In Geopolitics Today: Friday, December 6th
EU-Mercosur Sign Trade Deal After 25 Years, Paraguay Expels Chinese Diplomat Over Taiwan Pressure, and other stories.
BAE Systems Wins $2.5B Nordic Combat Vehicle Contract
The UK's BAE Systems won a $2.5 billion contract to supply CV90 combat vehicles to Denmark and Sweden. The core deal covers 115 vehicles for Denmark and 50 for Sweden, with additional funding allocated for Ukraine-bound units. Denmark's purchase triples its CV90 fleet to 155 vehicles, forming part of its new heavy brigade build-up. The Netherlands has separately committed to deliver Dutch-built CV90s to Ukraine starting in 2026.
The contract marks another major NATO arms purchase. Denmark and Sweden are significantly expanding their armoured capabilities, while maintaining a pipeline of military aid to Ukraine through established procurement channels. The timing aligns with broader Nordic military modernization efforts, though the deal's total value includes substantial costs for spare parts, logistics, and training packages. BAE Systems, which has dominated the Nordic armoured vehicle market for decades, continues to benefit from increased regional defence spending.
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EU-Mercosur Sign Trade Deal After 25 Years
The European Union and Mercosur signed their long-awaited Free Trade Agreement on December 6 in Montevideo, creating the world's largest trading bloc by population. The deal arrives after 25 years of negotiations. The agreement received high-level backing from both sides, with EU Commission President von der Leyen joining the presidents of Brazil, Argentina, Uruguay, and Paraguay at the signing ceremony during Mercosur's 65th summit.
The breakthrough marks a realignment in global trade architecture. After a 2019 draft stalled in European parliaments over environmental and economic concerns, revised terms finally satisfied both blocs' requirements. For Europe, the pact opens access to Mercosur's 280 million consumers and raw materials. For South America, it provides entry to the EU's sophisticated industrial and service markets. This creates the most expansive trade zone yet established, though implementation still requires ratification by individual EU member states.
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Myanmar Rebels Declare Ceasefire Under Chinese Pressure
The Myanmar National Democratic Alliance Army (MNDAA) has declared a ceasefire, seeking China-mediated talks with Myanmar's military government. The announcement follows last week's similar move by its ally, the Ta'ang National Liberation Army. The MNDAA holds significant leverage after capturing the strategic city of Lashio in August and controlling territory along the Chinese border. Beijing has applied pressure through border closures and utility cuts to force negotiations.
The ceasefire allows Myanmar's military to redeploy forces from the Chinese border to combat resistance groups near Mandalay and central Myanmar. China secures its economic corridors while maintaining the junta's position, though ongoing military airstrikes in rebel territories indicate tensions persist. The agreement rests on mutual dependencies: China requires border stability and trade access, the junta needs military supplies and diplomatic support, and rebels depend on cross-border commerce. While the northeast front stabilizes, Myanmar's broader civil war will likely intensify as military resources shift to other regions.
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Japanese Firms Abandon Australian Hydrogen Projects
Major Japanese firms are abandoning Australian hydrogen projects, dealing a blow to both countries' energy ambitions. Kawasaki Heavy Industries and Kansai Electric Power pulled out of flagship ventures in November, citing unmanageable costs and regulatory barriers. These exits come just as Japan's new Hydrogen Society Promotion Act takes effect, exposing the mismatch between Tokyo's clean energy vision and commercial viability. The corporate exodus extends beyond Japanese firms — Shell, Equinor, and Orsted have all terminated hydrogen investments globally in recent months.
Current production economics make large-scale hydrogen projects commercially unviable. Rising electricity costs have eroded potential margins, while insufficient demand undermines investment cases. Australia's policy shift from “blue” hydrogen to costlier “green” hydrogen production has further strained project economics. Japan's new subsidy framework appears insufficient to bridge the substantial cost gap. Both governments face a critical juncture: their hydrogen economy strategies require fundamental reassessment. The prevailing model of subsidizing early-stage projects while anticipating future cost reductions has failed to create sustainable business cases.
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Paraguay Expels Chinese Diplomat Over Taiwan Pressure
Paraguay has expelled Chinese diplomat Xu Wei after he urged lawmakers to cut ties with Taiwan. Xu abandoned his UNESCO conference duties to deliver an ultimatum in Asuncion: choose China's market access or keep Taiwan relations. Paraguay, Taiwan's last South American ally and a US free trade partner, responded by giving Xu 24 hours to leave for “interference in domestic affairs.”
The expulsion highlights a key miscalculation in Beijing's regional strategy. While China has leveraged its massive market to isolate Taiwan — pulling away 12 diplomatic allies since 2016 — Paraguay's deep economic ties with the US provide a critical counterweight. Xu's pressure campaign ignored this reality: Paraguay's agricultural exports already have preferential access to the US market, reducing the appeal of Chinese trade promises. The incident also strengthens Washington's position in South America, where US-aligned Paraguay now stands as a bulwark against Chinese influence at a time when regional giants Brazil and Argentina are deepening their Beijing ties.
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Russia Drops Gazprombank Requirement for Gas Payments
Russia has abandoned its requirement for European gas payments to flow through Gazprombank, marking a significant retreat in Moscow's energy leverage. The December 4 decree from Putin came after US sanctions crippled Gazprombank's operations, suggesting the move was forced rather than strategic. The ruble payment requirement remains, but carries little weight as Europe's diversification gains momentum.
This policy shift exposes three critical realities: Russia can no longer dictate payment terms to Europe, its banking sector is vulnerable to Western sanctions, and its energy leverage is diminishing faster than expected. For remaining Russian gas customers in Central Europe, the change offers temporary relief. Moscow's retreat from the Gazprombank requirement — a cornerstone of its 2022 energy pressure campaign — reveals that Russia's ability to weaponize gas exports is waning.