In Geopolitics Today: Thursday, July 13th
Indo-Pacific Leaders Join NATO Summit with Growing Focus on China, US Crude Oil Output Defies Expectations to Reach Record High, and other stories.
China Emerges as Potential Diplomatic Broker in Yemen
China is positioning itself as a potential diplomatic broker in Yemen. This is evident through its recent engagements with various parties involved in the conflict. In May, China's Anton Oilfield Services Group and the Chinese government signed a memorandum of understanding with Yemen's Houthi rebels for oil exploration. This move implicitly recognizes the Houthis as a governing body, indicating Beijing's willingness to engage with non-traditional diplomatic actors. Additionally, China has been actively involved in discussions with Saudi Arabia, the Yemeni government, and separatist groups, such as the Southern Transitional Council (STC), demonstrating its multi-faceted approach to resolving the conflict.
China's engagement in Yemen aligns with its broader diplomatic efforts in the Middle East and Africa, positioning itself as an alternative to the United States. By brokering the Saudi-Iran normalization agreement and hosting diplomatic summits, China aims to expand its influence and present itself as a non-interventionist power. Moreover, China's involvement in Yemen holds economic motivations. With the potential for post-war reconstruction and economic development, China seeks to secure access to Yemen's resources and markets, offering its firms lucrative contracts. Yemen's strategic location in the Gulf is also attractive to China, as it plays a crucial role in trade routes for Chinese imports and exports. China's engagement in Yemen reflects its larger geopolitical ambitions and pursuit of economic interests in the region.
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Indo-Pacific Leaders Join NATO Summit with Growing Focus on China
Leaders of the Indo-Pacific 4 (IP4) — Australia, Japan, New Zealand, and South Korea — attended the NATO summit in Vilnius, Lithuania, signalling the strengthening ties between NATO and the Indo-Pacific region. The summit focused on two major issues: Russia's invasion of Ukraine and China. While the war in Europe dominated discussions, the summit's communiqué expanded the focus on China, highlighting concerns over its policies, hybrid operations, and efforts to subvert the US-led international order. The increased emphasis on addressing the challenges posed by China marks a shift from previous NATO statements and reflects a growing recognition of China's impact on Euro-Atlantic security.
NATO's engagement with Indo-Pacific partners, including the IP4, is driven by the competition with China. However, it is important to note that the IP4 countries have differing levels of comfort in directly confronting China. During separate meetings with the IP4 leaders, NATO Secretary General Jens Stoltenberg thanked them for their assistance to Ukraine and expressed support for their respective concerns. While Stoltenberg specifically mentioned China's military build-up and nuclear forces in his meeting with Japan's prime minister, he avoided mentioning China in public remarks with the other IP4 leaders. This indicates that while all IP4 members have concerns about China, some prefer not to openly join hands with NATO against Beijing. Japan stands out as a closer partner to NATO, willing to express direct concerns about China.
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Germany Pulls Out of Agreement to Repair Ukrainian Tanks in Poland
Germany's Federal Government is pulling out of an agreement with Poland to repair Ukrainian Leopard tanks on Polish territory due to what Germany perceives as excessive price demands from the Polish side. Instead, Germany plans to repair the modern Leopard tanks of the 2A5 and 2A6 types in Germany and possibly in Lithuania. The repairs could begin as soon as the Ukrainian forces indicate the need for them. However, negotiations for the repair of Leopard 2A4 battle tanks, an older model, are still ongoing.
The Ukrainian armed forces are in urgent need of repairing tanks to make them operational again as they suffer heavy losses during their ongoing counteroffensive. In March, the German government finally transferred 18 modern Leopard 2A6 tanks to Ukraine. Others, including Poland, also pledged to provide Leopard deliveries. However, there is also a dispute over the Leopard 2A4 tanks provided by Poland. Of the 14 delivered vehicles, eight arrived damaged in Ukraine. The planned repair centre aimed to maintain the Leopard tanks close to the Ukrainian border for easy access. Negotiations between German defence companies Rheinmetall and Krauss-Maffei Wegmann (KMW) and the Polish company PGZ, to establish the repair centre, have been halted due to the significantly higher prices demanded by PGZ, according to informed sources.
