In Geopolitics Today - Monday, February 28th

Germany Announces Massive Boost to Military Spending, Russia-Ukraine War and Agricultural Commodity Markets, Russia-Ukraine War Threatens the Middle East and North Africa

Germany Announces Massive Boost to Military Spending

One long-term repercussion to emerge from the recent Russian military escalation in Ukraine has been an open willingness by German officials to drastically increase military spending. Following Russia’s widespread use of military power in Ukraine and weeks of pressure on German officials to do more to assist the armed forces of Ukraine, Germany appears set to militarize once again as Chancellor Olaf Scholz announced a drastic investment aimed toward bolstering Germany’s armed forces and diversifying away from Russian energy supplies.

Scholz’s announcement marks a significant geopolitical turning point as Germany embarks on the most significant military build-up since the fall of the Third Reich. Berlin has committed to increase its military spending to more than 2 percent of GDP, beginning with an immediate investment of €100 billion euros. The announcement included plans which would see Germany fast-track the construction of two liquefied natural gas (LNG) terminals, a move that will mean a greater German reliance on LNG imports from the United States rather than natural gas imports via pipelines from Russia. The repercussions of this decision could be profound as German rearmament on such a scale could manifest into an imbalance in the current European footprint within NATO. Most critical in this regard is the fact that such a move would, in time, mean that Germany would supplant France as Europe’s top military power.

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Russia-Ukraine War and Agricultural Commodity Markets

Ukraine and Russia have become a significant source for global supplies of agricultural commodities over the past 25 years. The war playing out on Ukraine’s territory coupled with the sanctions being levelled at Russia could seriously impact food and agriculture exports from both these countries. Both countries play a crucial role in the production and export of grains (corn, wheat, and barley) and oilseeds (particularly sunflower and sunflower oil).

Russia and Ukraine account for 14% of global wheat production and rank 1st and 5th, respectively. In terms of corn production, Ukraine now ranks 4th and contributes over 15% of world corn exports, while Russia ranks 6th with a 2.3% share. For barley, the EU holds a dominant production share and the bloc is a leader in world barley exports, but Russia and Ukraine nonetheless hold a significant role in this market, both together accounting for about 19% of barley production and almost 32% of barley exports. Ukraine and Russia are also both leading producers and exporters of sunflower oil. Nearly 60% of the world’s entire sunflower oil production occurs in Ukraine and Russia, and the two countries account for more than 75% of world exports. Fertilizer products could also see turbulence, with Russia and Belarus both major world players in the production and export of fertilizers.

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Russia-Ukraine War Threatens the Middle East and North Africa

Russia and Ukraine are major exporters of food and agricultural products, which means that disruptions in these supply chains could lead to significant unrest in the Middle East and North Africa. A combination of higher energy prices and disrupted food supplies have the potential to threaten the stability of Saudi Arabia, the UAE, Libya, Iraq, Egypt, Israel, and even Turkey. While several countries in the Middle East and North Africa attempt to stay neutral over Russia’s use of force in Ukraine, the economic realities associated with the imposition of sanctions will for many be difficult to avoid.

A protracted conflict in Ukraine has the potential to threaten the stability of many countries both directly and indirectly. For Israel and Turkey, the situation is particularly complicated: Russia’s overt use of military power against Ukraine has put Israel under significant pressure as Tel Aviv is wary of a potential response by Moscow in Syria and Iran. As for Turkey, its main energy supplies are directly connected to Russia, as are numerous other economic relationships which underpin the very fragile Turkish economy. But food supplies may be the most significant threat facing the Middle East and North Africa, with a consistent supply of imported food necessary to maintain stability for many countries in these two regions. Particularly hard hit here could be Egypt, to which the potential loss of wheat, corn, and sunflower oil supplies would directly impact stability.

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