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I. Introduction Oil prices are climbing amid signs that the US may plan to launch military strikes on Iran, raising questions about the potential economic fallout of heightened conflict in the Middle East. US President Trump has increased pressure on Iran, home to some of the world’s largest oil reserves, over the country’s disputed nuclear program. Open hostilities between the US and Iran could restrict global oil flows, raising US energy prices and driving up inflation, according to economists. While President Trump hasn‘t yet made a final decision about whether to strike Iran, top national security officials have told the president that the US military could be ready as soon as Saturday on February 21, 2026, sources familiar with the discussions have told CBS News. At the inaugural meeting for President Trump’s “Board of Peace” on Thursday, February 19, 2026, the president said that Iran has about 10 days to make a deal ending its nuclear program, or “bad things will happen.” [1] If the US carries out military strikes on Iran, it can create a lot of economic problems. This paper first examines the situations of US military build up around Iran and then explores the scenarios of oil supply disruption when the US carries out military strikes on Iran and its impact on global oil price. II. US Military Build-Up around Iran As US President Donald Trump considers a major military strike on Iran, US military has accelerated weeks-long buildup of military hardware in the Middle East. As Figure 1 shows, the arrival of the Lincoln Carrier Strike Group, now off the coast of Oman, about 700km (430 miles) from Iran, represents the most dramatic shift in military positioning. As Figure 2 shows, the Abraham Lincoln, a nuclear-powered Nimitz-class aircraft carrier, together with three Arleigh Burke-class destroyers forms a carrier strike group, plus two destroyers capable of conducting long-range missile strikes and three specialist ships for combat near to the shore that are currently positioned at Bahrain naval station in the Gulf. Figure 1: US military presence around Iran (Congressional Research Service, Airframes.io, Flightradar24, Planet Labs PBC, Airbus Figure 2: The USS Abraham Lincoln Strike Group (source: Al Jazeera) In addition, the USS Abraham Lincoln strike group includes the carrier air wing of squadrons of F-35C Lightning II fighters, F/A-18E Super Hornet fighters, and EA-18G Growler electronic warfare jets. According to BBC, two other destroyers have also been seen in the eastern Mediterranean near the Souda Bay US base, and one more in the Red Sea. Moreover, the world’s largest warship is heading towards the Middle East. As Figure 3 shows, the USS Gerald R Ford passed through the Strait of Gibraltar towards the Mediterranean on February 20, 2026 and is expected to arrive off Israel’s coast and dock in Haifa, Israel on Friday, February 27, 2026. BBC confirmed the USS Mahan, one of the destroyers in the USS Gerald R Ford’s strike group, passed through the Strait. The Gerald R Ford had briefly broadcast its location off Morocco’s Atlantic coast on last Wednesday. [2] Figure 3: The USS Gerald R Ford Strike Group (source: Al Jazeera) The arrival of two of the 11 aircraft carriers operated by US Navy adds to what we know about the military build-up in the Middle East over the past few weeks. Both Abraham Lincoln and Gerald R Ford lead strike groups with several guided missile destroyer warships. They are operated by over 5,600 crews and carry dozens of aircraft. Moreover, according to intelligence analysts and military flight-tracking data, the US appears to have deployed more than 120 aircraft to the region within the past few days – the largest surge in US airpower in the Middle East since the Iraq war in 2003. BBC confirmed the movements of large numbers of US aircraft to both Middle Eastern and European airbases, including: [3] • E-3 Sentry command and surveillance aircraft designed to coordinate large-scale operations • F-22 and F-35 fighter jets • KC-46 and KC-135 refueling tankers used to support the long-range movement of other aircraft • C-5M strategic transport aircraft, the largest in the US Air Force, used for cargo and personnel • C-17A heavy-lift military transport aircraft used for delivering troops and cargo • Navy P-8A patrol and reconnaissance jets used for long-range anti-submarine warfare Recently, attention has focused on Diego Garcia, the joint US-UK military base in the Indian Ocean’s Chagos Islands, which is capable of hosting long-range US strategic bombers, including B-2 aircraft. As Figure 4 shows, the remote base has historically served as a launch point for major US air campaigns in the Middle East. It could be used for US military attacks against Iran. However, Diego Garcia is a British sovereign territory leased to the US, meaning that UK must approve its use for offensive operations. According to reports in UK media, Prime Minister Keir Starmer has indicated to President Trump that the US cannot use British airbases – including Diego Garcia and RAF Fairford in the UK, which is home to the US’s heavy bomber fleet in Europe – for strikes on Iran, as this would violate international law. Figure 4: Diego Garcia (source: TheCradleCo) III. Scenarios of oil supply disruption Crude oil prices have fluctuated in recent days along with media headlines about potential US military strikes on Iran, as a second round of talks between US and Iranian representatives concluded on February 17, 2026 without resolving underlying disputes. Although US and Iran held a third round of nuclear talks in Geneva on February 26, 2026, the chances of a deal that could avert a war remain unclear. As Figure 5 shows, international benchmark WTI crude oil prices climbed to $66.618 (USD/Bbl) on February 20 and $66.30 on February 25, 2026. Figure 5: Crude oil WTI prices, 2026 (source: Trading Economics) On the other hand, Brent crude oil futures rebounded 2% to above $70 per barrel on February 25, 2026, reversing earlier losses. Figure 6: Brent crude oil future, 2026 (source: Trading Economics) During Twelve-Day War between Iran and Israel in June 2025, joined by the US in Operation Midnight Hammer, Gulf oil exports avoided major disruption. As the Twelve-Day War transpired, Iran perceived that it was not facing an existential crisis, as its oil exports continued unimpeded, and Iran made no attempt to target Arab Gulf oil assets or shipping. Fast forward to today-the Islamic Republic of Iran faces unprecedented vulnerability following the blows inflicted by Israel, including the degradation of Hezbollah’s capabilities, and more recently, the biggest wave of anti-government protests in its 47-year history. Meanwhile, US president Trump is publicly escalating rhetoric by assembling significant military assets in the Gulf region, pressuring the Iranian regime to accept US demands, and personally threatening Supreme Leader Ayatollah Ali Khamenei. Therefore, if hostilities between Iran and the US or Israel, resume, Iran may indeed perceive an existential threat, bringing its counterthreat against regional oil supplies into play. Six oil-producing countries in the Middle East depend on unimpeded shipping access via the Strait of Hormuz to reach world oil markets, as Figure 7 shows. Their relative dependency on the strategic waterway is shown in Table 1 below. Figure 7: Map of the Strait of Hormuz (source: BOE report) According to Table 1, Iran, Kuwait, and Qatar depend on the Strait of Hormuz 100 percent for the exports of their crude oil, while Iraq depends 97 percent and Saudi Arabia 89 percent. If there are problems with the Strait of Hormuz resulting from US-Iran conflicts, therefore, oil supply disruption could take place. Table 1: Middle East Gulf Oil Exporters’ Reliance on Strait of Hormuz   According to Clayton Seigle at CSIS, there are four oil supply disruption scenarios worth considering. [4] Scenario 1: Iran disrupts Arab Gulf oil shipping If the US strikes Iran, then Iran could disrupt oil shipping of Arab Gulf countries. This campaign would