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Russia Urges ASEAN to Use National Currencies for Trade
Russian Foreign Minister Sergey Lavrov has urged Southeast Asian countries to collaborate in reviving trade with Russia by using national currencies instead of the US dollar to bypass Western sanctions. The imposition of sanctions following Russia's invasion of Ukraine has caused a 4.4% decline in trade between Russia and the Association of Southeast Asian Nations (ASEAN) member states. To address this, discussions are being considered on using national currencies in transactions. Lavrov highlighted that Russia, along with other countries, is reducing dependence on the US dollar and transitioning to alternative payment systems and national currencies.
While overall trade with ASEAN countries has decreased, Russia's bilateral trade with Indonesia, the largest economy in the bloc, surged by 45% in 2022, reaching $4.79 billion. Indonesia and some other ASEAN member states have maintained cooperative trade with Russia. Russia aims to further boost bilateral trade through negotiations for a free trade agreement between Indonesia and the Eurasian Economic Union. Moscow is exploring opportunities to increase exports of wheat, halal-certified meat, and oil to Indonesia. Discussions with ASEAN have also focused on energy and food security, with an emphasis on non-carbon emitting energy sources and fossil fuels. By promoting the use of local currencies, Russia aims to deepen economic integration and expand trade opportunities. Furthermore, Russia's engagement with ASEAN demonstrates its broader geopolitical interests in the Asia-Pacific region and its intention to counterbalance NATO's expanding presence.
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US Crude Oil Output Defies Expectations to Reach Record High
The Energy Information Administration (EIA) has projected that total US crude oil output will reach 12.61 million barrels per day (bpd) this year, surpassing the previous record of 12.32 million bpd set in 2019. This forecast defies expectations that US crude supply had already peaked, as rising costs and limited labour and equipment hindered efforts by US shale producers to increase output. The shale boom in the US has played a significant role in keeping global oil prices low, with non-OPEC supply, primarily from the US, compensating for two-thirds of OPEC's announced production cuts.
The increase in US crude oil output has important implications for global oil markets. It offsets OPEC's efforts to limit supplies and prop up prices, and it offers a buffer against disruptions such as Russia's invasion of Ukraine. The US Shale's ability to maintain and expand production is driven by improved drilling and cost efficiency, enabling them to operate profitably even at lower oil prices. There are signs that the pace of US shale growth is slowing, potentially limiting the additional barrels available to offset OPEC+ production cuts and disruptions to Russian supplies. Nevertheless, the US shale revolution has reshaped the energy landscape, and advancements in fracking technologies could further enhance output and recovery rates, providing opportunities for continued production growth in the future.
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Indian Prime Minister Modi Strengthens Ties with France
Indian Prime Minister Narendra Modi's visit to France signals a strengthening of ties between the two countries, as New Delhi prepares to approve the purchase of French jets and submarines. Despite differing views on the Russia-Ukraine conflict, the visit is expected to focus on bilateral relations rather than the European situation. The visit serves as an opportunity to enhance the India-France relationship, with a focus on defence cooperation and the joint development of weapons and systems.
The new defence deals between India and France, including the procurement of Rafale fighter aircraft and Scorpene-class submarines, reflect India's efforts to diversify its military hardware partners and reduce its reliance on ageing Russian equipment. France has emerged as India's second-largest arms supplier, and the deals are estimated to be worth about $10 billion. Both countries share security-related interests, including concerns about Chinese expansionism, which further aligns their strategic objectives. India is also seeking greater French participation in defence programs involving manufacturing within India, aiming to benefit from job creation and access to advanced military-scientific technology.