In Geopolitics Today: Tuesday, October 10th
Russia Partially Lifts Diesel Export Ban, France and Germany Convene Cabinet Meeting to Tackle Discord, and other stories.
Russia Partially Lifts Diesel Export Ban
Russia has partially lifted its ban on diesel exports after imposing it last month, citing domestic shortages. The move had threatened to tighten global supplies of the crucial industrial fuel, sparking price spikes. But Moscow announced diesel exports can resume if half the volume goes to the domestic market. The reversal led to an immediate sell-off as supply shortage fears eased. The export ban was seen as a warning to Russian oil firms to keep domestic prices low with elections nearing.
The lifting of restrictions highlights Russia's complex energy diplomacy. While not a full weaponization of oil, the brief diesel ban fuelled anxiety Moscow could use its market power for political ends. That may have been the intent - to probe responses and increase uncertainty. Though prices dropped back down, the episode reveals Russia's capacity to pressure markets and the global economy. With energy security still fragile, the West must prepare for further possible coercion even as it continues reducing reliance on Russian hydrocarbons.
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Insights from Oil & Gas Industry Highlight Supply Chain Challenges
North American oil & gas companies find themselves navigating a complex landscape as they seek to sustain growth in an increasingly challenging environment. Despite rising demand, the recovery of manufacturing and shipping from the disruptions remains sluggish. Investment in the industry continues to decline, and the geopolitical and policy landscape remains unpredictable. In response to these challenges, Oil & Gas companies are focusing on improving efficiency, such as increasing well counts per rig. However, this drive for efficiency has led to intense competition for labour, suppliers, parts, and materials.
In a study commissioned by Workrise, leaders from Oil & Gas companies and their service providers across the United States and Canada shared insights into their outlook, priorities, and concerns. The study reveals that the Oil & Gas supply chain is at a critical juncture. The most significant threat identified by the majority of respondents is the interplay of policy and geopolitics, encompassing regulatory reforms, permitting issues, and global supply chain disruptions. This complex macro environment is fundamentally reshaping how these companies operate. While the future remains uncertain, the study underscores that success in this evolving landscape will hinge on a heightened focus on the supply chain and everything it entails.
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China's Semiconductor Industry Defies US Export Controls
The US has tried to cripple China's semiconductor industry through export controls on advanced chips and manufacturing equipment. But China is adapting far faster than expected. Despite bans, it unveiled a commercial 7nm chip this month, defying assumptions it couldn't produce such technology alone. China is building duplicated capacity that may soon lead to global overcapacity and severe price wars in legacy chips it can dominate. Though costs are high, its goal is to eventually compete at the high end.
The chip war illustrates risks of the US using its market power for strategic ends. Export controls often backfire by spurring self-sufficiency efforts. China leveraged protectionism to build tech giants like Huawei while kept out of Western markets. Now through forced innovation, re-shoring supply chains, and with its enormous home market, it aims to turn chip dependency into future dominance. The US can't rely on just blocking China's access. That could hand China leadership in next-gen technologies that underpin economic strength. Sustaining US competitiveness requires further domestic investments.
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The Dangers of a Ground Operation in Gaza for Israel
Israel appears poised to launch a ground invasion of Gaza after calling up a record number of reservists. But an incursion would carry major risks of high casualties, igniting unrest in the West Bank, forcing Israel to fight on multiple fronts, and requiring a challenging reoccupation of Gaza. House-to-house urban warfare would await.
Despite its military superiority, Israel faces painful dilemmas in Gaza. An invasion may fail to achieve the desired degradation of militant capabilities. An invasion would also derail Israel's normalization with Saudi Arabia, trigger regional backlash, and potentially create a refugee crisis for Egypt. Post-conflict governance options range from bad to worse. With no political progress on core disputes, more violence seems inevitable. But the complex battlefield leaves Israel without easy solutions. While weakened, Hamas can't be fully eradicated by force alone.
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France and Germany Convene Cabinet Meeting to Tackle Discord
A joint cabinet meeting between France and Germany this week aims to address growing discord between the two countries across various strategic issues. Several major joint defence projects like fighter jets and tanks have stalled or fallen apart recently. Fierce disputes have also emerged over EU energy reforms and foreign policy differences. The alliance underpinning EU integration faces deep strains.
The growing Franco-German rift comes at an inopportune time as Europe confronts multiple crises. Divergence over defence and energy policy also hampers development of EU strategic autonomy. France favours more interventionist policies, while Germany treads cautiously. Reconciling their contrasting outlooks and rebuilding consensus will be crucial. Otherwise, a divided Franco-German engine risks paralysis at the EU level. Overcoming inertia will require political will and farsighted diplomacy to steer their alliance back on course.
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A Route Promises to Divert Trade Away from Russia
The emerging Middle Corridor connecting China to Europe via Central Asia is gaining momentum as an alternative to traditional Russia-dominated trade routes. Cargo volumes along the route through Kazakhstan, Azerbaijan, and Georgia surged in 2022 as countries seek to reduce dependence on less stable northern corridors. Trilateral agreements among the three key countries aim to streamline regulations and operations, addressing obstacles to maximizing the route's potential.
With geopolitical tensions escalating amid Russia's invasion of Ukraine, the Middle Corridor provides a less risky transport option that bypasses uncertainty. Realizing the Middle Corridor's full promise however requires enormous investment and committed multilateral cooperation on security challenges. Kazakhstan is central in plans to transform infrastructure and hub ports. Support from the United States and the European Union aligns with their strategic interests in the region if they choose to distance themselves from both Moscow and Beijing. But balancing relations with Russia and China remains complex for participating countries.