10/28 – International News Story

Ursula von der Leyen is set to introduce stricter laws and further measures to deport rejected asylum seekers, reinforcing the European Union’s shift toward tougher migration policies as anti-immigrant parties continue to gain traction across Europe.

Over half of EU member states, including France and Germany, have called on the EU to tighten its deportation policies ahead of a meeting of 27 EU leaders last Thursday. Now, the head of the EU’s executive branch is formally endorsing these deportation efforts.

At a press conference, von der Leyen, President of the European Commission, mentioned that leaders had discussed establishing deportation centers outside the EU’s borders, which she referred to as “return hubs.” These proposals for enhancing deportation mechanisms come at a time when the number of migrants entering the EU is actually declining. In 2023, fewer than 300,000 people arrived in Europe, and this year, the EU border agency Frontex estimates only around 160,000 migrants have entered. This stands in stark contrast to 2015, when over a million people crossed into the EU during the peak of Europe’s migration crisis. [Politico]

“Currently, only 20 percent of those who are ordered to leave the European Union are actually returned to their home countries,” von der Leyen said.

She added that the concept of “return hubs” is not insignificant, though it has been under discussion for a while now. European leaders are endorsing the establishment of deportation centers, as well as deportations to Afghanistan and Syria, and supporting Poland’s move to ban asylum seekers.

To expand its deportation efforts, the EU may also reconsider its definition of a legally “safe” country.

Austria’s Chancellor, Karl Nehammer, suggested that Syria, still under the rule of Bashar Assad, and Afghanistan, governed by the Taliban, could be classified as safe countries. Italy is leading efforts to send refugees back to Syria, despite the country’s ongoing civil war, which began in 2011 and led to a severing of diplomatic ties with the EU.

At the same meeting, von der Leyen also endorsed other proposals aimed at reducing migration. Polish Prime Minister Donald Tusk received backing for his proposed ban on asylum seekers from Russia and Belarus, citing concerns that Moscow was deliberately sending migrants to Europe to destabilize Poland. [Politico] 

EU leaders fully supported the proposed asylum ban.

“Russia and Belarus, or any other country, cannot be allowed to exploit our values,” read the agreement signed by all leaders. “Exceptional circumstances require appropriate measures.”

A notable dissent came from Spain’s Socialist Prime Minister, Pedro Sánchez, who framed migration as beneficial for his country’s economy.

When asked about the “return hubs” during a press conference, Sánchez expressed opposition: “We do not support such measures; they don’t solve problems and create new ones.” [Politico]

Along with Germany, Sánchez advocated for a greater focus on the EU’s landmark migration and asylum agreement, which was reached last December.

OPINION:

As the European Union takes necessary measures to tighten its migration policies, some argue that these measures are excessive or even inhumane. Yet Europe has, for years, faced an unsustainable strain on its cultural fabric, social services, and security, making stricter deportation policies a necessity rather than a choice.

President Ursula von der Leyen’s recent endorsement of tougher deportation laws is a logical step toward restoring control over Europe’s borders and addressing the deep-seated consequences of migration that resonate across the continent.

Europe’s migration policies were initially built on values of humanitarianism and solidarity, crafted during a time when migrant flows were more manageable. That vision is no longer sustainable. Even as the number of new arrivals has decreased since the 2015 crisis, past waves of migration have left lasting impacts. In countries like France, Germany, and Sweden, urban centers are struggling to integrate large numbers of newcomers, resulting in rising tensions and shifting demographics. Many of these communities have struggled to assimilate into their host countries, leading citizens to question their nation’s capacity to absorb further waves.

This pressure extends beyond cultural concerns to public services. Europe’s schools, healthcare systems, and social support programs are feeling the strain, as they work to accommodate populations that often arrive with high support needs. Integrating such numbers, especially when language and educational backgrounds vary widely, is a complex and costly endeavor. To maintain the quality of life for all residents, EU nations must draw a line, ensuring that public services aren’t eroded to the point where they are unable to serve either their citizens or new arrivals effectively.

Rising migration rates have correlated with increasing crime rates in some regions, adding a legitimate security concern. While this does not imply that all migrants are involved in crime, studies have shown that certain groups face challenges with economic hardship, cultural adjustment, and integration, leading to social issues that only heighten the need for stricter control. If Europe’s values include maintaining safe and cohesive communities, stronger migration policies are not just preferable—they’re essential.

President von der Leyen’s proposals, including “return hubs” and stricter deportation rules, address this urgent need for order within the migration system. “Return hubs” outside EU borders have faced criticism, but they provide a practical solution to manage the backlog of cases for those who don’t meet asylum requirements. The EU cannot indefinitely support those who don’t qualify, particularly as resources are stretched. This pragmatic approach doesn’t reject Europe’s values; it reaffirms them, prioritizing legitimate asylum seekers without overwhelming host societies.

Some leaders, like Austria’s Chancellor Karl Nehammer, propose defining Syria and Afghanistan as “safe” countries, acknowledging the need for a reasonable boundary despite the difficult conditions there. Supporting measures like Poland’s asylum bans from Russia and Belarus also prevents migration from being weaponized to destabilize Europe’s borders. Such policies reflect a strong stance that Europe’s migration system cannot be exploited without consequence. Europe’s core values must be protected, and tightening its borders is key to this mission.

