Good morning. Here’s your Daily SITREP for Monday, 16 October 2023.
TODAY’S BRIEFING:
- READ TIME: 6 Minutes, 29 Seconds
- Inside the Beltway
- (1) Some Republicans Hold Back Door Speaker Talks with Dems
- (2) Biden Admin Attempts to Target China CHIPS Again
- (3) Menendez Indicted as Foreign Agent for Egypt
- Domestic INTSUM
- (4) Brace for Your Tax Audit
- (5) U.S. Bets Billions on Hydrogen Power
- Global SITREP
- (6) Wider Middle East War Could Lead to Global Recession
- (7) White House Afraid Israel Acting Without A Plan
- (8) MBS Snubs Blinken, Demands End of “Gaza Siege”
- (9) Iran: Ready to Join War Against Israel
- (10) Russian Forces Continue Assault on Avdiivka
INSIDE THE BELTWAY
- (1) SOME REPUBLICANS HOLD BACK DOOR SPEAKER TALKS WITH DEMS: Rep. Thomas Massie (R-KY) said some members of the Republican Conference “want to cut a deal” with House Democrats to elect a speaker after Judiciary Chair Jim Jordan (R-OH) won the GOP nomination.
- Minority Leader Hakeem Jeffries (D-NY) confirmed that informal discussions were taking place between a group of Republicans and House Democrats and added that he wanted to formalize these talks this week.
- Why It Matters: Jordan allies are making the rounds in the Republican Conference to get 217 votes, but 81 Republicans supported Rep. Austin Scott (R-GA), who reportedly did not actively campaign for Speaker. Jordan allies are planning a floor vote on Tuesday. But new talks between some Republicans and Democrats, and a group of “Never Jordans” led by Rep. Mike Rogers (R-AL), could derail Jordan’s run and keep the House GOP mired in chaos. – R.C.
- (2) BIDEN ADMIN ATTEMPTS TO TARGET CHINA CHIPS AGAIN: The Biden administration is considering new restrictions on Chinese chip makers to close loopholes from restrictions implemented in the CHIPS Act in 2022.
- The new measures will include a requirement that overseas manufacturers obtain a U.S. license before selling to Chinese tech firms and additional restrictions on technology that can be sold to Chinese firms.
- Why It Matters: Previous restrictions on Chinese chip firms appear to have been ineffective, and it isn’t clear putting more restrictions on sales from foreign firms to Chinese firms will succeed at curbing Chinese chip advances. Extending waivers for Taiwan and Korean chip makers to continue manufacturing in China is likely to undermine any effort by the administration to crack down on Chinese tech. – R.C.
- (3) MENENDEZ INDICTED AS FOREIGN AGENT FOR EGYPT: Senator Bob Menendez (D-NJ) was indicted for Conspiracy For a Public Official to Act as a Foreign Agent for the Egyptian government in an updated indictment.
- Menendez previously blocked updates to the Foreign Agent Registration Act (FARA) in 2020, which would have increased penalties for individuals who did not disclose their foreign agent status.
- Sandler Reiff FARA lawyer Joshua Rosenstein said Menendez’s prosecution could push Congress to overcome hurdles to pass FARA reform.
- Why It Matters: Democrats appear to be sacrificing Menendez to take the focus off President Biden and his son Hunter, who may have violated FARA by failing to register as a foreign agent before lobbying in the interests of foreign firms. – R.C.
DOMESTIC INTSUM
- (4) BRACE FOR YOUR TAX AUDIT: The tax gap – the difference between what is paid to the government and what is owed, based on subjective analysis – increased 14% from 2020 to 2021, according to projections by the Internal Revenue Service (IRS).
- “This increase in the tax gap underscores the importance of increased IRS compliance efforts on key areas,” said IRS Commissioner Danny Werfel. “With the help of Inflation Reduction Act funding, we are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships, and corporations.”
- The IRS is aiming to hire over 3,000 positions nationally to assist with “expanded enforcement work” focusing on businesses and high-income earners.
- Why It Matters: President Biden promised that the Inflation Reduction Act’s increased tax enforcement funding would not target Americans making less than $400,000 per year. However, the Treasury Inspector General for Tax Administration (TIGTA), a federal government agency, said that the IRS does not have a unified or updated definition of “high-income” taxpayers. Government tax revenue should fall due to next year’s recession, which will encourage the IRS to audit more middle-class Americans. – H.B.
- (5) U.S. BETS BILLIONS ON HYDROGEN POWER: The U.S. Energy Department is awarding $7 billion in grants for seven regional hubs to produce clean hydrogen, which green energy advocates hope can replace oil and gas in shipping, steelmaking, and chemical production.
- The seven regional hydrogen hubs are California, Gulf Coast, Midwest, Pacific Northwest, Appalachia, Heartland, and Mid-Atlantic – with each to receive $700 million to $1.2 billion in government funding.
- Companies involved in the hubs – including ExxonMobil, Chevron, chemical giant DuPont, natural gas producer EQT, and others – are expected to invest more than $40 billion across the hubs.