likely target Gulf export flows transiting the Strait of Hormuz, in which the outbound and inbound shipping lanes are only two miles wide. Iran could attempt to divert or seize control of oil tankers, or strike them outright using fast attack aircraft, anti-ship missiles, drones, or naval mines. Up to 18 million barrels per day-perhaps far less-of non-Iranian crude oil and refined petroleum products could be throttled or temporarily halted. This scenario might see several million barrels per day disrupted for a period of weeks until US naval forces could neutralize sea- and shore-based threats to energy cargo flows. Oil prices would initially spike with surging freight and insurance rates, and with some ship operators likely fleeing the region, further reducing export capacity. As traders assess the volume and duration of a physical disruption, crude oil prices could rise past $90 per barrel, pushing US retail gasoline prices well above $3 per gallon on a national average basis (some regions much higher). Fortunately, this chain of events is reversible; Iran could call off its disruptive activities at any time, or global forces could quell their attempts at interruption, enabling Gulf export volumes to rebound. Scenario 2: Iran directly attacks Arab Gulf oil facilities If the US strikes Iran, then Iran could directly attacks oil facilities in Arab Gulf countries. As Figure 8 shows, these attacks could include producing fields, gathering and processing nodes, or oil export terminals. Figure 8: Oil and Gas fields and Infrastructure in the Middle East (source: Javier Campos) In this scenario, a substantial portion of the 18 million barrels per day non-Iranian oil exports from the Gulf region, depending on which assets might be taken offline and for how long, could be at stake. Moreover, potentially millions more barrels per day in the affected countries’ domestic crude feedstocks and refined product supply would be at risk. This scenario could lead to a historically unprecedented oil price spike, potentially higher than the $130 per barrel that was touched in 2022 after Russia invaded Ukraine. The oil supply at risk at that time was approximately 5 million barrels per day. Like Scenario 3, this case could see oil facilities heavily damaged or even destroyed, removing export capacity for a protracted period. This is true not only for onshore infrastructure, but also for offshore loading platforms, which constitute a critical bottleneck in export capacity. One example of this vulnerability is that Iraq’s entire Gulf export flow of 3.5 million barrels per day depends on offshore loading facilities very close to Iranian territorial waters. These offshore loading points may take considerable time to repair - an Ukrainian attack on a similar offshore loading platform at the Black Sea’s Caspian Pipeline Consortium on November 29, 2025 terminal knocked 500 thousand barrels per day - a third of the terminal’s output - offline for several months. Onshore facilities are also vulnerable but may be repaired faster, depending on the repair resources available. For instance, the September 2019 attack on Saudi Aramco’s Abqaiq crude oil processing facility initially disrupted approximately 5 million barrels per day, but most of that volume was restored in less than two weeks after rapid repair efforts. Scenario 3: US or Israel directly attacks Iranian oil facilities If President Trump order the US military to attack Iran, then US (and with Israel) forces could attack not only Iranian military facilities, but also Iranian oil facilities. In this scenario, US naval and air forces would strike Kharg Island and its supply lines, offshore production platforms, and (less likely) Iran’s oil refineries. As Figure 9 shows, Iran’s export terminal at the Kharg Island accounts for nearly all of its 1.6 million barrels per day average export volume. Kharg could be taken offline in several ways, including destroying or disabling its ship loading equipment (pumps, hoses, and connecting hardware), damaging its oil storage tanks, or cutting off the flow of oil that reaches Kharg via subsea pipelines. Figure 9: Kharg Island (source: https://catalystias.org.in/english/Kharg-Island) Choke points for oil deliveries to the Kharg Island include the onshore Ghurreh booster station, the manifold station at Ganaveh, and the pipelines themselves. Not only are Iran’s 1.6 million barrels per day crude oil exports (if limited to Kharg) at stake, but also its additional 1.5 million barrels per day of domestic oil production (should platforms/fields be targeted) and its domestic supply of transportation fuels such as gasoline (if refineries are damaged). The oil price impacts would likely be greater than the $10–12 per barrel spike anticipated with scenario 1 for two reasons: (1) damage to or destruction of Iranian infrastructure could keep barrels off the oil market for a protracted period of time (potentially offset by activation of OPEC spare production capacity), and (2) anticipation of a further escalation by Iran with something like scenario 4 (described below). This track, therefore, might take oil prices above $100 per barrel. [5] Scenario 4: US or Israel Disrupts Iranian Crude Oil Shipments If President Trump order the US military to attack Iran, then US (and with Israel) forces could attack not only Iranian military facilities, but also Iranian oil facilities. This could take the form of blockading or seizing Kharg Island, the main facility for loading Iranian oil onto ships, and seizing oil tanker vessels transporting Iranian crude oil. This could disrupt up to 1.6 million barrels per day of Iranian crude oil exports, all of which go to China. However, since oil is a global, fungible commodity, a disruption anywhere influences prices everywhere. A loss of Iranian barrels might cause China to bid for substitute supplies, probably worth at least a $10–12 increase in the global price of crude oil. This scenario is reversible, meaning that the US or Israel could call off its campaign against Iranian shipments at any time with no permanent damage having been incurred and export volumes rebounding thereafter, like what was seen after the US quarantine on Venezuelan oil shipments. Insurance and war-risk premiums could keep prices elevated longer than any physical supply interruption. Limitation of Hormuz Bypass Potential Oil export routes that bypass the Strait of Hormuz handle only a fraction of daily Gulf exports. As Figure 10 shows, Saudi Aramco’s East-West Pipeline connects Saudi Arabia’s oil production centers in the Eastern Province with the Red Sea Yanbu Port. The pipeline could reroute some barrels from the Gulf to the Red Sea, but only in reduced volumes. The pipeline has a capacity of 5 million barrels per day. But it is already supplying Yanbu with close to 800 thousand barrels per day for export cargoes, and likely supplying six Saudi Aramco refineries in western and central Saudi Arabia with about 1.8 million barrels per day. That would leave only approximately 2.4 million barrels per day of spare capacity in the pipeline, compared to Saudi Arabia’s typical 6 million barrels per day from its Gulf terminals - enabling the rerouting of less than half of its Gulf exports. Figure 10: Saudi Aramco’s East-West pipeline (source: EIA) As Figure 11 shows, the United Arab Emirates (UAE) may reroute about half of its 2 million barrels per day of Gulf exports via pipeline to its port of Fujairah on the Gulf of Oman, bypassing the Strait of Hormuz. The port of Fujairah already accounts for approximately one-third of the UAE’s total 3.2 million barrel per day export volume, implying that the remaining third (1 million barrels per day) might remain stranded in a Hormuz closure. Other Gulf oil-exporting countries—Qatar, Kuwait, Bahrain, Iraq (5.7 million barrels per day total volume)—have no Hormuz bypass capacity; likewise, there’s no other outlet for Qatar’s 10 billion cubic feet per day of LNG exports. Figure 11: UAE’s oil pipeline (source: EIA) Evaluation of the Scenarios US President Trump faces a dilemma in how to confront Iran without incurring