These policies are controversial, as leaders like Spain’s Prime Minister Pedro Sánchez advocate for migration’s economic benefits. But in the current climate, Europe’s stability does not align with an unchecked approach. Stricter migration policies help establish sustainable systems that benefit both citizens and legitimate migrants, preventing resentment and mistrust from eroding cohesion within communities.

As the EU confronts a shifting global landscape, where tough living conditions and political instability drive constant migration pressures, Europe’s relatively liberal migration system has proven vulnerable. Instead of primarily supporting vulnerable families, the system now sees an influx of able-bodied young men seeking economic opportunity rather than asylum. Europe must adapt to this shifting reality and recalibrate policies to protect its resources and remain a haven for those truly in need. For Europe’s long-term prosperity and unity, these policies are essential.

10/21 – International News Story

In the final months of his presidency, President Joe Biden is showing a new openness to using U.S. military aid to Israel as both an incentive and a form of pressure in its high-stakes conflict with Iran and militant groups supported by Iran. This approach deepens U.S. involvement in Israeli decision-making right before the and might be interpreted as a way of increasing this administration’s influence with the upcoming U.S. presidential election. Biden’s objectives for now seem to include preventing a larger regional conflict and urging Israel to address Gaza’s worsening humanitarian crisis.

Last weekend, the Biden administration revealed plans to send approximately 100 U.S. troops and an advanced anti-missile system to Israel, a rare move prompted by Israeli Prime Minister Benjamin Netanyahu’s consideration of retaliating against Iran after its October 1 missile strike. [Reuters]

In addition, the administration delivered a letter to Israel on Sunday, warning it to take steps to improve Gaza’s humanitarian conditions within the next month or face possible restrictions on U.S. military aid. Publicly, U.S. officials claim these actions align with long-standing policies that aim to safeguard Israel’s defense while advocating for civilian protection in the year-long Gaza conflict.

These recent moves signal a deeper U.S. involvement in Israeli strategies, even as Biden nears the end of his term. Israel has often resisted U.S. advice over the past year, creating political challenges for the Biden administration, which faces pressure from liberal activists in the Democratic Party to use U.S. influence to curb Israel’s actions.

This both-carrot-and-stick approach to foreign policy shows that the Biden administration is engaged in trying to manage this conflict, but there are certain doubts that Washington would cut any military aid if or when the conflict with Iran intensifies. If tensions escalate and Israel gets into direct military conflict with Iran, it’s hard to imagine the U.S. reducing military support.

White House spokesperson John Kirby downplayed the idea that the letter was intended as a threat, though Israeli officials are reportedly taking it seriously. Israel also acknowledged receiving the letter, which is under review by security officials. [Reuters]

On Wednesday of last week, Israel reported that 50 aid trucks had been sent to northern Gaza from Jordan, possibly in response to U.S. demands.

Biden has prioritized Israel’s defense since the war with Hamas began, refusing to halt weapons deliveries despite criticism from fellow Democrats as Israeli strikes in Gaza, according to Palestinian health authorities, led to significant casualties. 

In April, the administration pushed for better protection for civilians and aid workers, which temporarily increased aid flows into Gaza. Sunday’s letter, which outlined steps for Israel to improve conditions within 30 days, including the entry of at least 350 aid trucks daily, was the clearest ultimatum presented by the U.S. thus far.

Failure to comply could result in Israel becoming ineligible for U.S. military aid, according to John Ramming Chappell from the Center for Civilians in Conflict, marking a potential turning point in U.S. policy. Netanyahu held an emergency meeting on Wednesday to discuss increasing humanitarian aid to Gaza, with aid expansion likely soon. [Reuters]

The deployment of the Terminal High Altitude Area Defense system (THAAD) also represents a major shift. Former officials described it as a “paradigm shift” given Israel’s long-standing defense doctrine of self-reliance. This move increases U.S. involvement in the conflict, especially as the Middle East anticipates Israel’s response to Iran’s missile strike.

Biden has opposed any Israeli strike on Iran’s nuclear or energy sites, expressing concern about escalating tensions. Analysts like Thomas Karako from the Center for Strategic and International Studies view the THAAD deployment as a way to dissuade Israel from launching large-scale strikes.

With Biden’s 30-day deadline running past the U.S. election, Netanyahu may leverage the potential for a more favorable U.S. administration under Donald Trump if the Republican candidate wins. As Aaron David Miller noted, Netanyahu could be operating from a position of maximum leverage in the coming weeks with the presidential election coming at such a pivotal and uncertain time. 

10/18 – International News Update

Yahya Sinwar, the architect of the October 7, 2023, assault that ignited the Gaza war and most recent leader of Hamas, was killed by Israeli forces in Gaza on Wednesday. [Reuters]

This marks another potentially significant turning point toward escalation in the conflict as Lebanon’s Hezbollah militant group announced on Friday that it was entering a new, more intense stage in its conflict with Israel. Meanwhile, Iran stated that “the spirit of resistance will be strengthened” after Sinwar’s death.

