keep the African continent poor.
On the one hand, the leaders of African countries with significant oil and gas reserves feel that they deserve the chance to exploit these reserves the same way developed countries did, a process that was instrumental in their transformation into advanced economies. On the other hand, the environmental concerns initially raised by the EU have been embraced by a number of non-governmental organizations, and they are stressing that the continent's gas-rich countries are a pursuing net negative in the long-term by investing in natural gas extraction projects.
The current policy U-turn being made by the EU and the United States will mean that gas-rich African countries such as Nigeria, Senegal, Angola, and Equatorial Guinea now have the opportunity to monetize their natural resources via increased investment coming from a renewed European demand for non-Russian natural gas.
Ukraine Counterattacks in Kherson as First State Entity Defaults
Ukrainian forces have begun a large-scale counteroffensive to retake a key southern region lost in the opening stages of the war. Ukrainian officials have said its armed forces have already retaken some small settlements in northern parts of Kherson in recent weeks as they try to push Russian forces back, a number of early engagements in what Kiev has called a major counter-offensive to retake the country’s south.
In response, the Russian army has continued efforts to reinforce controlled territories in southern Ukraine amid persistent attempts by Kiev to regain them by force. Russia’s armed forces are maintaining artillery attacks on Bakhmut, — a key stronghold necessary to control the areas of the Donetsk region that still remain in Ukrainian hands. While the Russian army is maintaining pressure on its main axis of advance in Donetsk, a large number of Russian troops appear to be moving in the direction of Kherson in an attempt to deny Ukraine a successful counteroffensive.
Time is not on Ukraine’s side with the country’s civilian economy facing immense challenges. Ukraine's largest state-owned and private sector enterprises have an estimated $13 billion outstanding in international bonds and the government in Kiev estimates that the costs of the war, combined with lower tax revenues, have created a fiscal deficit of $5 billion per month. Moreover, Ukraine's economy is likely to contract 35-45% this year, and the high cost of continual support for the increasingly insolvent Ukrainian government will contribute to war fatigue among Ukraine's financial and military backers.
The financial constraints felt by the government in Kiev have already resulted in the first default of a state entity. Ukraine's state oil and gas monopoly Naftogaz has become the first Ukrainian government entity to default on its debt since Russia’s invasion began this February. The company said in a statement that creditors' support was missing when a proposal to freeze payments on some of its bonds was put forward, after which Ukraine's Council of Ministers accepted the Naftogaz default by rejecting further debt repayments be made by the company. As the Ukrainian government is completely dependent on external financing, the states and international investment funds backing Ukraine in the war are likely to see further defaults of both state and private sector businesses.
The European Union to Ration Natural Gas
The European Commission Chief has announced that agreement was reached between EU governments for a bloc-wide reduction in natural gas consumption by 15%. The EU said the deal would be voluntary at first, though this would change to mandatory enforcement if natural gas supplies reach critically low levels.
Nearly 60 percent of the EU’s energy supplies are imported, and Russia has long been the bloc’s principal supplier of fossil fuels. The EU has now set a goal of cutting emissions by 55 percent by the year 2030 under its new climate law, and many countries have set their own phaseout targets for coal and other fossil fuels. The new has rationing measure is not so far-reaching as it only applies for this winter, and member states can decide how best to cut their gas consumption.
While touted as a “decisive step” to withstand a winter without Russian natural gas supplies, some countries not connected to the EU's gas pipeline network, such as Ireland, Malta and Cyprus, would be exempt from any mandatory gas rationing. The Baltic nations, which are not connected to the European electricity grid and are reliant on natural gas for electricity production, are also exempt from compulsory targets. In addition, EU member states can also ask to be exempt if they exceed gas storage filling targets, if critical industries are threatened, or if their gas consumption has increased by at least 8% compared to their average consumption of the past five years.
A dozen EU member states, including Denmark, Greece, Spain and Portugal, have spoken out against mandatory gas consumption cuts. The final version of the agreement includes a clause that notes that countries and industries would be exempt from the cuts due to the opposition of some member states to the original proposal. While Germany has appealed for solidarity across the bloc on the measure, the final document appears a heavily watered-down version of the original proposal and has already exposed differences between member states of the EU.
Monday, July 25th
European Energy U-Turn Angers African States
China and Russia at the Centre of Japanese Strategic Thinking
Drought in Western North American Threatens Industry
China’s Modest Military Aid to Foreign Governments
Tuesday, July 26th
The EU Reaches Deal on Natural Gas Rationing
Egypt, Saudi Arabia and Turkey Interested in Joining BRICS
Russia to Leave International Space Station After 2024
Iran is Benefitting from High Oil Prices
Wednesday, July 27th
Iran-Russia Trade Ditches US Dollars
The Philippines Abandons Deal to Buy Russian Helicopters
East African Crude Oil Pipeline Facing Roadblocks
The US and Afghanistan in Talks to Unfreeze Assets
Thursday, July 28th
Iran Breaks Up Israeli Spy Network
Biden and Xi Hold Talks
Increased NATO Focus on Baltic Defence
Greece and Saudi Arabia Sign Energy Deal
Friday, July 29th
France Seeks to Reaffirm Interests in Central Africa
Pakistan Seeks Assistance from the United States
Colombia and Venezuela to Restore Diplomatic Ties
Turkey’s Delicate Energy Ties with Russia
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