Energy, (Geo) Politics Money - 2024.03.25
Non-partisan, objective & neutral analysis where global developments in energy, business & geopolitics intersect & curated from leading global sources & resources.
After a few days of silence – technical issues… – we welcome you back to EPM!
In this roundup of the latest news in the interconnected worlds of Energy, (Geo)Politics and Money, curated from the world’s leading sources of information, we look at:
Why and how geopolitics are likely to provide support to oil prices this week
Why in the view of Mohammed El Arian, India has already become “systemically important” to the global economy, and what this will require from Indian policymakers
The most recent developments in the Israeli War on Gaza; where EPM explains the current U.S. plans, as well as Netanyahu’s response
Why the U.S. has asked Ukraine to stop attacking critical Russian energy infrastructure
The continued talks between the U.S. and Iran, on removal of the U.S. sanctions on Iran
U.S. and Japanese plans to significantly upgrade their security alliance to counter China
The strong pushback by European airlines against forthcoming European SAF mandates, which they say will harm their global competitiveness
Why inflation and financing concerns are causing South East Asian nations to slow down their energy transition plans
Photo by Lukáš Lehotský on Unsplash
General Energy News
CRUDE OIL PRICES TO IMPROVE WITH GEOPOLITICAL TENSIONS
While oil prices remained essentially flat last week, this week, Reuters says, they are likely to find support from heightened geopolitical tensions. Early on Sunday, Russia struck critical infrastructure in Ukraine's western region with missiles, in a major air strike that saw one Russian cruise missile briefly fly into Polish airspace according to the Polish government. Meanwhile, hopes of a ceasefire in Gaza are receding. Israeli forces besieged two more Gaza hospitals on Sunday. Also on Sunday Israel told UNWRA, the United Nations aid agency for Palestine, that it has barred it from making aid deliveries in northern Gaza, where the threat of famine is highest, writes The Guardian.
Macroeconomics
INDIA’S ECONOMY NOW SYSTEMICALLY IMPORTANT TO THE WORLD
India has already become “systemically important” to the global economy, writes Mohammed El Arian for Project Syndicate. It boasts the world’s largest population, at over 1.4 billion, and with an annual growth rate 5-6 percentage points above that of Germany and Japan it could well become the third largest economy in the world, after the U.S. and China, in about four years. This will leave Indian policymakers facing an increasingly complex challenge of balancing external and internal interests, he says. One of India’s major challenges is to avoid the error that both China and Big Tech made when they failed to recognize their newly acquired global influence and adapt accordingly. In China’s case, policymakers remained too narrowly focused on their domestic development agenda as the country was becoming more systemically important. By the time China woke up to the external realities associated with a growing global footprint, it was already getting serious pushback from other countries. To prevent a similar scenario, India needs to prepare for what looks to be an inevitable growth in FDI inflows, which will make it a much bigger exporter to western markets.
Geopolitics
BIDEN’S FRIENDSHIP WITH ISRAEL - UNABLE TO INFLUENCE POLICY
Politico looks at the current state of U.S. – Israeli relations, and what this likely means for the Israeli War on Gaza. It says that U.S. President Biden believed his personal relationship with Israeli Prime Minister Netanyahu would enable the U.S. to nudge Israeli policy and align it with U.S. interest. Throughout the War, however, this belief has been proven false and has forced Biden to switch tactics. Done with being ‘Mister Nice Guy’, Politico says, he is now turning on the thumbscrews.
On the diplomatic front, Biden added pressure by having Senate Majority Leader Chuck Shumer, the foremost Jewish politician in the U.S., say that Netanyahu was hurting Israel’s standing in the world and should leave office.
On the military front, Biden slowed down U.S. weapons deliveries. In a call with Netanyahu last week, the first on over a month, Biden then laid out what he expects from Israel. A military operation in Rafah is allowed, but must be “surgical” and combined with additional aid supplies into Gaza. Such a scaled-down operation should be possible, according to the Biden administration, because of the huge amount of intelligence Israelis have gathered on Hamas positions since their forces went into Gaza City and Khan Yunis.
The U.S. plan was at the core of the U.S. submitted UN resolution last week, which called for a temporary ceasefire in Gaza, while leaving room for targeted military interventions in Rafah short of a full scale invasion. (Which is why Russia and China vetoed it, Reuters writes.) To further increase pressure on Israel to make it fall in line this time, Politico also says the U.S. has threatened that it could, for the first time, allow passage of a UN Security Council resolution calling for an immediate and permanent ceasefire.