Western leaders viewed his death as a potential opening for peace, but Israeli Prime Minister Benjamin Netanyahu insisted the war would persist until all Hamas-held hostages were freed. “We have delivered a blow to evil today, but our mission is not over,” Netanyahu said in a recorded statement on Thursday.  [Reuters] 

Sinwar, who took over Hamas leadership after the assassination of Ismail Haniyeh in Tehran in July, had reportedly been hiding in the vast network of tunnels built by Hamas under Gaza. Israeli officials noted that soldiers, unaware they had captured their top target, killed Sinwar during a gunfight in southern Gaza on Wednesday. 

Opinion: 

Though Hamas has not officially responded, internal sources suggest that Sinwar was indeed killed by Israeli forces. Despite hopes from Western nations for a ceasefire, his death could exacerbate tensions in the region, where fears of a broader conflict are mounting. Israel has escalated its military operations in Lebanon in recent weeks and is preparing a response to an October 1 missile strike by Iran, a close ally of both Hamas and Hezbollah.

Iran has shown no indication of altering its stance, reaffirming that the “spirit of resistance” will only grow stronger following Sinwar’s killing. Hezbollah also responded defiantly, declaring a shift into an intensified phase of conflict with Israel.

U.S. Secretary of State Antony Blinken engaged in discussions with Saudi and Qatari leaders in an effort to halt the conflict. Meanwhile, Israeli hostage families, though acknowledging the importance of Sinwar’s death, emphasized that the war would not truly end until all hostages are freed.

Sinwar, who orchestrated the 2023 attack that killed 1,200 Israelis and resulted in the capture of over 250 hostages, is seen by some as a key figure whose death could advance peace efforts. The U.S. has expressed hope that his death may pave the way for a ceasefire and hostage negotiations. U.S. State Department spokesperson Matthew Miller described Sinwar as the “primary obstacle” to peace, adding that his removal could open the door to talks, although it remains unclear if his successor would be amenable to such discussions.

When there is a significant enough movement of resistance as there is currently in Palestine against Israel, a leader can be killed but the movement itself will not be stamped out. A new leader will quickly succeed and the Hamas organization in this case will be weakened but not ready to stand down. As we have seen in recent months and in the larger scope of Israel’s regional adversaries and the extremist militias, no matter how many leaders they assassinate, another pops up and conflict resolution does not get any closer. It is doubtful that we are any closer to peace in the Middle East even though another key Hamas leader has been eliminated and they intensify their decapitation efforts against Iran’s proxy militant leadership. 

U.S. Secretary of State Antony Blinken engaged in discussions with Saudi and Qatari leaders in an effort to halt the conflict. Meanwhile, Israeli hostage families, though acknowledging the importance of Sinwar’s death, emphasized that the war would not truly end until all hostages are freed.

10/17 – International News & Economics Story

In recent decades, both the United States and the European Union have grappled with similar economic crises, including the global financial crisis in 2008 and the COVID-19 pandemic. Yet when it comes to bouncing back from these struggles, the U.S. has managed to surge ahead. When it comes to the societal factors that generate wealth such as science, innovation, and birth rate, the U.S. consistently ranks higher than Europe.

Europe’s leaders have seemingly woken up to this fact and are now trying to do something about it. Former European Central Bank president Mario Draghi was tasked with assessing the EU’s challenges and outlining potential solutions. His extensive 400-page report, delivered after a year of work, concluded that the gap between the EU and the U.S. is widening, calling for urgent and decisive action. The numbers speak for themselves. [Politico]

Americans Have Greater Wealth
Despite ongoing debates about the relationship between wealth and happiness, Americans, on average, are wealthier than Europeans—a trend that has persisted for some time. What’s more concerning for Europe is that this wealth gap is widening. In 1990, the U.S. GDP per capita was 16% higher than that of the eurozone. By 2023, this difference had grown to over 30%.

The U.S. Invests More in Knowledge
Higher wealth often translates into greater investments in science and research. Both the U.S. government and private sector allocate a larger portion of their GDP to these areas compared to Europe. The Draghi report highlights the need to boost private investment in European research and development. Currently, many European entrepreneurs seek funding from U.S. venture capitalists and choose to expand their businesses in the American market.

U.S. Innovation Is Outpacing Europe
Although it’s challenging to measure technological progress directly, the U.S. appears to be ahead. While European innovation is still competitive, the U.S. produces a larger share of scientific and technological papers in leading journals. Meanwhile, China is rapidly advancing, leaving Europe trailing behind both.

The U.S. Benefits From Energy Resources
America’s success is partly attributable to its abundant natural resources. The Permian Basin, rich in oil and natural gas, has helped the U.S. become the world’s top producer of both. This energy abundance allows American industries to benefit from cheaper electricity than in Europe, providing a competitive edge, particularly in manufacturing.

Americans Are More Productive
American workers consistently outperform their European counterparts in terms of output per hour. Although Europe had been closing the productivity gap, it has recently widened again. The U.S.’s rapid adoption of digital technology has played a key role in maintaining its lead.

