In Geopolitics Today: Wednesday, March 29th
Saudi Arabia Joins Shanghai Cooperation Organization, International Court Rules Against Kurdistan's Independent Oil Export, and other stories.
Yunnan Energy Crisis Impacts Global Aluminium Prices
The current energy crisis in China's Yunnan province is having a significant impact on aluminium production, potentially causing a fluctuation in the global aluminium price index. Yunnan is a major hub for aluminium production in southern China, where a severe water shortage has led to reduced hydroelectric power supply, hampering aluminium production. The province has already requested aluminium smelters to cut production three times since last fall, with reductions ranging from 10% to 40%.
China is still facing a power supply crisis and considering shifting some of its capacity overseas, primarily to Indonesia. The ban on the export of key raw material bauxite from Indonesia starting this June may push China's main aluminium smelters to shift production overseas. Last year, China accounted for about 59% of global primary aluminium production, and this year, forecasts indicate demand to be much higher, potentially leading to an increase in aluminium production. However, reduced rainfall and subsequent water cuts and potential power shortages throughout 2023 could further affect aluminium production.
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Surge in North African Imports of Discounted Russian Oil and Gas
Since the invasion of Ukraine in February of last year, North African countries have intensified their exports of diesel to Europe and increased their imports of the fuel from Russia. The increase in North African imports is undermining US-led sanctions against Russia.
The region as a whole imported 257,000 barrels per day of diesel from Russia in March, the highest amount since the war began. West Africa is also importing more Russian gas oil since the war began, with Morocco and Tunisia as the most active importers. These flows may help move some Russian volumes into the global market. European governments are seeking alternatives to Russian oil and gas, with EU foreign policy chief Josep Borrell visiting Algeria earlier this month to promote stronger energy and security ties with Africa's top gas exporter.
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Kosovo-Serbia Talks Yield Tentative Agreement on EU-led Plan
The ongoing talks between Kosovo and Serbia, facilitated by the European Union and the United States since 2011, aim to establish a binding legal agreement between the two countries. Despite a long history of tension, tentative progress was made during the latest meeting on March 18, with the EU-led plan outlining eleven points of agreement.
The primary point of dispute revolves around the Association of Serb Municipalities in Kosovo, with Serbia insisting on executive functions for the ASM, while Kosovo fears it would lead to the creation of a federal system and further malign influence from Serbia. The lack of recognition of Kosovo's independence by some EU and NATO member states and Serbia's opposition to it further complicates the situation. A break in the deadlock may come if Kosovo's independence and sovereignty come before or parallel to normalization.
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Saudi Arabia Joins Shanghai Cooperation Organization
Saudi Arabia has agreed to join the Shanghai Cooperation Organization (SCO) as a “dialogue partner,” the latest indication of closer political ties with China. Saudi Arabia's decision is seen as a sign of the kingdom's growing closeness with China, which is increasingly becoming a dominant player in the region. The United States, which views the SCO as a counterweight to its own influence, is now faced with the challenge of maintaining its traditional alliances in the region.
The Saudi move comes after a series of agreements that have strengthened ties between the kingdom and China, including deals between Saudi Aramco and Chinese companies. The China-brokered agreement between Saudi Arabia and Iran also highlights China's role as a regional powerbroker. With other Middle Eastern countries expected to follow Saudi Arabia's lead, this shift in alliances could have far-reaching implications. As the balance of power in the region changes, the United States will have to re-evaluate its strategy in the Middle East. This could involve recalibrating its relationships with traditional allies, such as Saudi Arabia, and developing new partnerships.
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International Court Rules Against Kurdistan's Independent Oil Export
The International Court of Arbitration has issued a ruling against Iraq's Kurdistan Regional Government (KRG) regarding its independent export of oil. The court ruled that the KRG could not export oil through a pipeline system to the port of Ceyhan without Baghdad's approval, adversely affecting the KRG's oil industry. The ruling will give Baghdad more control over the KRG's oil and gas sector, forcing the KRG to reach a settlement that is likely to favour Iraq.
Baghdad's increased control over the KRG's oil sector following the ruling will fuel the government's efforts to shut down the separatism or federalism that has threatened Iraqi sovereignty across all its geographic regions. The ruling could also hurt the popularity of the ruling Kurdistan Democratic Party (KDP). This development underscores the ongoing political and economic tensions between the KRG and the federal government in Baghdad, which are likely to persist. The KRG must now reach a settlement with Baghdad that will likely entail significant concessions, up to and including the rights to oil Kurdish fields.