Subscribe to our weekly newsletters for free

Subscribe to an email

If you want to subscribe to World & New World Newsletter, please enter
your e-mail

Defense & Security
The leaders of the Association of Southeast Asian Nations (ASEAN) pose for a family picture doing the signature

Sea of Cooperation: New Opportunities for the Development of China - ASEAN Relations

by Andrei Gubin

한국어로 읽기 Leer en español In Deutsch lesen Gap اقرأ بالعربية Lire en français Читать на русском Sea of Cooperation: New Opportunities for the Development of China — ASEAN RelationsSoutheast Asia (SEA) is gaining increasing importance with the changing global order. The region is once again experiencing a period of competition between the “great powers”. During the Cold War some countries managed to stay out of the Soviet-American confrontation, but today, integration into economic, technological, and humanitarian exchanges forces members of the Association of Southeast Asian Nations (ASEAN) to reshape their foreign policy in line with the prioritization of partnerships with various centers of power. SEA has significant economic growth potential, making cooperation beneficial and conflicts costly. Despite the tempting logic of harsh realism in contemporary geopolitical conditions, there remains space in this region for the traditions of idealism and complex interdependence as prerequisites for peaceful coexistence.When Profit Matters More than ClaimsThe ASEAN Summit-2024, held in October in Vientiane, clearly became a platform for a multidimensional dialogue between the “Great East Asian” countries, including India. Almost all participants tried to avoid raising contentious issues; in particular, the new Prime Minister of Japan, Shigeru Ishiba, emphasized Japan’s investments in Southeast Asian countries and avoided discussions about the possibility of forming an “Asian NATO”. Similar ideas about freedom from confrontations and unilateral attempts to change the balance of power were expressed by the President of South Korea, Yoon Suk Yeol. Narendra Modi focused on enhancing multilateral cooperation between Asian states in the fields of information technology, pharmaceuticals, and infrastructure modernization, which would help accelerate the recovery of production and distribution chains after the COVID-19 pandemic. Chairman of the State Council of China, Li Keqiang, firmly pointed to “external forces” as the main culprits of disrupting regional order.According to him, China is ready to work with each ASEAN country in the interest of establishing a common market and achieving sustainable development. The Prime Minister stated that China and Southeast Asian countries are opening up to each other, and this process inevitably contributes to mutual prosperity, which will have a positive impact on the entire world. Notably, in 2023, the trade turnover between China and ASEAN countries exceeded 900 billion USD for the second consecutive year, and has nearly doubled over the past 10 years. The greatest activity is observed in developing relations with Vietnam and Malaysia, which together account for 230 and 191 billion USD, respectively. This means that today, Southeast Asian countries are collectively a more important partner for Beijing (in terms of volume) than the United States or the European Union.It is not surprising that at the events within the framework of the ASEAN Summit, including numerous bilateral meetings, the focus was on mutually beneficial cooperation, including issues related to further removing barriers and optimizing transport routes. Li Keqiang's statement at the 27th China-ASEAN Summit regarding the update of the Free Trade Agreement with the Association highlights the clear dominance of the economic component of cooperation over security issues, ideological differences, and other disagreements. Of course, there are opinions that Laos, in its capacity as chair, deliberately separated political issues from economic ones, but what is wrong with that?Only Philippine President F. Marcos Jr. was left alone, accusing the Chinese Coast Guard of reckless and unjustified pressure in the «exclusive economic zone». This is despite the fact that in July, an agreement was reached allowing the Philippines to deliver supplies to the “Sierra Madre” ship, which had been intentionally grounded 10 years ago at the Ayungin Shoal as a forward post for a Marine Corps unit.Professionally and SafelyToday, the South China Sea (SCS) is home to some of the busiest maritime communication routes. At least 500,000 vessels pass through the region each year, accounting for approximately 40% of global cargo traffic, and more than a million civilian flights cross the airspace above the sea annually. This high intensity of exchanges increases the importance of ensuring the safety of transport amidst unresolved disputes over the delimitation of the exclusive economic zone, the ownership of parts of the Spratly and Paracel Islands, and the escalation of US-China geopolitical tensions in the Asia-Pacific region. Formally, the multilateral dispute over the islands and maritime areas between ASEAN member states and China remains unresolved.In September, the Beijing-based South China Sea Strategic Situation Probing Initiative published a report on the situation in the region. The authors of the document note that in recent years, the United States has pursued an offensive strategy to contain China, primarily using the “instability factor” in the South China Sea to escalate the multilateral dispute and fuel anti-China sentiments. Washington has also encouraged territorial