A New Day and New Disorder in the Middle East: 2025.07.17
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In this roundup, we take a closer look at events in the Syrian town of Sweida. Yesterday EPM reported on the clashes there, explaining that Bedouin tribes have been clashed with Druze militias in the town, apparently after a spate of kidnappings and robberies in the area.
On Wednesday, the situation continued to escalate on all fronts. Syrian government forces went in determined to end the fighting, but failed. In the process, they were attacked by Israel, despite advance warning from the Syrian government. In the end, the Israeli’s bombed the Ministry of Defense and the Army General Command buildings all located in the heart of Damascus.
The US then intervened to prevent further escalation, and that seems to have worked. For now, as the Israeli army has threatened further attacks and diverted a brigade from Gaza to the Golan Heights. We continue to stand by our assessment from yesterday, therefore, which is that Israel sees the Druze as an opportunity to foment further unrest in Syria.
Furthermore, we look at:
How Canada’s tar sands are now producing some of the lowest cost crude oil of North America
The latest US inflation data, which indicate Trump;s tariffs are beginning to increase US consumer prices
China’s plan to become self-sufficient in the strategically very imporatnt area of lithography machinery
The ever evolving position of Israel’s negotiating position on the Gaza ceasefire
Stellantis’s decision to end its development of hydrogen cars
General Energy
According to Reuters, Canada’s oil sands are now producing some of the lowest cost crude oil in North America. In the years following the oil price crash of 2014-15, most international oil majors sold their interests in Canadian oil sands, including BP, Chevron and Total. At the time, they classified their Canadian operations as among their more expensive, and therefore less profitable, projects worldwide. They directed capital to cheaper oil production, and favored U.S. shale for its quicker drilling time and returns. Since then, new technology and cost-cutting efforts have driven meaningful improvement in the industry's competitiveness. For example, ExxonMobil-owned Imperial Oil and its competitor Suncor switched to autonomous mining vehicles, which eliminated the need to hire drivers to transport oil sands ore. Since 2023 the switch improved costs associated with oil output by 20%. Oil sands producers have made improvements in equipment reliability and performance. This long-term focus on cost-cutting means Canada's five biggest oil sands companies can now break even at WTI prices between $40.85 and $43.10. In contrast, a recent Dallas Federal Reserve survey of over 100 oil and gas companies in Texas, New Mexico and Louisiana found that shale oil producers need a WTI oil price of $65 per barrel on average to profitably drill.
Macroeconomics & Technology
Driven by Trump’s tariffs, US inflation appears to be edging up again writes the Associated Press. Consumer prices in June rose 2.7% from a year earlier, up from an annual increase of 2.4% in May. Excluding volatile food and energy, core inflation increased 2.9% in June from a year earlier, up from 2.8% in May.
The tariff related inflation risk is what Jerome Powell, the Chaiman of the US Federal Reserve, focused on when he explained why the Fed was not lowering interest rates – much to Trump’s chagrin. In a White House meeting Tuesday night with a dozen or so House Republicans, Trump discussed the “concept” of dismissing Powell over this, writes the Associated Press. But on Wednesday Trump said he was “highly unlikely” to fire him.
Also on Wednesday, Trump said a US trade deal with India is likely, but with Japan one is unlikely. The latter would leave a 25% across-the-board tariff on Japanese goods heading to the US, writes Nikkei Asia. An Indian trade delegation arrived in Washington on Monday for fresh talks, with more officials expected to arrive Wednesday. India faces a 26% tariff.
President Trump declared further that the will send letters to more than 150 countries notifying them that their tariff rates could be 10% or 15%, writes Bloomberg. Trump told reporters:
We’ll have well over 150 countries that we’re just going to send a notice of payment out, and the notice of payment is going to say what the tariff (rate will be). It’s all going to be the same for everyone, for that group,”
Trump added, saying that the trading partners that would receive those letters were “not big countries, and they don’t do that much business (with us).”
As to technology, one of the key supply bottlenecks in chipmaking that China must address, is its almost complete dependency on lithography machines from the Dutch company ASML. In every chipmaking step except lithography, China now has its own player capable of challenging global leaders. Nikkei Asia conducted a deep dive analysis on China’s efforts to build its own capabilities. For context, lithography machines are so complex and so expensive that only three companies in the world are capable of producing them, ASML of the Netherlands and Japan's Canon and Nikon. ASM holds 80% global market share, as it leads in immersion deep ultraviolet (DUV) technology, and is the exclusive maker of extreme ultraviolet (EUV) lithography tools. Lithography machines as harder to build than other chip equipment and can cost up to $350 million per unit. Their complexity lies in the fact that they combine a variety of specialty technologies, including lighting, optics, chemistry, robotics, electronics, and computation.
