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한국어로 읽기Leer en españolIn Deutsch lesen Gap اقرأ بالعربيةLire en françaisЧитать на русском Hotfoot from signing a security pact with North Korea on Wednesday, Vladimir Putin has popped up in Vietnam, another of the few remaining countries where the Russian president is still welcome (or doesn’t face arrest under the war crimes warrant issued by the International Criminal Court last year). Here he was congratulated by the president, To Lam, for his election victory earlier this year and for maintaining stability and continuity in Russia. Putin, meanwhile, made much of the Soviet Union’s historical support for the Vietnamese people’s struggle for independence and unity from the 1950s to the 1970s, referring, without a hint of irony, to Vietnam’s “heroic struggle against foreign invaders”. The visit has been billed as part of Putin’s strategy to promote a new “multipolar” world order, free from US control. But it should be noted that the pragmatic Vietnamese have already hosted Joe Biden and Xi Jinping over the past nine months. Hanoi’s “bamboo diplomacy” depends on the country being “actively neutral” – with one eye on China, Vietnam has also upgraded relations with the US, Australia and South Korea in recent times. So, while there will be plenty of expressions of goodwill from Vietnam’s leadership, they are less likely to commit to anything more concrete as things stand. North Korea knows little of such diplomatic niceties, though, and has fewer choices when it comes to its friends. Very little detail has emerged of the new pact with Russia, except that it would require each country to come to the aid of the other if attacked. But it’s likely that close to the top of the agenda would have been Russia’s military requirements. North Korea’s supplies of artillery and ammunition are thought to have been vital in helping Russia overcome the harsh sanctions imposed by the US as well as Beijing’s unwillingness to directly provide arms for the war in Ukraine. Kim, in turn, wants Russian know-how when it comes to sophisticated military tech as well as economic support when it comes to feeding his country’s starving population. But warm relations between the two countries is nothing new. Official pronouncements emphasised the “traditionally friendly and good” relations between Russia and North Korea “based on the glorious traditions of common history”. For Kim, writes Robert Barnes, a senior lecturer in history at York St John University, this is something of a family affair which harks back to the 1930s when the North Korean leader’s grandfather Kim Il-sung was a relatively unknown Korean communist leading a small guerrilla band fighting the Japanese in Manchuria. Kim spent much of the second world war in the Soviet Union, where he joined the Red Army and rose to the rank of major. After the conflict, he was handpicked by Stalin to lead the Korean Workers’ party and then North Korea when it was established in 1948. The Korean war which followed almost led to a nuclear confrontation between the Soviet Union and the west. Hopefully, concludes Barnes, nothing as dramatic will result from this latest iteration of the relationship between the two countries. But pariah states such as North Korea aren’t the only countries where Putin can command a degree of support, if the recent European parliamentary elections are any guide. As Natasha Lindstaedt notes here, the rise of the far right in EU member states such as Germany, France, Slovakia, Hungary, Romania and Bulgaria is throwing up an increasingly powerful group that stands in opposition to EU support for Ukraine. It may seem counterintuitive that such an avowed anti-fascist as Putin is courting extreme right organisations such as Germany’s Alternative for Deutschland party (AfD) or Hungary’s Fidesz party. But Lindstaedt believes that leaders such as Hungary’s Viktor Orbán have shown little concern for the institutions of democracy – as shown by Hungary’s adoption of a similar foreign agents’ law which acts to curtail press freedom and the work of NGOs. She concudes: “Putin is seen by the far right as a strong and conservative leader that can defend himself against the liberal west, which is trying to undermine these values.” The west, meanwhile, remains divided over the manner and extent of its support for Ukraine. The good news for Kyiv is that the recent G7 meeting in Puglia, southern Italy, ended in an in-principle agreement to use the US$3 billion (£2.36 billion) interest from US$350 billion of Russian assets frozen in the western banking system to underwrite a US$50 billion loan to Ukraine. But Gregory Stiles and Hugo Dobson, experts in international relations at the University of Sheffield, sound a cautionary note suggesting that the details of how this will work are likely to take months to agree. Meanwhile, they write, five of the seven leaders – US president Joe Biden, France’s Emmanuel Macron, Canada’s Justin Trudeau, the UK’s Rishi Sunak and Japan’s Fumio Kishida – all face elections this year which none of them are guaranteed to survive. And, to take just one example, if Biden loses in November to Donald Trump, the likelihood of this deal proceeding becomes significantly reduced. Summit on peace Many of these leaders went on to Switzerland at the weekend for the Summit on Peace in Ukraine. Stefan Wolff, an expert in international security at the University of Birmingham, was following proceedings and concludes that it’s hard to judge the meeting an unqualified success. Out of 160 countries and international organisations invited, only 92 attended. Biden was a no-show and Canada’s premier, Justin Trudeau, was the only G7 leader to stay for both days of the conference. The main problem, writes Wolff, was that the only peace plan on the table