U.S. Companies Dominate the Market
In 2023, Nvidia, a California-based chipmaker, became the eighth American company to surpass $1 trillion in market value. In contrast, no European company founded in the last 50 years has reached €100 billion. The majority of U.S. companies in the trillion-dollar club are tech giants, with Warren Buffett’s Berkshire Hathaway being the only exception. On a broader scale, American firms represent 73% of the top 30 global companies and more than half of the top 500.

Americans Have a Higher Birth Rate
Europe’s economic growth was historically fueled by a growing workforce, but its declining birth rate now presents a significant challenge. Europeans have fewer children per mother than Americans, which could lead to lower tax revenue and a shrinking workforce, especially as the number of retirees increases. While U.S. birth rates are also falling, the American population is expected to keep growing, partly due to immigration. In contrast, Europe’s population is forecasted to peak at 453 million in 2026

10/14 – International News Story & Updates

Israel has intensified its military presence in southern Lebanon by deploying a fourth division, following a series of heavy airstrikes in the region. The recent addition of the 146th reservist division, alongside another active division, has increased the total number of Israeli troops in the area to approximately 15,000.

This move is part of Operation Northern Arrows, initially described by Israel as a set of “limited, localized, and targeted raids” aimed at dismantling Hezbollah’s infrastructure along the contested blue line border.

Israeli Prime Minister Benjamin Netanyahu announced that the Israel Defense Forces (IDF) had killed Hashem Safieddine, who was expected to succeed Nasrallah.

In response to the continued Israeli strikes on Lebanon and Gaza, Hezbollah’s Operations Room released a firm statement, pledging to maintain its resistance against Israeli occupation until the conflict in Gaza concludes. The statement underscored the group’s state of readiness and improved missile capabilities, warning that any further Israeli aggression would lead to a stronger retaliation.

Hezbollah emphasized that its military operations are now directed by a more robust command-and-control structure, making the group “stronger and more resilient” than before. The group also warned that ongoing Israeli attacks on Lebanese civilians could lead to missile strikes on major cities like Haifa and border towns such as Kiryat Shmona and Metulla. The statement further highlighted the fierce battles ongoing in southern Lebanon, where Hezbollah fighters are successfully resisting Israeli advances into border villages, demonstrating their ability to strike deep into Israeli territory beyond missiles and drones.

The deployment of four divisions, combined with evacuation orders for Lebanese villages within 20 miles of the blue line and heavy bombings in southern and eastern Lebanon, suggests that Israel may be gearing up for a larger offensive against Hezbollah.

Despite the escalation in airstrikes, Hezbollah’s acting secretary-general, Naim Qassem, gave a defiant speech, asserting that the group’s military strength remains intact. He noted that Hezbollah continues to launch daily rocket and drone attacks against Israeli settlements, even in the face of significant leadership losses.

Israeli leaders believe that the 181 ballistic missiles launched by Iran on October 1st leave them with little choice but to retaliate. The form this retaliation takes could have far-reaching consequences for the Middle East and beyond.

There are four main targets being considered. Prime Minister Netanyahu has long advocated for bombing the sites where Iran enriched uranium and conducts research for its nuclear program. However, these sites are spread out across the country and heavily fortified underground, making it difficult to cause significant damage. Successfully targeting them would require deploying numerous bunker-busting missiles from aircraft operating over 1,200km (750 miles) away. Israel’s air force, though powerful, may struggle to delay Iran’s nuclear progress by more than a few months. [The Economist] 

A more vulnerable target would be Iran’s key ports, particularly oil facilities, which are essential for its foreign currency revenue. Israeli strategists believe destroying these ports would significantly harm Iran’s already weakened economy, potentially sparking further internal unrest, with some even hoping this could lead to regime change.

A third option is to directly target Iran’s leadership, just as Israel has previously done with leaders of Iran’s allies, Hezbollah in Lebanon and Hamas in Gaza. This, however, would be challenging, as Iran’s senior figures would likely retreat to secure locations if a strike seemed imminent, and the impact of such an attack remains unpredictable. The succession of Iran’s aging supreme leader, Ali Khamenei, is already a topic of considerable debate in the country.

The most straightforward response would be a direct attack on Iran’s missile bases. This option could reduce the chances of further Iranian missile strikes. However, Netanyahu sees an opportunity to reshape the region’s political landscape, and some of his generals agree, believing Israel’s ability to withstand two major Iranian missile attacks with minimal casualties or damage proves it can handle whatever Iran might throw at it.

Those advocating for strikes on Iran’s nuclear program and economic targets argue that Israel has a rare strategic advantage, having recently neutralized much of Hezbollah’s leadership and missile arsenal, a deterrent provided by Iran to counter any attack on its nuclear infrastructure.

Despite the clear provocation, Israel has not yet retaliated two weeks after the missile attacks. Several generals advise caution, warning that Israel should not embark on such a significant operation without coordination with its key ally, the United States. However, President Joe Biden has publicly opposed an Israeli attack on Iran’s oil infrastructure, concerned that it could cause a spike in global energy prices just before American elections. He has also expressed reluctance about Israel striking Iran’s nuclear facilities.

