Good morning. Here’s your Daily SITREP for Wednesday, 04 October 2023.
- READ TIME:
- Inside the Beltway
- (1) McCarthy Removed as House Speaker in Second Historic Vote
- (2) Democrats’ “Bidenomics” Woes Worsen in New Poll
- (3) Biden Admin Targets Chinese Fentanyl Makers
- (4) Blinken and AMLO to Meet This Week
- Domestic INTSUM
- (5) Airlines Discover Counterfeit Parts in Engines
- (6) Low Water Levels Turn Mississippi Salty Again
- Global SITREP
- (7) IMF: The Global Policy Answer for Climate Change
- (8) MUFG Bank: A “Perfect Storm” for Metallurgical Coal
- (9) Russia’s Fuel Export Ban May Leave Europe Cold and Hungry
- (10) U.S. and NATO Running Out Of Weapons and Ammunition
INSIDE THE BELTWAY
- (1) MCCARTHY REMOVED AS HOUSE SPEAKER IN SECOND HISTORIC VOTE: House Speaker Kevin McCarthy (R-CA) was removed from the Speakership after a 216-210 vote, with eight Republicans joining the Democrats and temporarily replaced by Rep. Patrick McHenry (R-NC).
- McCarthy ally Rep. Tom Cole (R-OK) said the Republicans who voted against him “have no Earthly idea” what comes next and it was “simply a vote for chaos.”
- Why It Matters: McCarthy’s ouster increases uncertainty around the next shutdown fight on 18 November. The House will vote on a new Speaker on 11 October, and Majority Leader Steve Scalise (R-LA) and Judiciary Committee Chair Jim Jordan (R-OH) are looking for endorsements. Freedom Caucus Republicans who held up the vote in January could do the same until they get someone who they think will be more favorable to their own agenda and who is less likely to make deals with Democrats. McCarthy was a major fundraiser for the Republican party, and his removal from the Speakership may also negatively impact the ability of Republicans to raise money in 2024. – R.C.
- (2) DEMOCRATS’ “BIDENOMICS” WOES WORSEN IN NEW POLL: According to a new Gallup poll, 53% of Americans say Republicans would do a better job handling the economy compared to 39% who say Democrats would do better on the economy, the widest gap since 1991.
- A Rasmussen Reports poll of likely voters found that 33% of Democrats were likely to vote for Robert F. Kennedy Jr. as a third-party candidate if there were a Biden-Trump rematch, compared to 14% of Republicans.
- Why It Matters: The Biden campaign’s attempt to push “Bidenomics” as a winning strategy for 2024 is a weaker strategy than they believed, while the attempt to turn negative and attack Republicans on “MAGAnomics” isn’t catching on. Kennedy is polling more favorably with Republicans, but polling shows that more Democrats are likely to defect and vote for Kennedy over Biden than Republicans would defect away from Trump. Polling continues to turn against Biden, and if the numbers don’t turn around for Biden, more Democrats could start to openly support replacing him on the 2024 ticket. – R.C.
- (3) BIDEN ADMIN TARGETS CHINESE FENTANYL MAKERS: The Department of Justice announced indictments against eight Chinese chemical companies for the illegal importation of fentanyl and precursors into the United States.
- The Department of the Treasury Office of Foreign Assets Control announced a new round of sanctions against 12 Chinese entities and 13 Chinese individuals involved in the illicit trafficking of fentanyl and precursor chemicals.
- Why It Matters: The Chinese connection to Mexican cartels, laundering their money and providing fentanyl and precursor chemicals, was a political hot potato until recently, with Democrats accusing Republicans of focusing on the fentanyl crisis for political gain. This new coordinated enforcement action by multiple federal agencies is a good sign that the U.S. government is taking concrete steps to address the fentanyl crisis, but Biden administration policies creating effectively open borders will make that fight much more difficult. – R.C.
- (4) BLINKEN AND AMLO TO MEET THIS WEEK: Mexican President Andrés Manuel López Obrador (AMLO) confirmed he will meet with Secretary of State Antony Blinken, Homeland Security Secretary Alejandro Mayorkas, and Attorney General Merrick Garland on Thursday, 05 October to discuss immigration, security, and drug trafficking issues.
- The Biden administration, Mexico, and the United Nations (U.N.) are planning a program to pre-screen tens of thousands of migrants for entry into the U.S. as border encounters surge again.
- Why It Matters: At least part of the discussions are likely to revolve around ensuring stability during Mexico’s presidential transition at the end of 2024. The announcement of the U.N. involvement in a pre-screening program explains recent photos and video of a U.N. International Organization for Migration (IOM) vehicle in Texas circulating on social media. – R.C.
- (5) AIRLINES DISCOVER COUNTERFEIT PARTS IN ENGINES: Delta Airlines said it discovered unapproved components from AOG Technics, a company under investigation for providing unapproved repair parts to airlines, on as many as 21 of its jet aircraft engines during maintenance but did not disclose if the parts were on the engines while they were in service.
- American Airlines, United Airlines, and Southwest Airlines also disclosed finding parts from AOG on their planes, and airlines around the globe are scrambling to find AOG parts with forged airworthiness documents in their inventories.