an unwanted oil supply disruption and gasoline price spike. In Operation Midnight Hammer and in the operation to capture Venezuela president Nicholas Maduro, Trump selected military options with low risk of negative consequences (in terms of US casualties and energy price increases). But scenarios 1 and 2, described in this paper, afford Iran leverage that could deter Trump from undertaking a major military operation against Iran. This is because in scenarios 1 and 2, Iran could disrupt the supply and export of crude oil of Gulf countries. Meanwhile, Israel, which launched the Twelve-Day War against Iran in summer of 2025, remains a wildcard. [6] The US certainly has a large list of Iranian targets for kinetic action, many of which may not involve energy. Insofar as oil leverage may be used as part of a pressure campaign against Iran, it is likely to start with scenario 1 (US or US/ Israel, disrupts Iranian crude oil shipments), and Iran will face a dilemma about how to respond. If Iran pursues Scenario 1 (Iran disrupts Arab Gulf oil shipping), the US will seek to neutralize Iran’s naval and shore-based anti-ship capabilities, leaving Iran with only scenario 2 (Iran directly attacks Arab Gulf oil facilities) left to employ—one that could cause the US to carry out scenario 3 (US/Israel directly attack Iranian oil facilities)—and seek the regime’s outright defeat or destruction. Iran’s “use it or lose it” dilemma could provoke a miscalculation in Iran, resorting to scenario 2 (Iran directly attacks Arab Gulf oil facilities) as its last card to play to stave off defeat. IV. Conclusion This paper examined the scenarios of oil supply disruption when the US carries out military strikes on Iran. In doing so, this paper first showed US military build-up around Iran and then proposed 4 scenarios of oil supply disruption and evaluated them. The largest oil supply disruption and the resulting highest oil price surge are likely to happen in scenario 2 when Iran attacks oil facilities in the Gulf region and scenario 3 when the US attacks oil facilities in the Kharg Island of Iran. References [1] https://www.cbsnews.com/news/iran-us-conflict-impact-on-oil-inflation/ [2] https://www.bbc.com/news/articles/c1d64p3q2d0o [3] https://www.bbc.com/news/articles/c1d64p3q2d0o [4] https://www.csis.org/analysis/if-trump-strikes-iran-mapping-oil-disruption-scenarios [5] https://www.csis.org/analysis/if-trump-strikes-iran-mapping-oil-disruption-scenarios [6] https://www.csis.org/analysis/if-trump-strikes-iran-mapping-oil-disruption-scenarios

I. Introduction As Figure 1 shows, Germany’s share of world GDP has declined from 6.99% in 1980 to 2.89% in 2025. Germany, which had been considered to be Europe’s economic powerhouse in previous decades, became the worst-performing major economy in 2023 with a 0.9% contraction, followed by another 0.5% contraction in 2024, leading to a recession. Several economists and business figures expressed concerns that Germany’s economic downturn could cause the country to reclaim its reputation as the “sick man of Europe” from the 1990s. [1] Economists argue that the German economy was in a permanent crisis mode, while the Handelsblatt Research Institute declared that it was in its “greatest crisis in post-war history” after projecting a third consecutive year of recession in 2025. [2]  Figure 1: Germany’s share of world GDP (based on PPP)  As Figure 2 shows, GDP in the United Kingdom in Q3 2025 was 5.2% above its pre-pandemic level of Q4 2019. This compares with Euro-zone GDP being 6.5% higher, with GDP in Germany up by 0.1% (the lowest among G7 economies). The United States has the highest GDP growth among G7 economies over this period at 13.3% (as of Q2 2025).  Figure 2: G7 nations’ GDP growth (source: OECD) With this information in background, this paper explores why the German economy has underperformed and fallen behind. This paper first describes the current economic situation of Germany and explains why the German economy has failed. II. Current economic situations of Germany The German economy has been sluggish. As Figure 3 shows, the average GDP growth rate in Germany during the 2013-2023 period was only 1.1%. And Germany experienced a 0.9% contraction in 2023 and a 0.5% contraction in 2024.  Figure 3: Average GDP growth rate in Germany, 2013-2024 In addition, as Figure 4 shows, the unemployment rate in Germany has recently increased following the Ukraine war. The unemployment rate dropped from 6.2% in January 2016 to 5% in January 2020, but then it rose following the Ukraine war in 2022. Unemployment rate increased from 5% in March 2022 to 5.6% in March 2023 and 6.3 % in December 2025.  Figure 4: Unemployment rate in Germany, 2016-2025 (source: Bundesagentur für Arbeit) Rising energy prices have been a main factor causing serious problems for the German economy. As Figure 5 shows, gasoline price in Germany has increased following the Ukraine war. Gasoline price in Germany averaged 1.73 USD/Liter from 1995 until 2025, but it reached an all-time high of 2.36 USD/Liter in May 2022. Gasoline price declined to 2.05 USD/Liter in December 2025, but it is still higher compared to the previous decade.  Figure 5: Gasoline price in Germany (source: Trading Economics) Moreover, fiscal imbalance has been a big problem for Germany. As Figure 6 shows, consolidated fiscal balance in Germany recorded a huge deficit in the 2020s. The deficit recorded $49,542 billion in January 2023 and $46,923 billion in September 2025, compared with an average of $13,425 billion from March 1991 to September 2025. Figure 6: Germany’s consolidated fiscal balance (source: CEIC Data) As a result, as Figure 7 shows, the German government’s debt as a % of GDP significantly increased in the 2020s. The German government’s debt reached an all-time high of 81% in December 2010 and then declined until 2019, but it started to increase from 2020. The German government’s debt as a % of GDP increased to 65.2% in October 2022.  Figure 7: Government debt in Germany: % of GDP (source: CEIC Data) Investment is a key to economic growth in every country. As Figure 8 shows, overall private investment in Germany has declined in the 2020s, particularly during the period of 2022-2024 after the Ukraine War. In addition, as Figure 9 shows, total government net investment in Germany has declined in the 2020s.  Figure 8: Private investment in Germany, 2010-2024 (Source: ECB, Eurostat, Destatis and European Commission calculations)  Figure 9: Government net investment in Germany, 2010-2024 (Source: ECB, Eurostat, Destatis and European Commission calculations) Reflecting Germany’s recent sluggish economy, as Figure 10 shows, the German manufacturing industry’s business expectation has been negative over the period of 2022-2025 after the Ukraine war.  Figure 10: German manufacturing industry’s business expectation III. Causes of the failure of German economy Why has the German economy failed? Germany’s economic decline can be attributed to multiple factors. The first factor is the energy crisis or energy policy in Germany. Economists cited Germany’s overreliance on cheap Russian gas as one of many primary factors for Germany’s economic stagnation. Prior to Russia’s invasion of Ukraine, as Figure 11 shows, 56% of Russia’s gas exports went to Germany. This caused German industry and the broader economy to become dependent on cheap Russian energy.  