was that proposed some time ago by Ukraine’s president, Volodymyr Zelensky. This calls for the complete withdrawal of Russian troops from Ukraine, including Crimea, and the payment of reparations for rebuilding his country. Seven other peace plans, proposed by the likes of China (which also failed to send anyone), Brazil, Indonesia, Saudi Arabia, a group of African states led by South Africa and the Vatican were not discussed. Most of these call for a ceasefire, which is anathema to Kyiv and its backers in the US and UK, as it would accept, for the time being at least, Russia’s territorial gains on the ground, including the illegal annexation of Crimea in 2014. Putin, meanwhile, was trolling hard from the sidelines, releasing his terms for a ceasefire deal, which are for Ukraine to accept Russian annexation of Crimea and not just the land his troops currently occupy, but all of the four regions he annexed in September 2022. Putin’s column As previously noted here, a season of relative success on the battlefield, has left Putin in a bullish mood. It emerged recently that (despite being seriously disadvantaged by the war in Ukraine and the harsh western sanctions which have ensued) the boss of Russian energy giant plans to build an 80-metre column in St Petersburg to commemorate Peter the Great’s triumph in the great northern war, after which Russia declared itself to be an empire for the first time. As George Gilbert, an expert in Russian history at University of Southampton notes, anything honouring Peter the Great is a sure-fire way of buttering up the Russian president, who sees himself as a latter-day incarnation of the man who built his home town of St Petersburg, glossing over the fact that Peter saw his capital as a way of making Russia more of a west-facing country. Gilbert gives us some historical context about the conflict, in which Russia lined up alongside much of what would become Poland and Germany as well as Britain, by virtue of its king, George I, also being the ruler of Hanover. The key battle, he writes, was at Poltava, which is in the middle of what is now Ukraine, which involved defeating a crack regiment of Cossack cavalry, which you’d have to imagine is very much grist to Putin’s mill. One suspects, though, that it’s Peter the Great’s imperial achievements that Putin wants to emulate most of all.

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Donald Trump’s return to the White House in January 2025, combined with a Republican-led US Senate, was widely feared among international allies and will be cheered by some of America’s foes. While the former put on a brave face, the latter are finding it hard to hide their glee.  On the war in Ukraine, Trump is likely to try to force Kyiv and Moscow into at least a ceasefire along the current front lines. This could possibly involve a permanent settlement that would acknowledge Russia’s territorial gains, including the annexation of Crimea in 2014 and the territories occupied since the full-scale invasion of Ukraine in February 2022.  It is also likely that Trump would accept demands by the Russian president, Vladimir Putin, to prevent a future Ukrainian Nato membership. Given Trump’s well-known animosity to Nato, this would also be an important pressure on Kyiv’s European allies. Trump could, once again, threaten to abandon the alliance in order to get Europeans to sign up to a deal with Putin over Ukraine.  When it comes to the Middle East, Trump has been a staunch supporter of Israel and Saudi Arabia in the past. He is likely to double down on this, including by taking an even tougher line on Iran. This aligns well with Israeli prime minister Benjamin Netanyahu’s current priorities.  Netanyahu seems determined to destroy Iran’s proxies Hamas, Hezbollah and the Houthis in Yemen and severely degrade Iranian capabilities. By dismissing his defence minister, Yoav Gallant, a critic of his conduct of the offensive in Gaza, Netanyahu has laid the ground for a continuation of the conflict there.  It also prepares for a widening of the offensive in Lebanon and a potentially devastating strike against Iran in response to any further Iranian attack on Israel.  Trump’s election will embolden Netanyahu to act. And this in turn would also strengthen Trump’s position towards Putin, who has come to depend on Iranian support for his war in Ukraine. Trump could offer to restrain Netanyahu in the future as a bargaining chip with Putin in his gamble to secure a deal on Ukraine.  Pivot to China  While Ukraine and the Middle East are two areas in which change looms, relations with China will most likely be characterised more by continuity than by change. With Chinese relations being perhaps the key strategic foreign policy challenge for the US, the Biden administration continued many of the policies Trump adopted in his first term – and Trump is likely to double down on them in a second term.  A Trump White House is likely to increase import tariffs, and he has talked a great deal about using them to target China. But Trump is also just as likely to be open to pragmatic, transactional deals with Chinese president Xi Jinping. Just like in relations with his European allies in Nato, a serious question mark hangs over Trump’s commitment to the defence of Taiwan and other treaty allies in Asia, including the Philippines, South Korea, and potentially Japan. Trump is at best lukewarm on US security guarantees.  But as his on-and-off relationship with North Korea in his first term demonstrated, Trump is, at times, willing to push the envelope dangerously close to war. This happened in 2017 in response to a North Korean test of intercontinental ballistic missiles.  