Although the U.S. has provided Israel with nearly $18 billion in support this past year, and American forces played a key role in intercepting Iranian missiles, Israel has not yet shared its plans with Washington. Netanyahu even blocked a proposed visit by Israel’s defense minister, Yoav Gallant, to the U.S. to discuss potential options.

However, the United States announced on Sunday that it will deploy U.S. troops to Israel along with an advanced U.S. anti-missile system, in a rare move aimed at strengthening Israel’s air defenses after recent missile strikes by Iran. President Joe Biden stated that the deployment is intended “to defend Israel,” as the country considers retaliating against Iran, following Tehran’s launch of more than 180 missiles at Israel on October 1. [Reuters]

The Terminal High Altitude Area Defense (THAAD) system, a crucial element of the U.S. military’s layered air defense, will enhance Israel’s already strong anti-missile defenses.

The United States has been quietly urging Israel to carefully manage its response to avoid sparking a wider conflict in the Middle East, according to officials. President Joe Biden has publicly expressed his opposition to an Israeli strike on Iran’s nuclear facilities and raised concerns about targeting Iran’s energy infrastructure.

Pentagon spokesperson Major General Patrick Ryder characterized the deployment as part of “broader adjustments the U.S. military has made in recent months” to support Israel and protect U.S. personnel from attacks by Iran and its allied groups. However, a U.S. military presence in Israel outside of joint exercises is rare, given Israel’s advanced military capabilities. In recent months, U.S. forces have assisted Israel’s defense through warships and fighter jets stationed in the Middle East during Iranian missile attacks.

Some Israeli defense officials worry that provoking a full-scale war with Iran, while Israel is still engaged with Hamas in Gaza and has launched a ground offensive against Hezbollah in southern Lebanon, could dangerously stretch its resources. Certain generals caution against risking the progress already made.

However, since the October 7th, 2023 disaster, the standing of Israel’s military and intelligence leaders in opposing Netanyahu has weakened. Like the prime minister, they seem willing to gamble on a broader conflict, hoping to transform their legacy from overseeing one of Israel’s greatest crises to achieving victory in a regional war.

Opinion: 

Last week, Iran launched its largest attack ever on Israel, firing around 180 ballistic missiles at its regional adversary. Though most of these were intercepted by Israel’s defense systems, the question now is how Israel will respond. Netanyahu has already declared that Iran will pay for the attack, and Israel is carefully calculating its next move. It’s clear that Iran intended these strikes as a deterrent against Israel’s growing escalation, but it appears to have failed in achieving this goal. Israel is reportedly weighing whether to target critical infrastructure like Iran’s oil facilities or even strike its nuclear sites, a move that would undoubtedly raise the risk of full-scale war.

Iran’s ruling regime, led by the Ayatollahs, finds itself in a more precarious position than many realize. Iran’s proxies are being overwhelmed by Israeli forces, and Netanyahu seems increasingly willing to escalate, despite international calls for restraint. The Iranian government now faces a dilemma: it must avoid full-scale war with Israel while trying to project strength through deterrence. So far, this balancing act is faltering.

The regime’s challenge lies in avoiding escalation while maintaining a credible deterrent against Israel. Iran is in no position for a full-blown conflict, especially with its internal weaknesses. The country is grappling with an economic crisis, a loss of legitimacy, and the looming succession crisis of its aging Supreme Leader with no clear successor. Sanctions, particularly from the Trump era, have devastated Iran’s oil exports, which make up half of its national budget. The regime’s response—printing more money—has led to inflation and deepened poverty. Combined with the strict social and moral laws, the regime has become deeply unpopular, particularly among younger Iranians. Many oppose their government’s foreign policy, especially its ongoing support for proxy militias, while the country has suffered economically for nearly a decade.

It’s clear that Iran is not ready for a war with Israel, and the government knows it. This puts the Ayatollahs in a difficult position—they need to project political strength, yet Israel is destroying their proxy militias and decapitating the leadership of their strongest proxy forces in mere weeks. Iran fears an all-out conflict with Israel but also needs to respond to maintain legitimacy. This dilemma highlights the paradox of deterrence.

Make no mistake, Iran’s regime still despises Israel, America, and considers itself an enemy of the West. However, to preserve its power domestically, the regime is not prepared to enter an all-out war. By launching the missile barrage in response to Israel’s invasion of southern Lebanon, Iran likely aimed to show its willingness to strike Israel, while also signaling to Netanyahu that it’s time to stop—placing the decision to de-escalate in his hands.

The problem for Iran is that recent developments suggest Israel is far from ready to conclude its operations, and further escalation seems inevitable. Iran’s aim to avoid military escalation while maintaining a deterrent is increasingly unrealistic.