And, according to Axios, the U.S. is using future weapons supplies as a bait to tempt Israel to accept the U.S. proposal. But Netanyahu is not done fighting, EPM believes. We earlier mentioned that he trying to make use of the Biden – Trump conflict, working with politicians from the Trump camp in order to get support for his vision of an ethnically cleansed Gaza. This explains why U.S. Speaker of the House Mike Johnson has invited Netanyahu to address the U.S. Congress.
U.S. ASKS UKRAINE TO STOP TARGETING RUSSIAN ENERGY INFRASTRUCTURE
As to the War on Ukraine, the U.S. has asked Ukraine to stop attacking Russia critical energy infrastructure, writes Politico. It says the U.S. fears that these attacks could drive up global oil prices — ahead of a knife-edge U.S. presidential election where prices at the gas pump are bound to be a contentious topic. It says a further fear is that these attacks will provoke Russia into retaliating and targeting energy infrastructure the West relies on, including oil pipelines.
US AND IRAN CONTINUE TO NEGOTIATE
Following the “ceasefire” deal reached by the U.S. and Iran last month, following the attack on the U.S. military base on the Syrian-Jordanian border, talks between the parties have continued, writes The National. Although Washington has not commented on the latest discussions, Iranian state media confirmed the most recent rounds of indirect talks, saying they focused on negotiations for removing sanctions against Iran. For years, the U.S. and Iran held discussions through mediators in Oman, Geneva and other cities regarding Tehran’s controversial nuclear ambitions, ballistic missile programme and regional areas of influence. The talks between the two countries shifted towards maintaining regional security and finding ways to prevent a full-scale war in the Middle East following Hamas’s attack on October 7.
US AND JAPAN - DEEPER SECURITY TIES
The U.S. and Japan are planning the biggest upgrade to their security alliance since they signed a mutual defence treaty in 1960, writes the Financial Times, which describes the move as a “counter to China”. The plan will be unveiled when Biden hosts Kishida at the White House on April 10. Japan has over the past couple of years dramatically increased its security capabilities, spending much more on defence, including plans to buy U.S. Tomahawk cruise missiles. But co-ordination between the allies is hampered because U.S. Forces Japan (USFJ) has changed little from the days when the U.S. and Japanese militaries did less together and has little command and control authority.
Energy Transition & Technology News
EURO AIRLINES NEED GOVERNMENT SUPPORT TO DECARBONIZE
European airlines say they need regulatory support and incentives to be able to meet forthcoming European Synthetic Aviation Fuel (SAV) mandates and avoid a situation whereby complying with the targets harms their global competitiveness, writes Aviation Week. The ReFuelEU regulation mandates 2% SAF use in 2025, rising to 6% in 2030, and 70% in 2050. Airline CEOs speaking at the Airlines For Europe (A4E) summit March 20 in Brussels called for the European Commission (EC) and member states to help them comply with the ReFuelEU mandates by establishing regulations that would boost SAF production and bring down prices. The airlines are saying there are not enough SAF projects in the EU, as the U.S. IRA subsidies have pulled almost 90% of investment money to that region of the world. Consequently, EU airlines will only be able to meet SAF mandates at much higher costs than their U.S. competitors.
SOUTH ASIAN NATIONS SLOWING ENERGY TRANSITION PLANS
Inflation and financing concerns are causing South East Asian nations to slow down their energy transition plans, writes Nikkei Asia. Indonesia's National Energy Council in January revealed a plan to trim the target for renewables' portion in the country's primary energy mix to 17%-19% in 2025 and 19%-21% by 2030. The original target that was supposed to have kicked in next year was 23%. The council's revelation came not long after Indonesia's energy ministry said implementing a carbon tax would be further delayed to 2026; the tax was originally set to take effect in 2022. Nik Nazmi, minister of environment and climate change, said Malaysia will need significant investments in clean energy, but that the country’s weaker currency would make it more expensive to import technologies, equipment and expertise needed for large-scale decarbonization projects. In Vietnam, coal imports soared 217% in January year on year, despite the country being Southeast Asia's leader in terms of solar and wind power capacity with over 19 gigawatts, more than double the capacity of the rest of the region.