In Geopolitics Today: Thursday, March 28th
Iran's Drone Diplomacy a Success, EU Extends Tariff-Free Trade with Ukraine, and other stories.
Iran's Drone Diplomacy a Success
Iran has emerged as a key player in the global proliferation of unmanned aerial vehicle (UAV) technology, using drone exports as a tool to advance its interests and support proxy groups across the Middle East and beyond. The relative low cost and proven effectiveness of armed drones have made them an attractive option for nations and non-state actors alike, with Iran positioning itself as a major supplier.
Iran's Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) has provided sophisticated UAVs to the Houthi rebels in Yemen since 2014. Iran has also supplied drones to Hezbollah in Lebanon, pro-Iranian militias in Iraq and Syria, and allegedly to Algeria for use by Polisario guerrillas in Western Sahara. Tehran's drone diplomacy extends further afield as well, with reports of UAV assembly in Venezuela and the supply of at least 6,000 Shahed drones to Russia. These partnerships have allowed Iran to forge closer ties and circumvent international sanctions. Iran's official participation in Qatar's DIMDEX 2024 exhibition, showcasing its export-ready "GAZA" UAV, is emblematic of its ambitions to become a major player in the international drone market.
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South Korea's Shift Threatens China's Regional Influence
South Korea's geopolitical orientation is undergoing a shift as it reduces its economic dependence on China and strengthens trilateral ties with the United States and Japan. In December 2023, the US surpassed China as South Korea's top export destination for the first time since 2004, while South Korea recorded its first bilateral trade deficit with China in 31 years. Major South Korean conglomerates are increasingly investing in the US, boosting exports of cars, parts, and batteries.
The shift in South Korea's economic relationships is driven by a confluence of strategic, political, and security considerations. The Moon administration's “three nos and one restriction” policy on THAAD deployment, which had sought to placate Beijing, has been effectively abandoned under President Yoon. This has removed a major irritant in the US-ROK alliance, while raising tensions with China. As South Korea deepens cooperation with the US and Japan, including in areas like countering disinformation, it is increasingly enmeshed in the broader Sino-American rivalry. This presents a challenge for Beijing, which has traditionally viewed South Korea as within its sphere of influence. China's calls for “win-win cooperation” and appeals to geographic proximity and cultural ties have yet to articulate a compelling vision for the bilateral relationship. With the Yoon administration's foreign policy orientation likely to endure until at least 2027, China may need to adopt a more proactive approach to arrest the ongoing erosion of its economic influence over South Korea.
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Russia and Iran Deepen Gas Cooperation
Russia and Iran, the world's top two gas reserve holders, have signed 19 new cooperation agreements spanning oil, gas, infrastructure, and finance. These accords build upon the 20-year comprehensive deal approved in January, which runs parallel to key elements of Iran's 25-year cooperation agreement with China. At the heart of the deepening Russia-Iran partnership lies a shared ambition to dominate the global gas market.
The strategic alignment seeks to capitalize on the countries' combined 69 trillion cubic meters of gas reserves, aiming to create a 'Gas OPEC' built on the foundation of the Gas Exporting Countries Forum (GECF). With Qatar, the trio control nearly 60% of global gas reserves. Gazprom's $40 billion MoU with the National Iranian Oil Company sets the stage for joint control over pipeline and LNG exports. Russia is assisting Iran with developing gas fields, boosting output, and constructing export infrastructure. The endgame is a coordinated network of suppliers capable of rivalling the US and exerting pricing power. As Iran advances $25 billion in LNG projects and Russia positions itself as a key partner, the geopolitical landscape of energy is poised for a tectonic shift.
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Kenya to License Uganda's Oil Company, Ending Fuel Import Dispute
Kenya has agreed to license the Uganda National Oil Company (UNOC), signalling an end to a months-long feud over fuel imports. The decision comes after petitioners withdrew a case blocking the Energy and Petroleum Regulatory Authority (EPRA) from issuing the permit. Kenyan Energy Cabinet Secretary Davis Chirchir confirmed that work is underway to grant UNOC a licence to import fuel directly through the Kenya Pipeline Company (KPC).
The dispute dates back to last year, when Uganda accused Kenyan resellers of inflating fuel prices by up to 58%, causing significant losses. Uganda, which imports 90% of its fuel from Kenyan oil marketing companies, sought to import petroleum products directly through UNOC. However, EPRA's refusal to issue a licence due to alleged non-compliance with the law escalated tensions, with Uganda suing Kenya at the East African Court of Justice. The row has strained diplomatic relations and threatened to disrupt the flow of petroleum products to the landlocked nation. The resolution of the dispute is expected to streamline fuel imports and reduce costs for Uganda. UNOC's use of KPC infrastructure ensures that Kenya will not lose out on transportation revenue. As Uganda continues to develop its own oil resources and seeks to establish itself as a major player in the regional energy market, closer coordination with Kenya could yield significant economic benefits for both countries.
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EU Extends Tariff-Free Trade with Ukraine
The European Union has reached a compromise deal to extend tariff-free trade with Ukraine until June 2025, following months of protests by farmers across Europe who complained about the influx of cheap Ukrainian agricultural products. The agreement, reached between EU member states and the European Parliament, includes safeguards and potential restrictions on imports of certain “sensitive” products like corn, poultry, sugar, maize, honey, and eggs, but not wheat.
Under the new deal, the EU can more easily apply tariffs linked to oversupply by extending the reference period back to the second half of 2021, when Ukrainian agricultural exports to Europe were lower. If import volumes exceed the average levels seen during this period, tariffs will automatically be reinstated within 14 days. The agreement also allows member states to apply “remedial measures” in case of market turmoil. These changes are estimated to cost Ukraine around €330 million per year in lost trade. Despite the estimated losses, the extension of tariff-free trade until 2025 ensures Ukraine retains crucial access to the EU market, providing a vital source of revenue as the country grapples with economic turmoil.
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Iran and Azerbaijan Seek Rapprochement
Iran and Azerbaijan are taking steps to mend their strained relationship, driven by a confluence of geopolitical factors reshaping the South Caucasus. The two countries' foreign ministers recently met to discuss reopening Azerbaijan's embassy in Tehran, which had been shuttered following an attack in January last year. This diplomatic overture is part of a broader effort to restore cooperation on trade, transit, and energy projects.
Baku is seeking to boost trade and economic ties with Tehran, with over 2,400 Iranian businesses already operating in Azerbaijan. The countries have also signed agreements to develop transit links and railways, including a route connecting Azerbaijan proper with its Nakhchivan exclave via Iranian territory. For Iran, normalizing ties with Azerbaijan aligns with its wider strategy of improving relations with neighbors amid regional upheaval. However, the push for normalization does not negate the underlying tensions and competition between the two countries. Iran remains wary of the shifting power balance favouring Azerbaijan over Armenia and is concerned about the potential creation of a Turkic corridor along its northern border. Tehran sees supporting Yerevan as essential for maintaining regional stability and balancing power dynamics. In parallel with engaging Baku, Iran is likely to expand its ties with Armenia in trade, infrastructure, defence, and security.