- Why It Matters: These hydrogen projects will take years to develop, and the technology to produce so-called green hydrogen – by splitting water molecules – is expensive and is not widely available. Each dollar going to hydrogen funding is a dollar less for oil and natural gas exploration and production, which the world’s economies depend on right now. – H.B.
Global SITREP
- (6) WIDER MIDDLE EAST WAR COULD LEAD TO GLOBAL RECESSION: An escalation of the Israel-Hamas War would increase oil prices, stock market volatility, and inflation, potentially dragging the world into recession, according to Bloomberg’s analysis of the scenarios.
- A confined war in Gaza and lower Iranian crude oil production from Western sanctions would raise oil prices by $4 per barrel and have a slight effect on global inflation and Gross Domestic Product (GDP).
- A multifront war in Gaza, the West Bank, Lebanon, and Syria would increase oil prices by $8 per barrel, and the effect on global inflation and GDP would be twice as severe as a confined war.
- A direct war between Israel and Iran and unrest in the wider Middle East would raise oil prices by $64 per barrel, stock markets would be extremely volatile, and the effects on inflation and GDP would trigger a global recession.
- Why It Matters: Bloomberg’s third scenario – a wider Middle East war – seems to be the most probable one. Iran threatened intervention over the weekend if Israel were to launch a ground offensive in Gaza. This week will be crucial to the next phase of the war and the global economic consequences. – H.B.
- (7) WHITE HOUSE AFRAID ISRAEL ACTING WITHOUT A PLAN: The Biden administration is concerned that Israel has no plan for the occupation of Gaza and is pressing Israel to plan beyond the immediate goal of eradicating Hamas.
- President Biden said reoccupying Gaza would be “a big mistake.”
- Biden aides have steered clear of public criticism of Israel’s Gaza strategy, and State Department officials have been told to avoid language calling for a ceasefire or de-escalation.
- Why It Matters: Israel has delayed the ground offensive into Gaza, originally planned for this past weekend, until later this week. If Israel is attempting to de-escalate, it may be too late to avoid a larger regional conflict. Netanyahu’s “blinking” could accelerate his likely ouster from the Prime Ministership, pushing Netanyahu to continue with the offensive. – R.C.
- (8) MBS SNUBS BLINKEN, DEMANDS END OF “GAZA SIEGE”: During Secretary of State Antony Blinken’s visit to the Middle East to convince Arab partners to de-escalate tensions in the region, Saudi Crown Prince Mohammad bin Salman kept Blinken waiting overnight and then demanded an end to “the siege of Gaza” and Israel’s offensive.
- Egyptian President Abdel Fattah El-Sisi said, “Israel’s assaults have exceeded the right to self-defense” during Blinken’s visit to Egypt on Sunday.
- Why It Matters: U.S. support for Israel’s offensive on Gaza appears to be pushing partners in the region away from the U.S. and toward the Iran-led “axis of resistance.” The Biden administration is now faced with the possibility of being pulled into a larger regional conflict and it may be too late to push for a ceasefire. – R.C.
- (9) IRAN: READY TO JOIN WAR AGAINST ISRAEL: Iranian Foreign Minister Hossein Amir-Abdollahian warned that Iran would enter the Hamas-Israel war unless Israel halted its attacks on Gaza.
- Amir-Abdollahian made the comments at a joint press conference with Lebanon’s acting foreign minister, Abdallah Bou Habib, in Beirut on Sunday.
- Israel’s Prime Minister Benjamin Netanyahu vowed on Sunday to “demolish Hamas” as his military prepared to move into the Gaza Strip.
- Why It Matters: It is highly unlikely that Israel will halt its military response to the Hamas raid that killed over 1300 Israeli civilians last weekend. Israel cannot afford to allow a return to the status quo ante regarding Hamas, and its retaliatory move into Gaza will probably result in Iran and Hezbollah entering the fight. Syrian officials reported on Sunday that Iranian Revolutionary Guard Corps and Hezbollah forces had left their bases in eastern Syria and were moving south towards Israel’s northern border. These forces would be likely targets for U.S. carrier strike groups in the eastern Mediterranean, as the Department of Defense is reportedly prepared to interdict any third-party military forces attempting to enter the conflict. – M.M.
- (10) RUSSIAN FORCES CONTINUE ASSAULT ON AVDIIVKA: Russian forces continued a sixth straight day of attacks with massive artillery, rocket, and air strikes on the strategic Ukrainian hamlet of Avdiivka.
- Ukrainian rescue workers called off operations Sunday due to the intensity of artillery and rocket fire.
- Fighting intensified in other sectors of the 1,000-km-long (600-mile) front.
- Why It Matters: Russia is likely attempting to position itself for a winter offensive and anticipating reduced Western support to Kiev once the Hamas-Israeli conflict in the Middle East escalates. Signals coming out of Washington indicate that a realignment of military aid from Ukraine to Israel is in the works. A major reduction in aid to Kiev could result in a collapse of the Ukrainian defense along the southern and eastern fronts this winter. – M.M.
— END REPORT
M.S. indicates analyst commentary from Mike Shelby
M.M. indicates analyst commentary from Max Morton
J.V. indicates analyst commentary from Jared Vaughn
R.C. indicates analyst commentary from Robert Cook
H.B. indicates analyst commentary from Harrison Burge
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