Figure 11: Russia’s gas exports in 2021 Germany’s phasing out of its established network of nuclear power, a process initiated and led by the Greens and ultimately enforced by the second Merkel government, increased Germany’s dependency on Russian energy. The German government’s decision to phase out its nuclear power was influenced by the high-profile Fukushima nuclear accident in 2011. Until March 2011, Germany obtained one-quarter of its electricity from nuclear energy, using 17 reactors. The following gap after phasing out of its established network of nuclear power was primarily filled by Russian natural gas, inadvertently increasing dependency on Russian energy. Despite early leadership in renewable energy adoption, Germany’s transition has been hampered by antiquated bureaucratic obstacles, complicated and slow processes for approving projects for renewable energy, and local resistance to infrastructure projects, each discouraging further investment in renewable sectors. As of 2024, renewable sources accounted for just over 52% of the country’s electricity supply, insufficient to meet industrial demands. Germany’s dependency on Russian gas became a vulnerability following the Ukraine War in 2022. The abrupt disruption of Russian energy forced Germany to rapidly diversify its energy sources, leading to a 32.6% reduction in gas imports by 2023. The subsequent sanctions against Russia and supply disruptions led to a 32% increase in Germany’s energy prices, contributing to economic instability and decline. As Figure 12 shows, energy consumer price in Germany skyrocketed in the 2020s following the Ukraine War. Energy consumer price in Germany increased 32% in September 2022 compared to the previous year.  Figure 12: Energy consumer price in Germany (source: OECD) Although energy consumer price in Germany significantly dropped in 2024 and has stabilized afterwards, the damage to industrial competitiveness has been lasting. Energy-intensive industries such as chemicals and metals have shrunk, forcing businesses to either cut production or relocate abroad, thereby contributing to economic decline. The second factor related to the sluggish economy of Germany is the under-development of the tech industry in Germany. Some experts argued that Germany’s economic troubles were partly due to its slow adaptation to technological advancements and shifting to low-productivity sectors, contributing to declining productivity. [3] This issue is about Germany’s insufficient investment in new technologies (computers, artificial intelligence (AI), software, etc.) and the low level of spending on research and development (R&D), compared to other advanced countries such as the US. When we compare OECD countries, we see that these two components have a strong influence on productivity differences between countries. The econometric estimate leads to the following effects: a 1-point increase in the rate of investment in new technologies leads to a 0.8 point increase per year in productivity gains. In a similar way, a 1 point increase in GDP for R&D expenditure leads to a 0.9 point increase per year in productivity gains. [4] As Figure 13 shows, gross domestic spending on R&D as a % of GDP in Germany in 2023 was higher than in many EU countries, but lower than in its Western rivals such as the US, Israel, Japan, Taiwan, South Korea, Sweden, and Switzerland.  Figure 13: Gross domestic spending on R&D as a % of GDP, 2023 Moreover, weak investment in public infrastructure and digitalization has further weakened Germany’s IT sectors. As Figure 14 shows, Germany has long underinvested in public infrastructure, ranking near the bottom among advanced economies in public investment levels.  Figure 14: gross public investment in OECD countries, 2018-2022 (source: IMF) As a result, as Figure 15 shows, there are no German tech firms among the global top 10 most valuable unicorns. The US and China lead the category of global tech unicorns.  Figure 15: Global top 10 Unicorns (source: https://www.hurun.co.uk/hurun-global-unicorn-index-2025#:~:text=In%20contrast%20to%20the%20UK's,the%20US%20and%20China%2C%20including The third factor related to the sluggish economy of Germany is the demographics. As Figure 16 shows, the working-age population in Germany has declined, while old people over 65 have significantly increased.  Figure 16: Age group in Germany (source: UN, World Population Prospects & Financial Times) The IMF posited that the fundamental structural challenges for Germany are accelerating population aging. The country’s working-age population, which had been declining over the three decades, was projected to decline sharply as baby boomers retired. As Figure 17 shows, Germany’s working-age population growth is the lowest among G7 countries. This demographic shift in Germany is expected to decrease GDP per capita, further hinder productivity growth, and cause increased demand for healthcare, potentially forcing workers to go into healthcare away from other sectors.  Figure 17: Working-age population growth, G7 economies (source: IMF) Under this circumstance, shorter working hours increasingly constrain Germany’s labor supply, thereby reducing economic growth. As Figure 18 shows, employees in Germany work shorter hours on average than in any other OECD country.  Figure 18: Employees in Germany work shorter hours on average than in any other OECD country Another issue related to the demographics is the size of the welfare state in Germany. As Figure 19 shows, Germany’s public social spending has expanded and is now at record level. As Figure 20 shows, Germany spent around 30% of its GDP on welfare and social benefits in 2024, placing it among the largest welfare states in Europe, as well as in the world.  Figure 19: German social welfare spending is at record levels, excluding the Covid-19 pandemic (source: OECD, Financial Times)  Figure 20: Welfare and social spending as a % of GDP in 2024 (Source: Eurostat (2024) Gwartney, Holcombe and Lawson (1998) showed empirically that as the size of general government spending has almost doubled on average in OECD countries from 1960 to 1996, their real GDP growth rates have dropped by almost two thirds on average (see Figure 21). According to them, as public social spending goes up, GDP growth goes down.  Figure 21: High government spending reduces growth Moreover, any increase in welfare costs automatically leads to an increase in non-wage labor costs for employers. Under German law, employers are obliged to cover half of their employees’ insurance contributions. Since the end of the Covid-19 pandemic, as Figure 22 shows, non-wage labor costs have risen at a faster rate than total wages, eating into companies’ profits and reducing the room for wage increases, thereby lowering economic growth.  Figure 22: Costs other than wages have started to make up a greater share of employers’ labor spending (source: Bundesbank & Financial Times) The fourth factor related to the sluggish economy of Germany is exports. Exports have been a driving force for Germany for a long time, but the year-on-year (YoY) exports growth rate indicates a decline over the 2023-25 period after the Ukraine War, as Figure 23 shows.  Figure 23: Year-on-year (YoY) exports growth rate in Germany (source: MacroMicro) In addition, German export performance against global competitors has not been so good, as Figure 24 shows. It was so bad in the 2020s.  Figure 24: Germany’s export performance against global competitors (source: Deutsche Bank Research & OECD) IV. Conclusion This paper showed that the German economy has been in big trouble with sluggish economic growth. This paper explained that the failure of the German economy can be attributed to an energy crisis, as well as underdevelopment of tech industry, a shrinking working-age population and shortest working hours of employees, a large size of welfare state, and sluggish exports. References [1] Germany, which had been considered to be Europe’s economic powerhouse in prior decades, became the worst-performing global major economy in 2023 with a 0.9% contraction, followed by further 0.5% contraction in 2024 leading to recession. [2] Partington, Richard (15 January 2024). "Germany on track for two-year recession as economy shrinks in 2023". The Guardian. [3] Fletcher, Kevin; Kemp, Harri; Sher, Galen (27 March 2024). "Germany's Real Challenges are Aging, Underinvestment, and Too Much Red Tape". International Monetary Fund. [4] https://www.polytechnique-insights.com/en/columns/economy/economy-why-europe-is-falling-behind-the-usa/