Where does China stand in all this? China's Shanghai Micro Electronics Equipment (SMEE) was set up 23 years ago and developed lithography tools capable of producing 90-nm chips. The company aims to introduce lithography systems for 65-nm and 28-nm-grade production, but adoption of its machines by Chinese chipmaking clients remains limited. Huawei wants to close the gap and is recruiting talent from global chip leaders like TSMC, ASML, Applied Materials and KLA. It is also supporting SiCarrier, a Shenzhen-based chip tool maker founded in 2021. Huawei has also hired optics and simulation experts overseas for its research institutes in Germany. Together with SMEE Huawei is also supporting Shanghai Yuliangsheng Technology, also known as UEAscend, and up-and-coming lithography machinery maker. Huawei, SiCarrier and Yuliangsheng are working to develop China's first immersion DUV lithography machines. The trio's ultimate mission is to develop a homegrown EUV lithography machine and build an independent ecosystem free from U.S. restrictions. To support this push, China launched the third phase of its National Integrated Circuit Industry Investment Fund – known as the Big Fund – in May 2024, with 344 billion yuan ($48 billion) in government backing. This phase focuses on strengthening the lithography supply chain. Local governments from Beijing to Shanghai and Shenzhen have also introduced policies to back domestic suppliers of critical EUV components, including photoresists, lithography tools, mirrors, lenses, lasers and light sources. EPM notes that the in typical fashion, the Chinese efforts in lithography machinery appear holistic, coordinated, and well funded.
Geopolitics
Gaza
The National writes, Israel has informed Egyptian and Qatari mediators that it intends to create a security zone up to 2km deep along its entire border with Gaza as well as the enclave's Mediterranean coast. Gazans living inside the security will be evicted, and concentrated in a “humanitarian city” south of Rafah on the border with Egypt. Israel has renewed its demand that Hamas leaders leave Gaza with their families to live in exile. Hamas has signaled its readiness to comply with the proviso Israel pledges not to target them for assassination. Hamas says it will not agree to a deal that does not include an Israeli withdrawal from Gaza, and an permanent end to the war.
Syria
Yesterday, EPM reported on the growing unrest in the majority-Druze town of Sweida, the Syrian government’s efforts to regain control, and Israel’s retaliatory strikes on Syrian government forces. By Wednesday, The National reported, the situation had sharply escalated on multiple fronts.
Syrian government forces failed to quell the conflict, and their entry into Sweida only intensified the fighting. At the same time, Israel expanded its military operations in Syria, launching strikes on both the Ministry of Defense and the Army General Command buildings in Damascus.
In response to the rising tensions, the United States intervened diplomatically. Washington pressured the Syrian government to pull its forces out of Sweida and to agree to a cease-fire with a Druze faction. The White House also contacted Israeli officials, urging them to halt further airstrikes in Syria.
Axios reported a key detail: prior to entering Sweida, the Syrian government had notified Israel and assured it that the operation was not directed at Israeli interests. Despite this, Israel attacked Syrian army tanks. Following these initial strikes, Israel escalated further by targeting government buildings in Damascus. In response, U.S. Special Envoy for Syria Tom Barrack held several calls with Israeli Prime Minister Benjamin Netanyahu’s senior adviser Ron Dermer to press for de-escalation.
Israeli officials justified their actions by citing a commitment to protect the Druze minority in Syria—linked to the Druze community within Israel. However, a U.S. official told Axios that American intelligence does not indicate Syrian government involvement in any atrocities in Sweida.
Nevertheless, by late Wednesday, Israel had stepped up its threats against the Syrian regime. As reported by the Associated Press, Israeli Defense Minister Katz declared that the army “will continue to attack regime forces until they withdraw from the area—and will soon raise the bar of responses if the message is not understood.” In a significant move, an Israeli army brigade—typically numbering thousands of soldiers—is being withdrawn from Gaza and redeployed to the Golan Heights.
EPM maintains its position from yesterday: while Israel publicly claims to be defending the Druze, it is simultaneously carrying out a genocidal campaign against Palestinians in Gaza. We believe Israel views the Druze situation as a strategic opportunity to further destabilize Syria under the guise of humanitarian concern.
The Electrification of Transport
Stellantis says it will end efforts to develop hydrogen vehicles as it focuses its resources on electric cars and hybrids, writes the Financial Times. “The hydrogen market remains a niche segment, with no prospects of midterm economic sustainability,” said Jean-Philippe Imparato, Stellantis’ chief operating officer for Europe. “We must make clear and responsible choices to ensure our competitiveness.” Stellantis had hoped to expand the sales of its hydrogen-powered vans through Symbio, a joint venture owned 33.3 per cent each by Stellantis, Michelin and Forvia. The move by the owner of the Peugeot, Fiat and Opel brands also means that only a handful of carmakers, including Toyota, Hyundai and BMW, remain committed to expanding the use of hydrogen fuel cells.