In Geopolitics Today: Tuesday, July 18th
Land Bridge Connecting Israel, Saudi Arabia, and the Gulf, US$27 Billion Deal Between TotalEnergies and Iraq Gets Approval, and other stories.
Land Bridge Connecting Israel, Saudi Arabia, and the Gulf
The Israeli Ministry of Foreign Affairs has officially announced the commencement of a land bridge project linking Israel to Saudi Arabia, with plans for its extension to the United Arab Emirates, Bahrain, and Oman. The project aims to establish a continuous land route, starting from the UAE, traversing Saudi Arabia, and concluding in Israel's seaports. This ambitious initiative is expected to facilitate the movement of goods and tourists among the countries and bolster regional trade.
The proposed land bridge holds profound implications for regional trade and diplomacy. By reducing shipping costs and streamlining trade, the project has the potential to bolster economic relations between Israel, the Gulf states, and other participating nations. Furthermore, the project's expansion to encompass additional Gulf countries underscores the increasing importance of regional cooperation and integration. Nonetheless, challenges may arise in ensuring seamless implementation and navigating potential geopolitical complexities, given the historical context of the Israeli-Palestinian conflict and broader regional dynamics. As this transformative project unfolds, close attention will be paid to the reactions of other regional stakeholders and its impact on the geopolitical landscape of the Middle East.
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EU-CELAC Summit Faces Divisions on Ukraine and Trade Deal
European Union leaders faced challenges during a summit with Latin American and Caribbean States (CELAC) as discussions on the war in Ukraine created divisions. The summit, the first between the EU and CELAC since 2015, aimed to address a stalled trade deal and find common ground on Ukraine. However, CELAC countries have diverse positions on the conflict, with some seeking to preserve ties with Russia or pursue a negotiated peace deal. Nevertheless, President Ursula von der Leyen pledged significant investment in the Latin American economy under the Global Gateway program, aimed at countering China's “Belt and Road” initiative.
The summit's focus on the EU-Mercosur trade deal also faced challenges, particularly due to concerns about deforestation and agricultural competition. The deal, intended to liberalize trade between the EU and Argentina, Brazil, Paraguay, and Uruguay, has yet to be ratified by some European governments. Brazil, under its former right-wing populist government, posed obstacles with aggressive agricultural development in the Amazon. Although the leftist President Lula da Silva replaced Bolsonaro, disagreements persisted over attaching binding rules against deforestation to the trade pact. The EU's Green Deal, which links trade deals to stricter environmental standards, further complicated the discussions, provoking tension between Brazil, Argentina, and the EU.
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Global Trade in Deep Stress
Global trade is experiencing significant strain, with the annual growth rate of global import volumes turning negative last year and remained negative in early 2023. This decline in trade growth can be attributed to several factors, including a shift in expenditure from goods to services in advanced economies and the nature of China's economic recovery, which is focusing on services rather than investment spending. Additionally, the deteriorating outlook for global demand and the declining trend of globalization are further impacting trade growth.
The challenges are particularly pronounced for emerging economies heavily reliant on integration, as they may suffer disproportionately due to trade growth falling short of income growth. This situation makes it difficult for developing countries to attract export-related industries and raise income levels. The outlook for trade growth remains grim for the foreseeable future, with rising protectionism, geopolitical tensions, and the localization of supply chains further affecting global trade dynamics. The World Trade Organization predicts that global trade growth will continue to lag behind GDP growth in 2023, indicating that the challenges faced by emerging economies in attracting foreign investment for export-oriented industries are unlikely to improve soon.
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US$27 Billion Deal Between TotalEnergies and Iraq Gets Approval
TotalEnergies and Iraq's US$27 billion deal has finally received approval after multiple delays. The deal is set to commence within four weeks and will have significant implications for both parties involved. For Iraq, the deal will boost oil production and reduce dependence on Iran for gas imports and electricity. On the other hand, the deal provides TotalEnergies with access to Iraq's vast oil and gas reserves as part of its strategy to compensate for lost supplies from Russia.
The agreement also has broader geopolitical implications, with the West seeking to assert its presence in the Middle East, counteracting the increasing influence of China and Russia in the region. The deal's approval follows attempts by Iran, at the behest of China and Russia, to hinder Western companies from engaging in deals in Iraq, reflecting the complex geopolitical dynamics at play. If successfully implemented, this four-pronged deal is a significant development that could reshape Iraq's energy landscape and geopolitical positioning.
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Tensions Escalate in Syria as US Bolsters Military Presence
Tensions in Syria have heightened with a recent incident where a Russian fighter jet reportedly dangerously approached a US surveillance aircraft. US officials have expressed concern over the encounter, which involved wake turbulence, posing potential risks to the lives of American crew members.
This event represents a notable escalation in a series of encounters between US and Russian aircraft in Syria over recent weeks. The situation also reflects increased military activity in Syria more broadly, where Russian fighter jets have also been observed harassing US unmanned MQ-9 drones. These incidents have drawn attention to the deepening cooperation between Russia, Iran, and the Syrian government, aimed at exerting pressure on the US to withdraw from Syria. The presence of US troops in the region and its military responses, such as deploying F-35 and F-22 fighter jets, have added complexities to the situation.
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IMF Approves Nearly $966 Million Loan for Kenya
The International Monetary Fund (IMF) has approved a loan of almost $1 billion for Kenya, signifying the country's adherence to conditions set for continued financing under the Extended Fund Facility and Expanded Credit Facility programs. The disbursement includes $415 million under the Extended Fund Facility and $551 million under the Resilience and Sustainability Facility. This latest funding follows the fifth review of the IMF programs and brings total disbursements to about $2 billion.
While the loan approval reflects Kenya's commitment to implementing economic reforms, it also highlights the challenges posed by its high public debt, which stands at 9.63 trillion shillings ($68.1 billion), accounting for two-thirds of the gross domestic product. Debt servicing costs continue to put a strain on the country's finances, necessitating measures to enhance revenue mobilization and manage fiscal performance. The IMF's support for Kenya's efforts to implement reforms now appears crucial for the country's economic stability. However, the challenges of resource mobilization and uncertainty call for prudent fiscal policies and contingency plans to safeguard the country's financial health in the face of tighter financing conditions. The IMF's role in assisting African nations and addressing climate change issues has also been a point of discussion, with President Ruto advocating for a global green bank as an alternative to the existing multilateral financial architecture.