China's engagement in overseas renewables grew once again, though not as much as in oil and gas Last year, Chinese companies’ “engagement” in 150 countries involved in the Belt and Road Initiative (BRI) reached its highest level since the BRI was launched 12 years ago. The value of construction deals involving Chinese companies reached USD 128 billion, up 81% on 2024. While investments totalled USD 85 billion, up 62%. The unprecedented boom has been revealed by annual data from the Griffith Asia Institute, an Australian think-tank, and the Green Finance and Development Center, a think-tank hosted in Fudan University, Shanghai. “I did not foresee last year that 2025 would be such a strong year [for BRI engagement],” said report author Christoph Nedopil Wang during an online launch. “Engagement” refers to both investments by Chinese companies, implying an ownership stake in a project, and the value of construction contracts awarded to them for engineering services. The striking upsurge comes after years of government-directed messaging, and analyst predictions, that the initiative would focus more on “small and beautiful” projects, rather than the mega projects pursued in its early years. “Small yet beautiful should be seen as a bygone,” Nedopil Wang said, noting both the total value of construction and investment deals, and the growth in average project value. Last year also saw notable shifts in the targets for Chinese companies’ activities around the world. Their engagement in renewable-energy projects grew in 2025 but not as rapidly as in oil and gas projects, which will concern many. Rapid growth in engagement in mining, and in the technology and manufacturing sector, demonstrates the evolution of the BRI since it began in 2013. Finally, Africa became the top destination for Chinese companies’ overseas engagement. The end of ‘small and beautiful’? Last year saw a marked rebound in the size of projects. The average value of investments reached USD 939 million, up from USD 672 million in 2024 and three times higher than deal sizes five years ago, during the BRI’s Covid contraction. The average value of construction deals reached USD 964 million, up from USD 496 million the previous year. Nedopil Wang says this indicates the end of “small and beautiful” BRI projects, a term promoted by the Chinese government in response to financial headwinds and the environmental and social problems which arose in the first five years of the initiative. Chinese government discourse has certainly not dropped the emphasis, however. On 27 January, People’s Daily, the official newspaper of the Communist Party of China, stated that “more than 700 aid projects, including … small and beautiful livelihood projects” were delivered overseas in 2025. Booming renewables – and fossil fuels Energy was once again the top sector for engagement in Belt and Road countries, accounting for about 43% of the total. Total engagement in energy sectors reached USD 93.9 billion, the highest ever recorded. However, while just a few years ago renewable-energy projects accounted for nearly half of total energy projects overseas, in 2025 renewables made up just 21%, while fossil fuels accounted for over 75%. Nedopil Wang sees risks in the boom in oil and gas engagement. “I see a rapid rise of oil and gas engagement as an environmental risk due to the associated climate emissions. They also become an economic risk under declining fossil-fuel-demand scenarios driven by electrification of mobility and scaling of green electricity,” which would lead to lower oil and gas demand, respectively, he said. The dominance of oil and gas projects also implies an emphasis on energy extraction, rather than generation. According to the report’s breakdown, the value of investments and contracts in extractive projects amounted to USD 51.4 billion, while generation accounted for USD 25.8 billion. That said, Chinese companies’ engagement in oil and gas projects is primarily via construction contracts rather than equity ownership. This may minimise some of the economic risks Nedopil Wang identifies. When it comes to renewable projects, while these make up a smaller proportion of total energy engagement in 2025, they have seen a marked increase in real terms. Last year saw engagement worth USD 21.4 billion, up from USD 12.3 billion in 2024. “2025 was both the greenest and the brownest year” for the BRI, Nedopil Wang said during the report launch. Renewables, by their nature, also contribute to generation rather than extraction. Last year saw projects worth 23.8 GW of solar, wind and hydro generation capacity, compared to around 15 GW in 2024. “I do not immediately read the surge as a return to fossil-fuel expansion,” notes Fikayo Akeredolu, senior research associate in climate policy and justice at the University of Bristol. She points out that while oil and gas projects accounted for a large proportion of the value of construction contracts in 2025, foreign direct investment from China is supporting renewables. Meanwhile, at least in Africa, lending from China’s government-backed policy banks is backing power-transmission projects. The lending data comes from the recently updated Chinese Loans to Africa database, published by the Boston University Global Development Policy Center. “[We see] a segmentation of instruments, rather than a reversal of China’s energy-transition stance,” Akeredolu says. Moving up value chains Another key sector of growth in 2025 was technology and manufacturing, referring to both traditional manufacturing activities and high-tech areas such as solar PV and batteries. Its growth demonstrates the evolution of the BRI over the last 12 years, from a focus on infrastructure to an increasing interest in developing manufacturing bases overseas. The sector saw 27% year-on-year growth in engagement and has been growing steadily since 2023. Engagement in green tech like solar PV and batteries dropped slightly compared to 2024, however. “The growing role of tech and manufacturing highlights China’s growing ability to build and manage factories (and in particular high-tech-related factories) across the world,” Nedopil Wang said. “While the original BRI engagement was concentrated in infrastructure, the new BRI is seeing the expansion of China’s manufacturing base to overseas markets.” Metals and mining also saw strong engagement in 2025, a record high of USD 32.6 billion. This was dominated by construction contracts for two mega projects in aluminum and steel in Kazakhstan, worth USD 19.5 billion together. However, other regions also saw major deals, the African continent in particular. Interestingly, data from the report shows a higher proportion of engagement in processing rather than extractive mining facilities. Processing of mined minerals and metals is seen by many resource-rich countries as a key strategy for moving up value chains, particularly in green technologies. For now, however, it is unclear if the data represents a trend or simply a one-off. In contrast, transportation infrastructure is in decline, with only USD 13.3 billion, the least since the BRI began life being touted primarily as a global connectivity project. Nedopil Wang suggests this may be connected to problems securing finance for traditional infrastructure projects, including the fall in lending from China’s development finance banks. Africa rising In 2025, the largest market for Chinese companies’ engagements along the BRI was Africa. The Belt and Road partners on the continent saw USD 61.2 billion worth of engagement, a 283% expansion compared to 2024, according to the report. The majority of that engagement was in the form of construction contracts, rather than investment. Nedopil Wang indicates this may have to do with Chinese companies seeking ways to avoid US tariffs. Akeredolu from the University of Bristol points to “Africa’s growing role in resource security amid global supply-chain fragmentation” as another reason shaping the boom in Chinese engagement in African economies. “Whether this is good news for African governments depends on bargaining power,” says Akeredolu. “Where states can secure local content, downstream value addition, or revenue-sharing, opportunities exist. Where engagement is limited to turnkey construction without equity or technology transfer, the developmental upside is thinner.”

