Good morning. Here’s your Daily SITREP for Tuesday, 10 October 2023.
TODAY’S BRIEFING:
- READ TIME: 7 Minutes, 53 Seconds
- Inside the Beltway
- (1) Scandal Brewing for Biden After Hamas Attack
- (2) Biden Officials: Long War Coming in Israel
- (3) Pentagon: Political Turmoil a Threat to Military Readiness
- Domestic INTSUM
- (4) Conservative Commentator: Hamas Terrorists Inside U.S.
- (5) RFK Jr. Officially Announces Third-Party White House Bid
- (6) U.S. Corporate Bankruptcies Soaring
- (7) Biden Admin Undermines Domestic Critical Mineral Mining
- Global SITREP
- (8) U.S. Will Attempt to Enforce Russian Oil Price Cap
- (9) Goldman Sachs: China is Showing Signs of “Japanification”
- (10) New Middle East Flashpoint as Israel Strikes Hamas
- (11) China’s Foreign Policy Failure in the Middle East
- (12) Double-Ten, Double Squeeze
INSIDE THE BELTWAY
- (1) SCANDAL BREWING FOR BIDEN AFTER HAMAS ATTACK: Ariane Tabatabai continues to serve as Chief of Staff to Assistant Secretary of Defense for Special Operations and Low Intensity Conflict Christopher Maier despite revelations of her ties to the Iranian government intelligence network the Iran Experts Initiative, and pressure from lawmakers for answers.
- The Biden administration unfroze $6 billion dollars in Iranian oil revenue and agreed to a prisoner exchange on 11 September.
- Why It Matters: Within the last month, the Biden administration released billions of dollars of Iranian oil revenue that could have been used to facilitate this major attack. Additionally, the scandal brewing with the Iranian infiltration of the Departments of State and Defense by suspended Iran envoy Robert Malley and still serving Chief of Staff Ariane Tabatabai, combined with the Biden administration’s admission they did not see this attack coming, could become a major scandal for President Biden and an early October surprise heading into 2024. So far, the Biden administration’s response has been to deny any direct connection between Iran, the released oil revenue, and the Hamas attack. – R.C.
- (2) BIDEN OFFICIALS: LONG WAR COMING IN ISRAEL: During an unclassified briefing with Congress, Biden administration officials warned Senators that they should prepare their constituents for the likelihood of a long war in Israel and Gaza.
- A Congressional official said the Biden administration and Congress expect Israel to send additional requests for ammunition and weapons, but the U.S. will not be able to easily meet those requests.
- Why It Matters: The Biden White House is floating tying Israel aid to Ukraine aid but is holding off for now. U.S. support for an ongoing conflict between Israel and Hamas, and possibly Hezbollah, while maintaining arms shipments to Ukraine, will only further tax the weak U.S. defense industry base. If the Biden administration faces a choice between sending weapons to Ukraine or Israel, they will likely choose Israel, and this could be an opportunity for the Biden administration to quietly distance itself from Ukraine. This could also mean less to go around when Taiwan requires military aid in the future. – R.C.
- (3) PENTAGON: POLITICAL TURMOIL A THREAT TO MILITARY READINESS: Deputy Secretary of Defense Kathleen Hicks said the threat of a government shutdown and “other internal upheaval” in Washington D.C. threatens U.S. military readiness.
- Hicks added, “With uncertainty at every turn, we know Russia and the People’s Republic of China aren’t slowing down to let us get our house in order.”
- Mary Ellen Callahan, assistant secretary for the Countering Weapons of Mass Destruction Office at the Department of Homeland Security, said Congressional reauthorization is a “sword of Damocles” hanging over the office that trains first responders and helps detect and prevent chemical, biological, radiological, and nuclear threats to the United States.
- Why It Matters: Turmoil in Congress and the coming fight ahead of the 18 November shutdown deadline, combined with an overstretched foreign policy apparatus, could create an opportunity for an adversary like China or a non-state actor to conduct attacks against U.S. interests abroad or possibly within the borders of the United States. – R.C.