Iran’s proxies have been severely weakened by Israeli attacks in Gaza, Lebanon, and even by the Houthis in Yemen, who are being countered with U.S. and UK support. Netanyahu likely sees this as the moment to strike, aiming to dismantle as much of Iran’s proxy network and military strength as possible. Iran, on the other hand, cannot stand by and watch this unfold, yet it must find a measured response that discourages Israel without provoking further retaliation. If this cycle of escalation continues, Iran will face a crucial decision: engage in war with Israel and its allies, or stand down and risk losing its legitimacy.

10/12 – International News & Economics Story

Since Hamas’s attack on Israel a year ago, the oil market’s primary concern has been the potential escalation into a regional conflict involving Israel and Iran, the world’s seventh-largest oil producer. 

Previously, both nations appeared eager to avoid such a scenario even amidst  rising tensions. This is why, despite the war in Gaza and missile attacks by the Houthis in the Red Sea, initial fears in oil markets after the events of October 7th last year were short-lived, and oil prices remained relatively low and stable throughout most of the year.

However, last week, Iran launched around 200 missiles at Israel in retaliation for Israel’s strikes on Hezbollah and other Iranian-backed proxy groups. The world now waits anxiously for Israel’s response, with oil markets showing signs of unease. 

Crude prices surged by 10% last week, reaching $78 a barrel, marking the largest weekly increase in nearly two years. On October 7th, they spiked again before becoming volatile. The last time a major petrostate was involved in conflict, during Russia’s 2022 invasion of Ukraine, oil prices exceeded $100 a barrel. [The Economist]

If Israel retaliates by only targeting military assets, and Iran responds cautiously to ease tensions, some of the geopolitical pressure lifting oil prices might dissipate. However, if Israel escalates by choosing to strike Iran’s civilian infrastructure or oil facilities, Iran may feel compelled to retaliate strongly, potentially turning its oil industry—vital to the regime—into a target. In this case, even if oil assets are not directly attacked, global markets would still be nervous.

An attack on Iran’s oil facilities might focus on key assets such as the Abadan refinery, which supplies 13% of the country’s petrol. [The Economist]

If Israel seeks to disrupt Iran’s oil exports, it could target Kharg Island, which handles 90% of Iran’s crude shipments, or even go after oil fields. However, such moves would carry diplomatic repercussions, especially with the U.S. and China. The Biden administration would be displeased, particularly with the potential for rising gas prices just before the U.S. presidential election. China, which receives most of Iran’s oil, would also be upset. 

Despite these risks, Israel might still see the benefit in striking Kharg Island, potentially taking a significant portion of oil off the global market. Iran recently exported a record 2 million barrels per day, equivalent to nearly 2% of global supply. [The Economist]

Even then, global impacts might be limited. Unlike the situation following Russia’s invasion of Ukraine, oil supply today is relatively abundant while demand remains weak. OPEC+ has more than 5 million barrels per day of spare capacity, more than enough to offset any disruptions to Iranian oil. Saudi Arabia and the UAE alone hold more than 4 million barrels per day in reserve and are likely to increase production quickly if needed. 

OPEC+ members have been eager to reverse their production cuts, with plans to boost output by 180,000 barrels per day starting in December. The group’s internal discipline is already weakening, with Iraq and Kazakhstan exceeding their supply limits for months, which could prompt other members, including Saudi Arabia, to ramp up production even more swiftly. [The Economist]

Non-OPEC production is also increasing in countries like the U.S., Canada, Brazil, and Guyana. The International Energy Agency projects that non-OPEC output will grow by 1.5 million barrels per day next year, which should cover any increase in global demand. Moreover, sluggish economic growth in the U.S., China, and Europe, coupled with the shift to electric vehicles, especially in China, has slowed demand for oil. 

Before the latest escalation in the Middle East, analysts were predicting an oil surplus by 2025, with prices possibly dropping below $70 a barrel. Currently, crude inventories in OECD countries are below their five-year average, so while a strike on Kharg Island could briefly jolt markets, prices would likely stabilize at only $5-10 higher than current levels. [The Economist]

However, things could become more volatile if Iran retaliates against other Gulf states that it sees as backing Israel. Although Iran’s relations with its neighbors have been improving, as diplomatic ties with Saudi Arabia were restored in 2023, there’s still a chance that Iran could target oil facilities in smaller Gulf states like Bahrain or Kuwait.

Another possibility is Iran closing the Strait of Hormuz, through which 30% of the world’s seaborne crude and 20% of its liquefied natural gas pass. This move, though unlikely due to the economic consequences for Iran itself, would have devastating effects on global oil markets and would anger China, a major importer of Gulf oil. Even so, should Iran’s oil exports be severely constrained by strikes or sanctions, it’s not entirely inconceivable.

Predicting how markets might react to such events is challenging because Iran’s actions would likely trigger further responses from Israel, the U.S., and other actors. If disruptions were severe enough to cause lasting shortages, oil prices could rise to levels that reduce demand. Analysts estimate that this “demand destruction” would occur if prices hit $130 a barrel—the level seen in 2022. Should oil markets start considering such a scenario likely, those fears would begin to be reflected in current prices. 

