Good morning, and welcome to the Global Situation Report for Wednesday, 24 January 2024.
- ZOELLICK: “ELEGANT JUSTICE” TO GIFT RUSSIAN RESERVES TO UKRAINE: Former World Bank President Robert Zoellick said that Western countries should not hesitate to transfer Russia’s $300 billion of frozen currency reserves to Ukraine for the war effort.
- Zoellick is not worried about blowback, as trade surplus countries don’t have an alternative to holding dollars or euros and won’t dump these currencies.
- Another proposal is to set up an investment fund and pay Ukraine interest from the seized Russian reserves.
- The Biden administration is pressuring finance ministers, central bankers, and diplomats from Britain, France, Germany, Italy, Canada, and Japan to come up with a strategy by 24 February – the second anniversary of Russia’s invasion – according to The New York Times.
Why It Matters: The major risk is that countries worldwide will lose confidence in both the U.S. as the leader of the global financial system and the dollar-based system if Western leaders transfer Russia’s frozen dollar reserves to Ukraine. This will accelerate a move away from the euro and eventually the dollar, as the BRICS+ union will gain more power, and countries could opt to hold more reserves in gold rather than dollars, which could send gold prices much higher. – H.B.
I’d also note that the Biden administration is asking a coalition of six counties for a plan, which will blunt some international criticism that would otherwise fall on a unilateral decision by the United States. – M.S.
- GOLDMAN: COPPER PRICES TO NEARLY DOUBLE BY 2025: Goldman Sachs analysts forecast that the global copper deficit will be almost half a million tons in 2024 – about 2% of annual copper production – and this will cause prices to rise this year and nearly double by next year.
- The copper market suffered a supply shock in late 2023, with mine production downgrades that surprised investment banks.
- China’s 2024 copper demand will be just one-third of the country’s demand in 2023, but global copper demand will increase 20% from this year to 2030, according to Goldman Sachs’ model.
Why It Matters: While global copper demand is rising for green and non-green applications, copper supply from the world’s top producer, Chile – with over 25% market share – has not substantially risen over recent years. Also, as we reported last week, supply from the Democratic Republic of the Congo (DRC), the world’s fourth-largest copper producer, is at risk due to political protests. Goldman’s copper deficit model may be optimistic, and its price target of $15,000 per ton in 2025 may be understated. – H.B.
- SURVEY: U.S. UNLIKELY TO AID TAIWAN: The Center for Strategic International Studies (CSIS) surveyed 52 U.S. and 35 Taiwanese defense experts on the likelihood and nature of a Taiwan Strait crisis in 2024. Generally, the Taiwanese experts expected a Chinese law enforcement-led quarantine to be the most likely scenario and that the U.S. would not militarily intervene in that scenario.
- “Quarantine: A law enforcement operation led by non-military actors (e.g., China Coast Guard, maritime militia, etc.) that is focused on limiting the flow of commercial goods into Taiwan” is the definition used by CSIS.
- 89% of Taiwanese experts thought a quarantine of the main island was likely in the next five years, compared to 80% thinking a kinetic blockade was likely in the same time frame.
- 40% of Taiwanese experts were moderately or completely confident that the U.S. would militarily intervene in a quarantine. 74% thought they would for a blockade.
- The Taiwan party generally believes regional allies would not intervene but are split on the matter in scenarios where China uses lots of kinetic force.
- 72% of Taiwanese experts believe Taiwan would succumb to a blockade within six months. 38% believe it would be within three months.
- 98% of Taiwan’s energy and 65% of its food is imported, according to the study.
Why It Matters: A quarantine, as CSIS describes it, would effectively be a limited blockade that could still pressure them into surrendering their sovereignty. These data are likely to affect policymakers from China and Taiwan. China will likely seek to avoid anything further than a quarantine, while pro-independence factions in Taiwan could seek to escalate to encourage American and allied responses. These data incentivize violence and the most dangerous course of action from our allies. – J.V.
- UN DEMANDS TWO-STATE SOLUTION TO ISRAEL-PALESTINE PROBLEM: The United Nations Security Council convened a meeting yesterday on the Israel-Palestine conflict and political situation, where Secretary-General António Guterres demanded a two-state solution.
- “Israelis must see their legitimate needs for security materialized, and Palestinians must see their legitimate aspirations for a fully independent, viable, and sovereign State realized,” Guterres said in a speech after the meeting. “And any refusal to accept the two-State solution by any party must be firmly rejected,” he added.
Why It Matters: Despite mentioning Israel’s security needs, these statements are a refusal to deal with Israel’s actual concerns. Palestine claims the entirety of Israeli land, as Israel does to Palestinian land. Israeli officials remain adamant that a two-state solution will provide no lasting peace as long as these two claims remain. The UN’s statements are likely to further fuel the Israeli war machine to achieve a single unified state before any countermeasures can be taken. – J.V.
- U.S. FORMALLY ASKS CHINA TO BE A PEACEMAKER IN MIDDLE EAST: Multiple U.S. foreign policy officials have talked to their Chinese counterparts about pressuring Iran to reel in the Houthis, according to U.S. media reports.
- National Security Advisors Jake Sullivan and John Finer talked with Liu Jianchao, head of the International Liaison Department of China’s Communist Party, earlier this month.
- U.S. Secretary of State Antony Blinken and Chinese Foreign Affairs Minister Wang Yi discussed it after a mild condemnation of the attacks from China.
Why It Matters: Almost a year ago, Chinese President Xi Jinping launched the Global Security Initiative, a multilateral approach to Chinese-led global governance that’s intended to compete with the “U.S.-led rules-based international order.” We’ve seen China broker peace between Iran and Saudi Arabia and act as a mediator in other areas while arguing that a China-led order can bring lasting peace and security to the world. As Foreign Minister Wang Yi put it, “China’s time has come for global governance.” Meanwhile, the Biden administration is set up for a strategic blunder; on the one hand, demonstrating U.S. limitations by being unable to end Houthi missile and drone attacks against commercial ships and, on the other hand, playing into China’s strategic messaging, which undermines U.S. power and influence. The Biden administration’s request for Chinese support, therefore, seems desperate. Xi likely sees two sides to the situation. First, China can upstage the United States by mediating the Houthi situation and proving the concept of the Global Security Initiative. And second, by allowing or enabling the situation to escalate, Xi creates international demand for Chinese influence. – M.S.
THAT’S A WRAP: This does it for today’s edition. Thank you for reading. If you know folks who would also like to receive this email, would you please forward it to them? We appreciate you spreading the word. – M.S.