The unpredictability of the regime in Pyongyang makes another close brush of this kind as likely as Trump’s unpredictability makes it conceivable that he would accept a nuclear-armed North Korea as part of a broader deal with Russia, which has developed increasingly close relations with Kim Jong-un’s regime.  Doing so would give Trump additional leverage over China, which has been worried over growing ties between Russia and North Korea.  Preparing for a Trump White House  Friends and foes alike are going to use the remaining months before Trump returns to the White House to try to improve their positions and get things done that would be more difficult to do once he is in office.  An expectation of a Trump push for an end to the wars in Ukraine and the Middle East is likely to lead to an intensification of the fighting there to create what the different parties think might be a more acceptable status quo for them. This does not bode well for the humanitarian crises already brewing in both regions.  Increasing tensions in and around the Korean peninsula are also conceivable. Pyongyang is likely to want to boost its credentials with yet more missile – and potentially nuclear – tests.  A ratcheting-up of the fighting in Europe and the Middle East and of tensions in Asia is also likely to strain relations between the US and its allies in all three regions. In Europe, the fear is that Trump may make deals with Russia over the head of its EU and Nato allies and threaten them with abandonment.  This would undermine the longevity of any Ukrainian (or broader European) deal with Moscow. The relatively dismal state of European defence capabilities and the diminishing credibility of the US nuclear umbrella would not but help to encourage Putin to push his imperial ambitions further once he has secured a deal with Trump.  In the Middle East, Netanyahu would be completely unrestrained. And yet while some Arab regimes might cheer Israel striking Iran and Iranian proxies, they will worry about backlash over the plight of Palestinians. Without resolving this perennial issue, stability in the region, let alone peace, will be all but impossible.  In Asia, the challenges are different. Here the problem is less US withdrawal and more an unpredictable and potentially unmanageable escalation. Under Trump, it is much more likely that the US and China will find it hard to escape the so-called Thucydides trap – the inevitability of war between a dominant but declining power and its rising challenger.  This then raises the question of whether US alliances in the region are safe in the long term or whether some of its partners, like Indonesia or India, will consider realigning themselves with China.  At best, all of this spells greater uncertainty and instability – not only after Trump’s inauguration but also in the months until then.  At worst, it will prove the undoing of Trump’s self-proclaimed infallibility. But by the time he and his team come to realise that geopolitics is a more complicated affair than real estate, they may have ushered in the very chaos that they have accused Biden and Harris of. 

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском The world economy is underperforming as a result of tight monetary policies, weaker global trade, a slowing Chinese economy and uncertainty around the US election. An escalation of conflict in the Middle East could increase uncertainties, harming inflation reduction efforts and hurting growth. It has been over a year since the Hamas-led attack on Israel. Israel’s response in Gaza has resulted in widespread destruction and significant loss of life. The conflict has since expanded beyond Gaza, involving the Houthis in Yemen, Hezbollah in Lebanon and Iranian strikes targeting Israel. In addition to the awful humanitarian cost of the conflicts, the war and the possibility of its further expansion pose significant repercussions for the global economy. This article discusses three potential ways in which the current conflict and a wider conflict in the Middle East could affect the global economy. Increased geopolitical uncertainties First and foremost, an escalation of the Middle East conflict could lead to greater geopolitical uncertainties. Figure 1 shows the evolution of the geopolitical risk (GPR) and geopolitical acts (GPRA) indices (Caldara and Iacoviello, 2022) – these are text-based measures of heightened uncertainties due to adverse geopolitical events such as wars, terrorism and international tensions. (See this article for more discussion about these measures.) Following the Hamas-led attack on 7 October 2023, both the overall GPR index and its ‘war and terror acts’ component spiked strongly, to a level higher than that seen during the ISIS attack in Paris in November 2015. Both indices eased significantly in the months following October 2023 despite the continuation of the conflict. But they jumped again following Israel’s attack on southern Lebanon in September 2024. As of mid-October 2024, the GPR and GPRA remain, respectively, 21% and 35% higher than their historical averages.   