Yet, in retrospect, the recent price increases do not appear extreme. On Monday, prices edged past $80 a barrel, not far from last year’s average of $82 or 2022’s $100. Although the ongoing conflict in the Middle East has defied many expectations, oil prices returning to triple digits would require multiple factors to go very wrong.

10/11 – International News Story & Economic Piece

Since Russia’s invasion of Ukraine in February 2022, most European nations have realized that the contracts and reliance on Russian gas is problematic, and that the supply is replaceable. 

Many European officials are even more prepared to move on as the multibillion-dollar agreement allowing Russian gas to flow through Ukraine to the EU approaches its expiration at the end of the year. The data supports their stance as the EU largely has alternatives for this gas.

However, for countries like Austria, Slovakia, and Hungary, this situation presents a costly challenge with potential repercussions across Europe. These nations remain heavily reliant on Russian gas, benefiting both politically and economically, as the Ukraine pipeline has been a crucial link. [Politico] 

With that connection at risk, these countries may soon need to find alternatives. While options exist, moving away from the current arrangement will come with financial costs.

Europe’s energy landscape has shifted since Russia’s invasion of Ukraine, demonstrating that while the EU no longer relies on the once-essential pipeline, it can’t completely avoid the financial impact of cutting off these flows.

In response to the 2022 invasion, Europe’s dependency on Russian gas quickly became a problem as Moscow cut supplies through key pipelines like Nord Stream and Yamal-Europe. The EU adapted by increasing liquefied natural gas (LNG) imports, mainly from the U.S., and signing new contracts. By 2023, Russian pipeline gas accounted for only 8% of the EU’s imports, down from over 40% in 2021. Nonetheless, a few pipelines, including one through Ukraine, remained active under prewar agreements. [Politico] 

For most of the EU, this pipeline is no longer crucial, providing only about 5% of its 2023 gas imports. However, Central and Eastern Europe depend heavily on it, as countries like Austria, Slovakia, and Hungary didn’t transition to LNG as quickly and continued relying on Russian gas.

Although it’s a small part of Europe’s overall gas supply, it remains vital to these nations. Austria, for example, was still 98% dependent on Russian gas in 2022, much of it coming through Ukraine. Slovakia also received billions of cubic meters through the pipeline, and Hungary, though less reliant on the Ukraine route, remains deeply connected to Moscow for its energy. [Politico] 

The International Energy Agency recently highlighted the potential shutdown of the Ukraine pipeline as a major uncertainty for Europe, especially for Central and Eastern European markets and Moldova.

These countries currently benefit from relatively cheap Russian gas, avoiding intermediaries who charge higher prices. However, if the gas supply from the pipeline is cut, they would need to tap into Europe’s broader gas market, which could be more expensive and less accessible. New contracts and routes would be required, increasing costs.

Liquefied natural gas is expected to be more expensive than the Russian pipeline gas, which has been a cost-effective option for Europe. While Austria and Slovakia have begun securing alternative supplies through deals with nearby nations, Hungary may continue relying on Russian gas via Serbia. But all alternatives will come at a price.

Though the effects would be felt most strongly in Central and Eastern Europe, the entire EU could experience “ripple effects.” As existing gas infrastructure becomes more strained, the market will tighten, leaving less room for supply disruptions.

The Ukraine pipeline could continue operating, with discussions underway for Azerbaijan to take over the contracts. Yet, there’s uncertainty about whether Azerbaijan has the production capacity to replace all Russian exports or whether it would simply rebrand Russian gas as Azeri gas. This scenario would still result in higher prices, with Russia continuing to profit.

10/10 – International News Update

On Friday last week, the European Union member states held a vote and did not object to a proposal to introduce tariffs on electric vehicles manufactured in China. The bloc elected to take on the tariffs despite an expected effort by German Chancellor Olaf Scholz to prevent the move.

According to several diplomats familiar with the vote in the Trade Defence Instruments Committee, ten countries voted in favor, five opposed, and 12 abstained [Politico].

While there was no consensus either supporting or rejecting the tariffs, the committee issued “no opinion” on the European Commission’s proposal. This outcome allows the Commission to proceed with deciding on the next steps.

Following an investigation lasting nearly a year into the subsidies provided by the Chinese government to its electric vehicle industry, the Commission can now impose duties of up to 35.3%.

The legal text for these duties is expected to be published by the Commission before October 30, the deadline to conclude the investigation, with the duties taking effect the following day.

Negotiations could still be pursued to establish minimum price guarantees for Chinese electric vehicles, which could help mitigate the effects of state subsidies.

Friday’s vote resembled a non-binding vote held in July, with some key changes. Germany, Hungary, Slovakia, and Malta reportedly opposed the tariffs. Slovenia, which had abstained in July, voted against them on Friday. Additionally, Spain, following a call by Prime Minister Pedro Sánchez to reconsider the tariffs during a recent visit to China, changed its vote from supporting to abstaining.

This week, China hit back in a tit-for-tat move by imposing temporary anti-dumping measures on imports of brandy from the EU on Tuesday, hitting French brands including Hennessy and Remy Martin, just days after the vote [Reuters].

France’s trade ministry described the temporary measures imposed by China as “incomprehensible” and a breach of free trade principles. The ministry also stated that it would collaborate with the European Commission to challenge the action at the World Trade Organization.

