In Geopolitics Today: Monday, January 8th
US and Allies Weigh Seizing Russian Assets to Fund Ukraine, Azerbaijan Consolidates Oil Export Control, and other stories.
US and Allies Weigh Seizing Russian Assets to Fund Ukraine
The United States and its allies are weighing whether to seize Russia's frozen overseas assets, estimated to be between $300-350 billion, to bankroll Ukraine's defence. But the move risks escalating the economic tit-for-tat with Moscow. The EU especially fears retaliation against its companies' estimated $200 billion in Russian holdings.
Key obstacles exist to agreeing on this asset seizure within the G7 and EU. Legal hurdles include violating international law. The complex calculus entails weighting financial losses for Western firms in Russia against undercutting Ukraine funding needs. Unilateral moves seem unlikely as most Russian assets reside in the EU. Meanwhile, seizing Western corporate assets would help Moscow finance its Ukraine invasion and plug fiscal gaps. But it may also deter foreign investment when Russia most needs capital. As positions harden on both sides, the path of asset confiscation ultimately points to a deepening economic split.
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Gaza Fallout Threatens to Destabilize Iraq
The war in Gaza threatens to intensify multiple pressure points destabilizing Iraq. Public sympathy with Palestinians could spark violent protests from armed groups. Moreover, attacks by local militias on US bases in Iraq risk triggering US further retaliation, despite Baghdad's calls for restraint.
If fighting spreads, Iran may prioritize domestic energy needs and cut power exports, supplying 40% of Iraq's electricity. This would disable over half Iraq's grid, disrupt economic growth, and likely ignite widespread anti-government protests. Politically, Prime Minister Al-Sudani has balanced rival demands but faces growing criticism across the spectrum. His neutral stance looks increasingly difficult to maintain amid clashing US and Iranian agendas and popular outrage over Gaza. While direct spillover of fighting may be limited, the regional turmoil stemming from Gaza jeopardizes Iraq's stability from multiple angles.
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UK Invests in Nuclear Fuel Production Independence
The UK government has announced a £300 million program to launch domestic production of HALEU, a high-tech nuclear fuel required to power next-generation reactors. As the first European nation with HALEU capabilities outside of Russia, the investment aims to displace Moscow as the sole commercial supplier.
The program supports the UK's plan for 24GW of nuclear energy by 2050 amid a broader nuclear revival. Small modular reactors and advanced modular reactors promise enhanced efficiency and safety but require fuels like HALEU that Russia currently dominates. By enabling domestic HALEU production, the UK hopes to strengthen energy security while exporting to global markets. The first UK plant is expected in the early 2030s. The move builds on the UK's work to push out Russia from Western nuclear supply chains.
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Escalating Tensions Across the Middle East
The Middle East is embroiled in multifaceted challenges, chief among them Israel's unrelenting military campaign in Gaza. The foremost goal for Israel remains eliminating the Hamas threat, but symbolic victories also beckon as the conflict persists, given the evasiveness of Hamas leaders. Meanwhile, clashes with Hezbollah and attacks in the Red Sea exemplify broader escalating tensions.
Violence in the West Bank has reached a troubling scale unseen since the Second Intifada. With Hamas eager to expand its reach once the Gaza campaign concludes, the spectre of a Third Intifada looms disturbingly close. Despite recent calls for pragmatic de-escalation among Middle East powers, containing the multiplying crises strains regional capacity. External players, with limited influence, grapple to significantly shape volatile events. The attendant uncertainty over the Middle East’s trajectory preoccupies regional and global governments alike, given the complexities at play.
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South China Sea Rivalry Intensifies with Constant Naval Drills
The US and Philippines have conducted joint naval exercises in the disputed South China Sea from January 3-4, deploying an aircraft carrier strike group and offshore patrol vessels. The drills aimed to enhance interoperability between the two allies amid maritime disputes with China.
In response, China accused the two powers of provocative activities and deployed warships to monitor the region. The tit-for-tat wargames follow earlier close encounters between Chinese and Philippine ships over supply missions. With over 130 Chinese militia vessels spotted near Philippine-claimed reefs in December, tensions have soared. The volatile situation reflects growing strategic competition in the waterway. The Philippines relies on US support to assert its sovereign claims, while China is determined to consolidate its own position while keeping rivals at bay. Though disputes have simmered for years, direct confrontation between Chinese and Philippine vessels raises risks of armed conflict.
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Azerbaijan Consolidates Oil Export Control
Norway's Equinor has sold its stakes in two Azerbaijani oil fields and the Baku-Tbilisi-Ceyhan pipeline to state oil company SOCAR after 30 years operating in the country. Equinor sold its shares in the giant Azeri-Chirag-Guneshli field, the undeveloped Karabakh field, and 8.71% of the BTC pipeline that carries Azerbaijan's oil exports.
The sale enables Equinor to refocus its international oil and gas business. Meanwhile, SOCAR gains majority control of Azerbaijan's main oil export assets during a period of disrupted global oil flows. The timing also coincides with an expected increase in Azeri field production. The purchase aligns with Azerbaijan's aim of maximizing oil revenue, which accounts for 60% of its state budget. As it hosts the upcoming UN climate change conference, Azerbaijan is also pursuing renewables to diversify its hydrocarbon-dependent economy and free up more oil and gas for export.