On 3 January 2026, the US carried out a surprise military operation in Venezuela, capturing President Nicolás Maduro and his wife, Cilia Flores. The US has made little effort to cloak its operation in either solidarist language, such as appeals to democracy promotion, human rights, or liberal peacebuilding – or in pluralist rhetoric emphasizing the preservation of international order. Instead, Washington has presented the action in largely instrumental and strategic terms, signalling a willingness to sidestep both dominant justificatory traditions within international society. While Maduro and Flores are charged with narco-terrorism conspiracy and cocaine importation conspiracy, international debates focus on the future of Venezuela’s oil (Poque González 2026). On 7 January administration officials said the US plans to effectively assume control over the sale of Venezuela’s oil “indefinitely” (Sherman 2026) and President Donald Trump confirmed that he expected the US to run Venezuela, insisting that the country’s interim government was “giving us everything that we feel is necessary” (Sanger et al. 2026). Attention is fixed not only on Washington’s plans for Venezuela’s oil sector and control over its export revenues, but also on the replies from Moscow and Beijing, Maduro’s chief foreign backers and heavyweight players in energy politics. Consequently, this article asks two questions. First, to what extent does American control of Venezuelan oil threaten China’s and Russia’s energy interests? Second, what does the resulting US–China–Russia triangle imply for how energy security itself is being redefined? A constructivist perspective, recognizes that oil is an idea—valuable not only because it burns but because control over it symbolizes power and authority (Kuteleva 2021). Thus, when the US claims the right to supervise Venezuelan oil revenues, it is not only increasing leverage over barrels, but asserting the authority to define legitimate energy exchange itself. In this context, while the material threat is limited for China and already largely sunk for Russia, the symbolic, institutional and political threat is profound. A straightforward constructivist interpretation of the US–China–Russia triangle centres on status. China had cultivated Venezuela as an “all-weather strategic partnership” (Ministry of Foreign Affairs of PRC 2025b) and major debtor, only to watch Maduro captured days after senior Chinese officials visited Caracas (Ministry of Foreign Affairs of PRC 2025a). In constructivist terms, this is an obvious status injury: China appeared present but powerless. China’s energy diplomacy had functioned as proof of its global influence, and the nullification of China’s energy ties with Venezuela by US force undermines China’s narrative as a protective patron for the Global South. Beijing accused Washington of “hegemonic thinking” (Liu and Chen 2026), “bullying” (Global Times 2026a), and violating Venezuelan sovereignty and “the rights of the Venezuelan people” (Global Times 2026b). This strong pluralist language is not incidental—it is a bid to reclaim moral authority and redefine the event as norm-breaking rather than capability-revealing. Similarly, Russia’s involvement in Venezuela was never purely economic. Moscow saw the alliance with Venezuela as a way to advance its anti-American agenda and to signal that it could cultivate allies in Washington’s traditional backyard (Boersner Herrera and Haluani 2023; Gratius 2022; Herbst and Marczak 2019). It used Venezuela as leverage against the US, subsidised the regime during periods of domestic recession, and framed support as proof of great-power reliability. As senior Russian executives put it, “economic considerations took a back seat to political goals of taking swipes at the US” (Seddon and Stognei 2026). US control of Venezuelan oil thus removes a symbolic platform on which Russia enacted its identity as an energy superpower and geopolitical spoiler. While Russia continues loud sovereignty talk, its demonstrated incapacity to protect partners pushes it toward opportunistic bargaining (“concert” deals, see Lemke 2023) rather than overt defense of UN-pluralist restraint. As such, Dmitry Medvedev (2026) bluntly claimed that the US special military operation in Venezuela all but justifies Russia’s own actions in Ukraine. Venezuela is not a core supplier for China in volumetric terms. In 2025, Venezuelan exports to China averaged roughly 395,000 barrels per day—about 4% of China’s seaborne crude imports, according to Kpler data cited by the FT (Leahy and Moore 2026). China has diversified routes, strategic reserves covering at least 96 days of imports, and strong purchasing power in global markets (Downs 2025). Hence, from a narrow supply perspective, the loss of Venezuelan oil is manageable. That said, around one-fifth of China’s crude imports come from suppliers under US or western sanctions, primarily Iran, Venezuela and Russia, much of it disguised via transshipment near Malaysia (Downs 2025). Independent “teapot” refiners (Downs 2017)—who account for about a quarter of China’s refining capacity—are structurally dependent on this discounted, politically risky oil. Consequently, Trump’s seizure of Maduro alarmed China not mainly because of Venezuela itself, but because it demonstrated Washington’s capacity to escalate from sanctions to physical control of an energy sector, and thus potentially to Iran. Here, constructivism reveals the problem: “sanctioned oil” is not simply cheaper crude; it is a political category—oil marked as illegitimate by a dominant legal-financial order. The US move signals that this stigma can be converted into coercive authority, turning commercial vulnerability into geopolitical dependence. This reclassification transforms Chinese domestic actors into security subjects. “Teapot” refiners are no longer just businesses; they become strategic vulnerabilities whose survival depends on US tolerance. Analysis warn that a cutoff of Iranian oil could force many to shut down entirely (Leahy and Moore 2026). In this context, US control of Venezuelan oil reshapes Chinese energy security discourse from one of diversification and market access to one of hierarchy and exposure to political permission. Russia’s oil interests in Venezuela were largely written down years earlier. In 2020, Rosneft had sold most formal assets after pouring around $800m into loans and projects that produced little return (The Economist 2020). Much of the remaining exposure consisted of debts and shadow ownership arrangements. More important is the damage to Russia’s sanctions-evasion architecture. Russia had become the leading marketer of Venezuelan oil by trading crude as debt repayment and using banks partly owned by sanctioned Russian institutions, creating what the 2019 Atlantic Council report described as “a counter financial system to the one dominated by the West” (Herbst and Marczak 2019). The recent reporting on the US tracking a tanker linked to Venezuela, Russia and Iran illustrates how this counter-order is being contested operationally (Sheppard et al. 2026). The vessel sailed under false flags, was sanctioned for carrying Iranian oil, later re-registered under Russian jurisdiction, and became vulnerable to boarding under the UN Convention on the Law of the Sea because it was “without nationality.” Such episodes show that energy security is increasingly constituted by maritime law, insurance rules, and surveillance practices. US control over Venezuelan oil expands this regime of enforcement, making Russia’s informal trading networks less viable. A constructivist approach suggests that American control of Venezuelan oil is best understood not as a supply shock, but as an act of social stratification in the international system. Energy markets have always been hierarchical, but the hierarchy was largely implicit: reserve currencies, shipping insurance, futures exchanges, and contract law already privileged Western institutions. What is new is the explicit performance of hierarchy—the public demonstration that a great power can redefine ownership, legality, and access through coercion and administrative authority. This produces a stratified energy order: First, rule-makers – states whose legal systems, sanctions regimes, and corporate actors define what counts as legitimate oil (primarily the US and its allies). Second, rule-takers – states whose energy security depends on access to these institutions (most importers). And third, rule-evaders – states forced into informal networks (Russia, Iran, Venezuela) whose energy becomes socially “tainted.” China occupies an unstable middle category: economically powerful but institutionally dependent. Venezuela’s takeover publicly signals that material power is insufficient without normative control over legality. Referencias Boersner Herrera, Adriana, and Makram Haluani. 