In Geopolitics This Week
France and Germany Reach Accord on Electricity Markets, Prolonged Civil War in Sudan Imposes Mounting Costs, Slovakia's Halt of Military Aid to Ukraine Strains Ties with Germany, and other stories.
France and Germany Reach Accord on Electricity Markets
France and Germany have resolved a long-running dispute over electricity markets and nuclear power, reaching an agreement to allow France to implement a Contract for Differences (CfD) scheme. This system guarantees favourable electricity prices through government-backed contracts to support capital investments in France's ageing nuclear reactors. The deal acknowledges the need for state intervention in this strategic sector despite EU energy market competition rules.
CfD guarantees a price for each megawatt-hour generated by a power plant. The guaranteed price, or strike price, is determined through auctions or negotiations. Taxpayers compensate generators when the market price falls below the strike price, and the generator refunds any excess when the market price exceeds the strike price. In essence, CfD functions as a state-backed power purchase agreement. While CfDs are not new and are used by several European countries, applying them to existing nuclear power in France represents a significant departure, as the vast scale of generation covered and low strike prices make this a unique case.
The agreement has significant implications for France in particular. The CfD revenues will provide funding for state-owned EDF to maintain France's substantial nuclear fleet. However, a key challenge will be designing the CfD scheme to align with EU regulations on avoiding distortions to energy market competition. There are also concerns that cementing low French nuclear costs through CfDs will further boost France's advantage as Europe's low-cost manufacturing hub. This is especially so as Germany faces rapidly rising transmission grid costs driven by the energy transition.
The deal reflects a pragmatic compromise between the two European powers. France secures German backing for greater state support of its nuclear industry, while Germany obtains European Commission oversight on assessing potential competition impacts from French CfD revenue distribution. However, a measure of ambiguity remains around how France can design the system to adequately avoid competition and trade distortions within the EU's internal energy market. Complex negotiations lie ahead as France leverages its nuclear power position in the context of EU regulations.
Prolonged Civil War in Sudan Imposes Mounting Costs
In Sudan, despite recent territorial gains, the Rapid Support Forces (RSF) paramilitary appears unable to decisively defeat the Sudanese Armed Forces (SAF) in their protracted civil war. The conflict has now engulfed most of Sudan's states, with an increasing number of armed groups joining the fray. With neither side poised for victory, it becomes evident that this war is likely to continue, imposing mounting costs.
Now in its seventh month, the war in Sudan shows no signs of abating. The RSF's intense clashes with the SAF continue, particularly around key military locations in Khartoum and beyond. The SAF maintains control over northeastern areas, such as the Red Sea state and military bases in Khartoum, but the RSF is making territorial gains in Khartoum, Omdurman, Bahri, and peripheral regions like Gezira. The RSF's utilization of long-range artillery and fighter drones has proven effective in wearing down SAF defences, potentially leading to the loss of strategic bases.
Despite the RSF's territorial gains, neither side appears on the verge of victory. Additional militias and armed groups, either aligned with the RSF or the SAF, or pursuing their own motives, have joined the fight. The majority of Sudan's 18 states are now embroiled in conflict, and additional armed groups are entering the fray, escalating ethnic tensions. The RSF's activities in areas like White Nile and Gezira states suggest an expansion of the conflict's geographical scope, with the goal of gaining negotiating leverage. The threat to Sudan's oil infrastructure poses risks to established patronage networks, affecting Sudan and South Sudan.
Earlier in the week, the Sudanese army and the RSF agreed to return to peace negotiations, mediated by the United States and Saudi Arabia. The outcome of these negotiations will significantly impact Sudan's path to peace, governance, and international standing. The involvement of an increasing number of armed groups and the resurgence of historical grievances still make demobilization and de-escalation efforts complex. A successful resolution could lead to a more stable Sudan, while a breakdown in negotiations may perpetuate conflict and instability in major cities.
Slovakia's Halt of Military Aid to Ukraine Strains Ties with Germany
Slovakia's new Prime Minister Robert Fico announced this week that his country will stop providing military aid to Ukraine. This represents a major shift in policy for Slovakia, which has been one of Ukraine's staunchest supporters within NATO. Fico campaigned on halting military aid and said Slovakia should be focused on providing only humanitarian assistance. This decision signals potential fissures within NATO regarding continued support for Ukraine against Russian aggression.
This policy change carries mostly diplomatic implications. Slovakia was one of the first countries to provide major weapons systems to Ukraine, helping bolster its defences in 2022. Its withdrawal of military aid could signal wavering resolve among some NATO members to continue military support. Russia will likely see this as a small but symbolic win, validating its strategy to wait out European resolve. Much will depend on whether other nations follow suit, or if Slovakia remains an outlier. If support does begin to fracture, it would constrain Ukraine's military capacity and strengthen Russia's hand in any potential peace talks.
The political shift in Slovakia that brought about this policy change has raised concerns in Germany. The new Slovak government plans to discontinue the previous administration's economic liberalism and is indicating a possible realignment towards Russia. Fico's declaration that his foreign minister will “no longer speak for foreign interests,” especially coupled with warm relations towards Russia, has sparked alarm in Berlin. The implications are manifold — Germany and other EU nations worry about Slovakia's new direction and its alignment with Russia.
The strained relations also have economic implications. Slovakia plays an outsized role in the automotive industry, producing the most cars per capita globally. It is integral to German auto manufacturing and exports. This economic interdependence makes it challenging for Germany to exert significant pressure on Slovakia over its shifting policies. However, Germany remains wary of Slovakia's evolving stance towards Russia and what it signals for European unity.