- Why It Matters: Delta Airlines may be underestimating how many of their engines have these replacement parts with forged airworthiness documents. It also appears the parts are most likely to be used on older models of Boeing 737s and Airbus A320s. General Electric and French engine company Safran SA are currently suing AOG Technics to find out how extensively their parts were distributed among airlines. – R.C.
- (6) LOW WATER LEVELS TURN MISSISSIPPI SALTY AGAIN: Water levels in the Mississippi have fallen again to levels that they cannot flow with sufficient force to push back salt water from the Gulf of Mexico.
- The Army Corps of Engineers previously constructed a salt sill in the lower part of the river and is now shipping fresh water from upriver to Plaquemines, where the river meets the Gulf of Mexico.
- Why It Matters: Saltwater intrusion in the Mississippi threatens not only drinking water supplies but also agriculture that relies on fresh water from the Mississippi River for irrigation. Saltwater can also wreak havoc on critical water infrastructure. – R.C.
- (7) IMF: THE GLOBAL POLICY ANSWER FOR CLIMATE CHANGE: The International Monetary Fund (IMF) said in a presentation this week that carbon pricing – government charges for emitting carbon – can reduce global greenhouse gas emissions and generate government revenue to relieve debt burdens.
- “Although carbon pricing is necessary, it is not sufficient and should be complemented by other mitigation instruments – such as feebates, green subsidies, and regulation standards, among others – to promote innovation and deployment of low-carbon technologies and address market failures,” the IMF said.
- The IMF’s analysis shows that public debt in advanced economies would rise by 10-15% of Gross Domestic Product (GDP) by 2050 if countries adopt their recommended climate measures.
- Why It Matters: The IMF, other intergovernmental organizations, and Western governments will continue to push global carbon pricing and credits onto citizens. But the agenda is collapsing from higher interest rates and unsustainable levels of government debt. More people understand that China, India, and developing countries won’t agree to a global climate framework, which is punishing developed countries’ economies. – H.B.
- (8) MUFG BANK: A “PERFECT STORM” FOR METALLURGICAL COAL: There’s a tight global supply of metallurgical (“met”) coal that’s used to make steel, and met coal demand has surprisingly held up this year, according to analysts at MUFG Bank.
- Global coal supply has been limited by Chinese wildfires, accidents in China that forced mine closures, and strikes and mine maintenance in Australia, which is the world’s top met coal exporter.
- Expected steel production cuts in China have not materialized, and a weaker monsoon season in India allowed stronger steel output and construction activity, keeping met coal demand high.
- Why It Matters: MUFG analysts predict that supply constraints and stronger-than-expected global demand will raise the prices of hard coking coal – a type of met coal – 40% by Q4 2024. Western countries’ attacks on the coal industry could further limit the global supply and lead to higher prices later this decade. – H.B.
- (9) RUSSIA’S FUEL EXPORT BAN MAY LEAVE EUROPE COLD AND HUNGRY: Russia has not set a time frame for ending its fuel export ban, according to Russian Deputy Prime Minister Alexander Novak, which should drive up Europe’s diesel prices during harvest season and right before winter heating season.
- “Our key goal is to ensure that prices at [Russian] gas stations rise throughout the year at a level no higher than inflation. This was observed in previous years, and this year, the same task is also set, and for future years,” Novak said to Russian news agencies.
- Russia’s latest policy bans fuel exports to all countries except Armenia, Belarus, Kazakhstan, and Kyrgyzstan – all former Soviet states and members of the Collective Security Treaty Organization (CSTO) military alliance with Russia that was formed in 1992.
- Why It Matters: Saudi Arabia reportedly bought Russian diesel at discount prices before the September fuel ban and exported this diesel to Europe. But this supply chain is now shut down, leaving Europe with lower supplies and higher diesel prices. If Russia’s fuel ban policy extends beyond October, Europe’s fall harvest may be impacted, which could limit food exports to North America. – H.B.
- (10) U.S. AND NATO RUNNING OUT OF WEAPONS AND AMMUNITION: The head of NATO’s Military Committee, Admiral Rob Bauer, sounded the alarm on Tuesday that NATO has depleted its stockpiles of weapons and ammunition.
- At the Warsaw Security Forum, Bauer urged Western defense industries to ramp up production at a much higher tempo and produce larger volumes of war materials.
- On Monday, the Pentagon warned Congress in a letter that it was running out of money to replace weapons and ammunition sent to Ukraine.
- Why It Matters: Western governments necked down defense production lines after the end of the Cold War 30 years ago. What is left is a bare minimum production capability geared towards replenishing training ammunition stocks and the manufacturing of limited numbers of expensive high-end weapon systems. The high ammunition usage rates in Ukraine far exceed the West’s current production capability, and it will take years to increase the number of production facilities – potentially setting the stage for ammunition and weapons shortages in front-line U.S. and NATO military units. Shortages of vital war stocks combined with a 25% shortfall in military personnel likely means the U.S. is unfit to fight a near-peer conflict anytime in the immediate future. – 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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