2023. ‘Domestic and International Factors of the Contemporary Russo–Venezuelan Bilateral Relationship’. Latin American Policy 14 (3): 366–87. Downs, Erica. 2017. The Rise of China’s Independent Refineries. Geopolitics. Global Energy Policy at Columbia University, School of International and Public Affairs. https://www.energypolicy.columbia.edu/publications/rise-chinas-independent-refineries/. Downs, Erica. 2025. China’s Oil Demand, Imports and Supply Security. Global Energy Policy at Columbia University, School of International and Public Affairs. https://www.energypolicy.columbia.edu/publications/chinas-oil-demand-imports-and-supply-security/. Global Times. 2026a. ‘China Condemns US Demands for Venezuela to Partner Exclusively on Oil Production as “Bullying,” Breaches of Intl Law: FM – Global Times’. Global Times, January 7. https://www.globaltimes.cn/page/202601/1352547.shtml. Global Times. 2026b. ‘China’s Legitimate Rights and Interests in Venezuela Must Be Safeguarded, Chinese FM Responds to Claim about US to Sell Venezuelan Sanctioned Oil – Global Times’. Global Times, January 7. https://www.globaltimes.cn/page/202601/1352555.shtml. Gratius, Susanne. 2022. ‘The West against the Rest? Democracy versus Autocracy Promotion in Venezuela’. Bulletin of Latin American Research 41 (1): 141–58. Herbst, John E., and Jason Marczak. 2019. Russia’s Intervention in Venezuela: What’s at Stake? Policy Brief. Atlantic Council. https://www.atlanticcouncil.org/in-depth-research-reports/report/russias-intervention-in-venezuela-whats-at-stake/. Kuteleva, Anna. 2021. China’s Energy Security and Relations with Petrostates: Oil as an Idea. Routledge. Leahy, Joe, and Malcolm Moore. 2026. ‘Donald Trump’s Venezuela Action Raises Threat for China’s Oil Supplies’. Oil. Financial Times, January 8. https://www.ft.com/content/f64826fa-5c36-4fb3-8621-ee0b9d9a1ff5. Lemke, Tobias. 2023. ‘International Relations and the 19th Century Concert System’. In Oxford Research Encyclopedia of International Studies. Liu, Xin, and Qingqing Chen. 2026. ‘US Reportedly Sets Demands for Venezuela to Pump More Oil; Experts Say “Anti-Drug” Claims a Pretext, Exposing Neo-Colonialism – Global Times’. The Global Times, January 7. https://www.globaltimes.cn/page/202601/1352544.shtml. Medvedev, Dmitry. 2026. ‘Год начался бурно’. Telegram, January 9. https://t.me/medvedev_telegram/626. Ministry of Foreign Affairs of PRC. 2025a. ‘Foreign Ministry Spokesperson Lin Jian’s Regular Press Conference on January 5, 2026’. January 5. https://www.fmprc.gov.cn/eng/xw/fyrbt/202601/t20260105_11806736.html. Ministry of Foreign Affairs of PRC. 2025b. ‘Xi Jinping Meets with Venezuelan President Nicolás Maduro Moros’. May 10. https://www.fmprc.gov.cn/eng/xw/zyxw/202505/t20250513_11619919.html. Poque González, Axel Bastián. 2026. ‘Energy Security and the Revival of US Hard Power in Latin America’. E-International Relations, January 12. https://www.e-ir.info/2026/01/12/energy-security-and-the-revival-of-us-hard-power-in-latin-america/. Sanger, David E., Tyler Pager, Karie Rogers, and Zolan Kanno-Youngs. 2026. ‘Trump Says U.S. Oversight of Venezuela Could Last for Years’. U.S. The New York Times, January 8. https://www.nytimes.com/2026/01/08/us/politics/trump-interview-venezuela.html. Seddon, Max, and Anastasia Stognei. 2026. ‘How Russia’s Venezuelan Oil Gambit Went Awry’. Venezuela. Financial Times, January 9. https://www.ft.com/content/e09a6030-325f-4be5-ace3-4d70121071cb. Sheppard, David, Chris Cook, and Jude Webber. 2026. ‘US Tracking Oil Tanker off UK Coast Linked to Venezuela, Russia and Iran’. Shipping. Financial Times, January 6. https://www.ft.com/content/a699169a-983a-4472-ab23-54bceb9dd2bd. The Economist. 2020. ‘Why Putin’s Favourite Oil Firm Dumped Its Venezuelan Assets’. The Economist, April 2. https://www.economist.com/leaders/2020/04/02/why-putins-favourite-oil-firm-dumped-its-venezuelan-assets.

Thank you dear Prime Minister Modi, for welcoming us on this special occasion. We were privileged yesterday to be your Chief Guests for the Republic Day celebrations, such an impressive display of India’s capabilities and diversity. Today is a historic moment. We are opening a new chapter in our relations – on trade, on security, on people to people ties. I am the President of the European Council, but I am also an overseas Indian citizen. Then, as you can imagine, for me, it has a special meaning. I am very proud of my roots in Goa, where my father’s family came from. The connection between Europe and India is something personal to me. Also, because we conclude today our trade negotiations, we relaunched at the Leaders’ meeting that I had the pleasure to host, in May 2021, in my previous capacity. Our summit sends a clear message to the world: at a time when the global order is being fundamentally reshaped, the European Union and India stand together as strategic and reliable partners. Today, we are taking our partnership to the next level. As the two largest democracies in the world, we are working hand in hand: • to deliver concrete benefits for our citizens; and • to shape a resilient global order that underpins peace and stability, economic growth, and sustainable development. I would like to share three messages. First: the European Union and India must work together towards our shared prosperity and security. India is the world's fastest-growing major economy. Trade has flowed between our two continents for centuries. Trade is a crucial geopolitical stabilizer. And a fundamental source of economic growth. Trade agreements reinforce rules-based economic order and promote shared prosperity. That’s why today’s Free Trade Agreement is of historic importance. One of the most ambitious agreements ever concluded. Creating a market of two billion people. In a multipolar world, the European Union and India are working together to grow spheres of shared prosperity. But prosperity does not exist without security: • strengthening our cooperation to better protect our citizens and our shared interests; • working together to counter the full range of security threats we face, in the Indo-Pacific, in Europe and around the world; • reaching a new level of strategic trust between us. That is the significance of our agreement on a Security and Defence Partnership. The first such overarching defence and security framework between India and the European Union. And the first step towards even more ambitious cooperation in the future. This brings me to my second message: as the world's largest democracies and champions of multilateralism, the European Union and India share the responsibility of upholding international law, with the United Nations Charter at its core. Earlier this morning, we had the opportunity to pay tribute to Mahatma Gandhi. And I reflected upon his words which still hold true today: “Peace will not come out of a clash of arms but out of justice lived and done by unarmed nations in the face of odds.” Our summit reaffirmed our commitment to supporting efforts towards a comprehensive, just and lasting peace in Ukraine. One that fully respects Ukraine’s independence, sovereignty and territorial integrity. This is a key moment. We are supporting all efforts to reach a just and sustainable peace. Ukraine has shown its readiness, including at the cost of difficult compromises. I know, dear Prime Minister, that we can count on you to help create the conditions for peace, through dialogue and diplomacy. And this is my final message: together we must show leadership on global issues. Cooperation between the European Union and India will help shape a more balanced, resilient, and inclusive global order. Just two examples: I am proud of the commitments we are making for greater cooperation on clean energy, green transition, and climate resilience. And our collaboration through the Global Gateway and on the India–Middle East–Europe Economic Corridor is decisive for global connectivity. By implementing the ambitious Joint Comprehensive Strategic Agenda towards 2030, we will align our priorities with concrete actions for the next five years: delivering real benefits to our citizens. Today, we have tangible progress and set an example of cooperative leadership on global issues. With: • our Free Trade Agreement; • our Security and Defence Partnership; and • our Joint Strategic Agenda for 2030. These outcomes are a crucial milestone on a longer path. We look forward to continuing the journey. Together, as always. Thank you very much. Press statement by President António Costa following the EU–India Summit, 27 January 2026. © European Union / Council of the EU. Reproduced with permission; original meaning preserved.