DOMESTIC INTSUM
- (4) CONSERVATIVE COMMENTATOR: HAMAS TERRORISTS INSIDE U.S.: Conservative commentator Carmine Sabia warned that Hamas terrorists would target U.S. cities over the next 12 months, citing a phone call “from someone who works with a diplomat.”
- He is just one in a chorus of conservative pundits drumming up fears over possible domestic terror attacks.
- Why It Matters: Sabia is a hyper-partisan observer, but his general observation that Iranian-linked terrorists are inside the United States is likely true. Hezbollah and Hamas both historically have a U.S. presence. While U.S. personnel and facilities in the Middle East are at much higher risk of Iranian-backed terrorism, domestic attacks are likely if the U.S. gets involved in a wider Israeli-Iranian proxy or conventional war. – M.S.
- (5) RFK JR. OFFICIALLY ANNOUNCES THIRD PARTY WHITE HOUSE BID: Robert F. Kennedy Jr. officially announced his run as a third-party independent candidate for President, adding, “I’ve come here today to declare our independence from the tyranny of corruption.”
- The American Values 2024 Super Political Action Committee (PAC) said it has raised $17 million and expects Kennedy’s announcement to boost that number.
- Why It Matters: While Republicans have a higher opinion of RFK Jr. in polling, some of that polling shows that RFK Jr. can potentially pull voters away from President Biden in 2024. Support for Trump among Republican primary voters is hardening, and Republican voters in general, are less likely to defect. – R.C.
- (6) U.S. CORPORATE BANKRUPTCIES SOARING: Over 4,500 U.S. companies have filed for Chapter 11 bankruptcy protection (reorganization) in 2023 – a 61% increase compared to last year.
- “Struggling individuals and companies have an established lifeline through bankruptcy to help steady themselves amid rising interest rates, inflation, and increased borrowing costs,” said the Executive Director of the American Bankruptcy Institute Initiative.
- Big-name retailers David’s Bridal, Bed Bath & Beyond, and Party City filed for Chapter 11 this year, and 11 more retailers, including Rite Aid, Big Lots, and Petco, may also file for bankruptcy within the next year, according to retail analysts.
- Why It Matters: Companies that didn’t lock in long-term debt financing in 2020 and 2021 must now raise capital at much higher interest rates. If rates remain high through 2024, which we expect, more U.S. companies will struggle and ultimately file for Chapter 11 bankruptcy. – H.B.
- (7) BIDEN ADMIN UNDERMINES DOMESTIC CRITICAL MINERAL MINING: During a hearing of the Senate Energy and Natural Resources Committee, Sen. John Barrasso (R-WY) said the Department of the Interior (DOI) issued 26 withdrawals of land from sites that contain 95% of America’s nickel reserves, 88% of cobalt reserves, and 35% of copper reserves in the last two years.
- DOI Deputy Secretary Tommy Beaudreau said the only tool available to the department is the “blunt instrument” of mineral withdrawals, and the DOI needs other tools to shape critical mineral development.
- Why It Matters: The Biden administration says it is focusing on developing domestic critical mineral supply chains to decrease reliance on Chinese critical minerals, but the 26 mineral withdrawals, amounting to 225,000 acres with the richest mineral reserves now unable to be leased, undermine that goal. – R.C.
Global SITREP
- (8) U.S. WILL ATTEMPT TO ENFORCE RUSSIAN OIL PRICE CAP: U.S. Treasury Secretary Janet Yellen said yesterday that the U.S. would “very likely” take steps to enforce the $60 per barrel price limit set on Russian oil sales.
- “We are looking at enforcement very carefully, and we want to make sure that market participants are aware we take this price cap seriously, and to the extent Western services are used, we mean business by abiding by the cap,” Yellen said.
- Russia has sold its crude oil above the $60 limit for several weeks, which signals that Western companies that handle, trade, or insure Russian oil are not upholding the oil price cap.