What might be the consequences of such elevated levels of risk? Research tells us that higher geopolitical risk raises oil prices (Mignon and Saadaoui, 2024). It also reduces global investment and increases inflation (Caldara et al, 2022). Greater geopolitical risk has a significantly negative impact on business and consumer confidence in several advanced economies (de Wet, 2023). This is because consumers typically cut non-essential spending and businesses postpone investment decisions during turbulent times. This reduces firm-level investment, particularly for businesses with higher initial investment costs and greater market power (Wang et al, 2023). Higher geopolitical risks also reduce global trade and financial flows, causing greater volatility in capital flows in emerging markets (Kaya and Erden, 2023). Oil production cuts and higher energy prices The second way in which the Middle East conflict could affect the global economy is its impact on energy prices, both directly through production cuts and indirectly through greater uncertainties. In response to Israel’s actions against its neighbours, the Organization of the Petroleum Exporting Countries (OPEC) could reduce oil production to penalise countries supporting Israel. A similar action in the 1970s led to a significant jump in oil prices, which contributed to years of stagflation, with higher global inflation and recessions in major economies. Before Israel's attack on Lebanon at the end of September, oil prices had been declining due to falling demand, particularly from China. On the supply side, oil production had increased in Canada and the United States, countering the production cuts by OPEC, and Saudi Arabia was expected to increase oil production from December. But the situation quickly reversed following Israel’s attack on Lebanon. Oil prices jumped by nearly $10 per barrel within a week, before easing by around $5 per barrel. While the immediate oil price impact of Israel’s attack has mostly faded, the potential for higher oil (and other energy) prices still poses a risk to global inflation and economic activity (Liadze et al, 2022). To provide further context for the potential scale of this impact, we can show what would happen if oil and gas prices were to remain $10 higher for two years than the baseline levels projected in the Summer Global Economic Outlook from the National Institute of Economic and Social Research (NIESR), using NIESR’s Global Macroeconometric Model (NiGEM). The results demonstrate that the $10 rise in oil and gas prices increases inflation by around 0.7 percentage points in major economies in the first year (see Figure 2). The impact is higher in China, where the economy relies relatively more on oil imports for its strong manufacturing industries. The inflationary pressures persist for two years despite central banks’ efforts to curb inflation by increasing interest rates.   The effect of higher oil and gas prices on real GDP is shown in Figure 3. In the scenario described above, GDP would fall by 0.1-0.2% in major economies immediately. Partly due to higher interest rates, real GDP would continue to weaken for three years following the shock. After this, economic activity would start to return to base levels as oil and gas prices revert to their levels in the baseline forecast.   Increased shipping costs and supply chain disruptions A wider conflict in the Middle East could also affect the economy through higher shipping costs and supply chain disruptions. Houthi attacks on commercial ships in the Red Sea in late 2023 showed that such disruptions can have a huge impact on global trade through shipping, which comprises 80% of world trade volume. Following the rocket attacks by the Houthi rebels, some commercial shipping re-routed from the Red Sea to the Cape of Good Hope, leading to significant delays in travel times and increased freight costs. As a result, the Shanghai Containerized Freight Index – a measure of sea freight rates – rose by around 260% in the second quarter of 2024 with additional disruptions to supply chains. Our analysis shows that an increase of 10 percentage points in shipping cost inflation can lead to import prices rising by up to around 1% and consumer inflation increasing by around 0.5% in OECD countries. As Figure 4 shows, the impact of shipping costs on inflation shows its full effects over six quarters. This means that inflationary concerns could be with us for the next year and a half as a result of higher shipping costs that may emerge from any possible escalation of the Middle East conflict.   Wider economic implications and policy responses While rising geopolitical risk and increased oil and shipping costs can each individually exert upward pressure on inflation and may slow down economic activity in the global economy, the combined impacts are likely to be greater. Countries with stronger trade and financial ties to the Middle East and those that rely heavily on oil imports as an input for domestic production would be most affected. On the monetary policy front, central banks may have to take a more hawkish stance in response to rising inflationary pressures from the Middle East conflict. This could lead to higher interest rates, which would further dampen economic activity, particularly in an environment where there are already recessionary concerns in some major economies. Beyond its immediate economic implications, an escalation of the Middle East conflict could trigger large-scale displacement of people, which would increase economic and social pressures on neighbouring countries. Many countries may also have to increase their military spending in response to growing regional tensions. Given that public debt levels are already elevated in many countries due to successive shocks to the global economy over the past decade, any additional defence spending could come at the expense of public infrastructure investments that would otherwise boost productivity growth. Overall, the global economy is already underperforming as a result of the lagged effects of tight monetary policies, weaker global trade, a slowing Chinese economy and uncertainties surrounding the upcoming US election and possible changes to US trade policy. A potential escalation of conflict in the Middle East could exacerbate the situation by increasing uncertainties, harming efforts to bring down inflation and reducing global GDP growth. Over the medium and long term, it could further damage the global economy, with the possibility of refugee crises as well as increased defence spending, making the effects more complex and longer lasting. This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.