claims by ASEAN countries against China, based on its own interpretation of the United Nations Convention on the Law of the Sea and the concept of a “rules-based order”. So far, these flare-ups of claims against Beijing, which are sometimes accompanied by incidents between coast guard vessels, have not resulted in significant disruptions to freedom of navigation and air traffic. Moreover, China notes that the majority of the contacts have been “professional and safe”. Undoubtedly, in the event of increased tensions—such as more active actions by the air force, navy, and coast guards of various countries toward Chinese aircraft and vessels—logistical routes would need to be reorganized, which could lead to significant losses not only for China but for the entire regional economy. However, despite attempts by the US and its allies to assign special geopolitical significance to the situation in Southeast Asia, the situation remains manageable. As a result, Beijing still believes that peaceful resolution is possible.China Daily cites the opinion of specialists from the China Institute of International Studies (CIIS), who believe that, in terms of ensuring the stability of international trade flows, freedom of navigation in the South China Sea is not under threat. However, in the military dimension, instability is growing, primarily due to excessive US interference.[1] The Institute argues that American activities, which involve sending military ships and aircraft to demonstrate power, only provoke disputes over sovereignty and borders. Such actions create a dangerous misconception among the leadership of several countries that Washington will intervene if necessary to contain China's expansion, thus assisting in resolving the dispute through pressure. The demonization and constant condemnation of China have already negatively affected bilateral relations with the Philippines, Vietnam, Indonesia, Malaysia, and Singapore, which requires significant diplomatic efforts from the Chinese leadership to normalize relations.Military activity is noticeably increasing in Southeast Asia, involving both regional and non-regional states. In addition to the United States, countries such as Japan, Australia, and European NATO members — Germany, France, the United Kingdom, and the Netherlands — are also becoming involved. In total, the US Navy conducts over 1,600 ship hours annually in the region, with at least 3,000 additional ship hours contributed by auxiliary forces. In the airspace above the South China Sea, approximately 30,000 sorties by combat aircraft and helicopters were recorded in 2023, a third of which involved non-regional states, with no fewer than 7,800 sorties conducted by the US Navy, Air Force, and Marine Corps.At CIIS, it is believed that through military actions, Washington is “inflating” its own importance in ensuring freedom of navigation, despite the fact that the US has no merit in this — China itself does not hinder shipping and views patrol and training missions from other countries with understanding. However, joint coast guard exercises between the two most outspoken opponents of China's activities in the South China Sea (the Philippines and Vietnam), as well as “ASEAN-wide” naval maneuvers, initiated by Indonesia, have attracted the attention of the PLA command. The main troublemaker in the region, according to Beijing, is the United States, which effectively ignores the “rules” it established for the safe passage of ships, vessels, and aircraft, constantly maintaining a military presence in the region where the greatest threat actually comes from US military forces. These actions are seen as an attempt to maintain hegemony in the face of “strategic retreat” and to push regional countries away from expanding cooperation with China by artificially creating an unsettled atmosphere and undermining multilateral confidence-building measures.The Chinese leadership's course of separating trade, economic, and investment cooperation from territorial disputes is generally understood by Malaysia, Indonesia, Brunei, and Singapore, which claim parts of the Spratly Islands. However, it has also become a target for criticism from radical circles in these countries, clearly incited by Washington. As negotiations have shown, China and Southeast Asian countries are capable of independently developing mutually acceptable rules of action in the South China Sea, based on international law principles and taking into account each other's interests and concerns. The main idea is to establish direct dialogue in any disputed situation, maintain a constant consultation mechanism, preserve constructive negotiations, and adhere to the principle of peaceful resolution.ASEAN countries clearly do not want confrontation with Beijing, but they are in urgent need of a reliable system for peacefully managing any activities in the waters and on the continental shelf, which still needs to be developed together, ensuring guarantees of unhindered access for exploitation. Peace and cooperation in the South China Sea are inseparable, and collective responsibility for security will invariably contribute to the development of multidimensional ties, further increase trade volume, and lead to the emergence of the Sea of Cooperation on the world map.Reference1. Jiang, Chenglong. South China Sea disputes still ‘manageable’. China Daily. September 28-29, 2024. P. 2.

Energy & Economics
Middle East Conflict. Conceptual photo

How might a wider Middle East conflict affect the global economy?

by Ahmet Kaya

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.