- Why It Matters: Russia has built its own global shipping infrastructure since the Ukraine War started, which allowed Moscow to sidestep the Western oil price cap. But about 40% of Russian oil still moves on ships owned or insured by companies in Europe or the Group of Seven (G7) advanced democracies. The U.S. Treasury may focus on penalizing ship insurers since this is a choke point for Russian oil sales, but the Western price cap will fail, like all price control schemes. – H.B.
- (9) GOLDMAN SACHS: CHINA IS SHOWING SIGNS OF “JAPANIFICATION”: China’s economy appears even worse than Japan did in 1990, but China can still avoid “Japanification,” according to Goldman Sachs economists.
- Japan in 1990 had unfavorable demographic trends and a just-popped asset bubble that “triggered a sustained downward shift in longer-term growth expectations, households reduced consumption, and businesses cut back on investment,” according to Goldman’s Chief China Economist.
- China’s real estate bubble is larger than Japan’s was in 1990, with average home prices at 20 times household income versus 11 times in Japan.
- Why It Matters: Chinese officials will provide fiscal and monetary support to keep up consumer spending and overall economic growth. But if China still enters a recession and youth unemployment rises, this could accelerate an invasion of Taiwan, as leadership would welcome a distraction and a “rally around the flag” moment. – H.B.
- (10) NEW MIDDLE EAST FLASHPOINT AS ISRAEL STRIKES HAMAS: Israeli forces struck Hezbollah militants in southern Lebanon with artillery on Monday, killing five militants.
- The Israeli casualty count approached 1,000 dead from this weekend’s Hamas attack.
- The terrorist group Palestinian Islamic Jihad conducted a cross-border raid into Israel from Lebanon, killing one Israeli officer before being driven back across the border by Israeli infantry and attack helicopters.
- Hamas said it would execute Israeli and foreign hostages being held in Gaza if Israeli forces conducted a ground operation – which Israel began preparations for soon after the threat by Hamas.
- Why It Matters: The Middle East was rocked by this weekend’s Hamas attack on Israel, along with the images of the wanton murder of Israeli civilians by almost 1,000 Hamas terrorists. Hamas claimed that Iran helped orchestrate the operation – something which could broaden the war between Israel and Iran-backed militant groups. While it is unlikely that the U.S. would intervene with large numbers of U.S. forces, Hamas did take American hostages and killed eleven American citizens in the initial raid – an action that could lead to U.S. SOF conducting hostage rescue operations. If Israel expands the war to Iran, or if Iran intervenes on behalf of Hamas and Hezbollah, expect the U.S. to increase its direct participation with special operations forces naval and air assets. – M.M.
- (11) CHINA’S FOREIGN POLICY FAILURE IN THE MIDDLE EAST: The Chinese Foreign Ministry stated that only a two-state solution can bring peace to the Israel-Palestine situation. The Ministry also stated that the U.S. and Egypt would likely facilitate peace talks.
- Why It Matters: Pushing for a two-state solution is a failure for China on the foreign policy stage. Benjamin Netanyahu, Prime Minister of Israel, has always been skeptical of a two-state solution and is unlikely to entertain the idea at this time. China’s policy of peace for everyone else must now confront states with irreconcilable differences. When China needed to take a hard stance, it proposed a weak solution with weak words. This failure will undermine its efforts to build influence in the Middle East. – J.V.
- (12) DOUBLE-TEN, DOUBLE SQUEEZE: Taiwan’s National Day, locally known as Double Ten, is today. China has been on a release cycle since 30 September.
- Two of the last three times that we have seen numbers this low, the Chinese followed it with large and then record-breaking air incursions.
- Why It Matters: I still expect the Chinese to wait until after the election for a major military action on Taiwan. However, China’s troops are rested and may be used to make a point against Taiwanese Independence in order to influence the election. This would continue to normalize high-volume air and naval incursions that lower the predictability of an actual invasion or blockade. – J.V.
— 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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