It was also reported that an increase in tariffs on imports of large-engine vehicles is under consideration, a move that would disproportionately affect German manufacturers. Last year, German exports of vehicles with engines of 2.5 liters or more to China totaled $1.2 billion.

Meanwhile, France appeared to be the focus of Beijing’s investigation into brandy imports, likely due to its backing of tariffs on China-made electric vehicles. French brandy exports to China amounted to $1.7 billion last year, representing 99% of the country’s total brandy imports. [Reuters] 

10/08 – International News Update

NATO’s new Secretary-General, Mark Rutte, increased pressure on Western nations that remain reluctant to grant Ukraine permission to use advanced weapons for striking military targets deep within Russia.

During a surprise visit to Kyiv, just 48 hours after assuming his role as NATO’s leader, Rutte stood alongside Ukrainian President Volodymyr Zelenskyy at a press conference, asserting that “Ukraine clearly has the right to defend itself, and international law is on Ukraine’s side.” [Politico]

Rutte emphasized that Ukraine’s right to self-defense “does not stop at its borders.” He argued that, since Russia continues its illegal war, targeting Russian aircraft and missiles before they are deployed against Ukrainian civilian infrastructure could help save lives. Ukraine has long contended that Western nations must allow such operations, though countries like the U.S., Germany, and others in Europe have been concerned that this could provoke escalation with Russian President Vladimir Putin. Meanwhile, Moscow recently updated its nuclear doctrine to heighten the threat.

Rutte’s backing for Kyiv on this issue comes ahead of a key summit on October 12, led by U.S. President Joe Biden and involving other leaders supporting Ukraine in what is known as the Ramstein format. Washington has been under mounting pressure to lift these restrictions as Ukraine faces the prospect of a challenging winter with its energy infrastructure likely under Russian attack.

Rutte remarked, “The only nation that has crossed a red line is Russia, by initiating this war.”

Zelenskyy added that some NATO countries are “delaying the process” of providing necessary support, though he did not specify which nations. He also urged Western allies to assist in neutralizing Russian drones.

“The best way to keep Ukraine in focus is by supplying weapons, granting the needed permissions, and assisting in shooting down — including the same Iranian missiles and drones — just as they’re being intercepted in Israel,” Zelenskyy said. [Politico]

10/06 – International News Story

If Saudi Arabia follows through with plans to increase crude oil production, it could deprive Moscow of crucial funds needed to support its war economy. Riyadh is frustrated by the failure of other oil-producing nations to coordinate on cutting supply to boost oil prices to around $100 per barrel, up from the current $70. Oil traders suggest Saudi Arabia might respond by increasing its own exports to gain market share and profits, even as prices drop.

This strategy could significantly lower oil prices, posing a threat to Russian President Vladimir Putin. Over the past decade, oil and gas have provided the largest revenue source for Russia, accounting for as much as half of its budget. 

Mikhail Krutikhin, a Russian energy analyst, warned that Saudi Arabia’s potential move presents “an enormous risk” to Moscow’s budget due to its heavy reliance on oil revenue. He also noted other unpredictable factors, such as the upcoming U.S. presidential election.

Krutikhin added that Saudi Arabia is well aware that Russian companies are not complying with production cut agreements, so it is making its own plans. Economists estimate that a $20 drop in oil prices could reduce revenues by 1.8 trillion rubles ($20 billion), equivalent to around 1% of Russia’s GDP. The Kremlin would face a tough choice: either cut spending or accept higher inflation and interest rates, though cutting spending is unlikely during a war. [Politico] 

The Financial Times recently reported that Saudi Arabia might abandon its long-standing goal of limiting crude supply to push prices towards $100 per barrel. Experts believe the country has the capacity to shift its strategy and dominate the market through increased volume.

Global oil demand is not as high as Saudi Arabia would like, and other producers, including Russia, are exceeding their production quotas. This has kept prices well below $100 per barrel, testing Saudi Arabia’s patience. Saudi Arabia could signal to the market that it will prioritize market share over high prices if other producers do not cooperate. [Politico] 

Russia, along with nations like Kazakhstan and Iraq, has been accused of exporting more oil than agreed upon under the OPEC+ cartel. Despite sanctions over the war in Ukraine, Russia’s fossil fuel revenues have risen by 41% in the first half of this year alone, according to its finance ministry. President Putin has vowed to keep fossil fuel production going to sustain Russia’s struggling economy, asserting the country’s prominence in the global energy market.

In defiance of global climate efforts, Russia is planning to maintain oil production at 540 million tons annually until 2050. The country has also used a “shadow fleet” of old vessels to bypass the $60-per-barrel price cap imposed by the G7. Middlemen in countries such as Turkey, China, and India refine Russian oil into petrol and diesel, selling it without sanctions. This loophole earned Russia $25 billion since the full-scale invasion began.

Although Saudi Arabia’s actions may further squeeze Russia’s finances, experts believe that the Kremlin will not abandon its war in Ukraine, even as the economy shows signs of strain.