As the US powers ahead with its plans to recover Latin America’s ‘oil El Dorado’, we explore Venezuela’s environmental and geopolitical outlook. “Uninvestable”. That was the verdict on Venezuelan oil delivered by Exxon’s CEO, Darren Woods, earlier this month. He was speaking at the White House with the US president Donald Trump and representatives from 17 oil companies. Nevertheless, following the extraction of Venezuela’s president, Nicolás Maduro, Trump plans to revive the country’s flailing industry. He says a USD 100 billion investment will be geared towards resurrecting the “oil El Dorado” of the 1990s. He has takers. After Woods’ White House comments, the US energy secretary Chris Wright said the US oil and gas company Chevron, the UK’s Shell, Spain’s Repsol and Italy’s Eni were all willing to “immediately increase” investment in Venezuela. He added that a dozen other companies were also interested, while dismissing the doubts expressed by Exxon and ConocoPhillips. Any company following Trump to the country will have to deal with uncertainty – and the estimated USD 1 billion cost of the failed nationalizations enacted by Venezuela’s former president, Hugo Chávez. According to Venezuela’s Centre for the Dissemination of Economic Information (Cedice), the government expropriated several thousand between 1999 and 2019. Independent experts estimate the bill for success will reach USD 180 billion – nearly double that announced by Trump. On the other hand, some companies will be encouraged by successful gas operations in Venezuela. For example, the Perla (Cardón IV) field, which covers the entire domestic demand for gas and is operated by Repsol. And Chevron has been able to continue operating in the country, despite a barrage of economic sanctions initiated by the US under Trump in 2017. Demands and first legal changes Trump has claimed the US could be making money from Venezuelan oil in 18 months. Venezuelan oil experts say this will require a fiscal and contractual framework that does not exist today, and a decade of “arduous democratic work”. The economist José Manuel Puente estimates it will require an investment of USD 180 billion and 15 years of institutional work. Patrick Pouyanné, CEO of the French oil company TotalEnergies, thinks similarly. Without a legal framework that guarantees rights, he says, it would be too expensive and slow to return to production of three million barrels a day. Last week, Venezuela’s interim government responded by announcing that the acting president, Delcy Rodríguez, will send a new Hydrocarbons Law to the national assembly, as well as another for streamlining procedures. The interim government’s strategy is to further “production sharing contracts”. These would allow foreign companies to recover their investments by selling a portion of the extracted crude oil. However, interested foreign oil companies are pushing for greater changes. Reuters has reported that they are seeking to reduce the tax burden by returning to a royalty payment model. They also want the right to sell the majority of the oil, by gaining access to export infrastructure. This infrastructure, currently dilapidated and faulty, includes thousands of kilometers of oil and gas pipelines, 16 shipping terminals, 153 gas compression plants and six large oil refineries. The economy responds Following the capture of Maduro, the Caracas stock market benefitted from a 124% rise, accompanied by a fall in the black market exchange rate. This has been attributed to news that the first sale of Venezuelan oil through the US will generate USD 330 million. This will go to five private Venezuelan banks through the Central Bank of Venezuela. To facilitate this, Rodríguez has announced the creation of two sovereign funds. One will raise the salaries of public employees; the other will address Venezuela’s frequently deficient public services. The minimum wage in Venezuela is VES 130 (USD 0.38) per month. In May 2025, Maduro decreed a “minimum comprehensive indexed income” for public workers of USD 160 per month. This was to be issued through special bonds paid in Venezuelan bolívars at the official exchange rate. In the private sector, the average income was USD 237 per month at the beginning of 2025. The interim government has announced a host of other changes, including the modification of eight legal codes. For her part, the acting president has announced reforms to laws on electricity services and industrial intellectual property. She has also made reference to legislation on agreed prices and socio-economic rights, which aim to maintain a mixed economic model that combines openness with state involvement. Whether these reforms will bring the stability US oil companies need to safely (and profitably) operate remains to be seen. Logistics and corruption Venezuelan oil is plentiful, but it is also of poor quality. The estimated 300 billion barrels in the reserves of the Orinoco belt – the largest oil deposit in the world – consist of heavy and extra-heavy crude oil. These are the most difficult to extract, transport and refine. This has raised doubts among experts, who point to the need for maritime insurance, as well as the risks attached to the poor condition of the country’s pipelines and other facilities. Whether this oil will be refined in Venezuela or shipped to refineries in the United States is another uncertainty. As Patrick Galey, head of fossil fuel investigations for the climate justice campaign group Global Witness, wrote earlier this month: “You would have to be forced at gun point to try to make money from [Venezuelan oil].” Then there are security concerns. Despite Trump’s promise of protection for oil companies, his administration has advised its citizens to leave the country over Chavista militia kidnap fears. The administration is considering the use of private companies to secure oil facilities. It is still difficult to know whether a transition to democracy is possible and when elections can be held. As things stand, Venezuela continues to be run by the same government that has accumulated dozens of corruption cases. For example, a scandal implicating executives of PDVSA (Venezuela’s state oil company) in illegal activities related to cryptocurrencies led to USD 16 billion in losses. Meanwhile, a railway network funded using billions of dollars worth of Chinese investment has never been completed. The role of China Venezuela has played a key role in the story of Chinese investment in South America, becoming its biggest debtor. Following the actions of the US government, Venezuela finds itself once again split between superpowers. Venezuelan imports account for just 3% of China’s total crude oil purchases, according to an analysis published this month by the Center on Global Energy Policy – a think-tank based at Columbia University in the US. But the analysis also highlights the importance of these imports to China’s “teapot refineries”, which specialize in processing unconventional crude oil. Venezuela’s debt to China is estimated to be between $10 billion and $19 billion. This is being paid off slowly with crude oil shipments, prompting Chinese officials to approach their Venezuelan and US counterparts to try and obtain payment guarantees. Some analysts have suggested that a stabilizing of Venezuela’s economic situation and a lifting of US sanctions could actually increase the chances of Chinese development banks recouping their investments. The environmental issue, pending The full environmental impacts of a Venezuelan oil recovery are unclear. While it would not involve exploitation in new protected areas or Indigenous territories, significant concerns remain. These include the tens of millions of dollars’ worth of methane gas that leaks from damaged pipelines, as reported by Bloomberg Green. And more methane gas is lost through flaring, for which Venezuela ranks fifth worldwide. Some onlookers have suggested that greater transparency and better technology could improve this situation. This view is not shared by Juan Carlos Sánchez, co-winner of the 2007 Nobel Peace Prize for his work as an Intergovernmental Panel on Climate Change author. Sánchez, who also worked at PDVSA for 21 years, told Dialogue Earth he does not foresee a positive environmental scenario: Trump promotes climate denialism, while the track records of oil companies operating in other Latin American countries are littered with environmental damage. “In my experience, when oil companies decide to cut costs to increase profits, the budgets that are most affected are environmental projects,” said Sánchez. Moreover, he adds, Venezuela lags considerably in terms of institutional frameworks regarding climate change. “Only a Venezuelan government that is genuinely interested in environmental issues and policies will be able to demand environmental safeguards in the future.” References Business Insider. (2026, January 22). Exxon CEO calls Venezuela ‘uninvestable’ during meeting with Trump. Business Insider. https://www.businessinsider.com El País. (2026, January 22). 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I. Introduction The European economy is in big trouble. Szu Ping Chan and Hans van Leeuwen, the economics editors of the Telegraph, a British daily newspaper, claim that the European Continent is stuck on a path of disastrous decline. [1] As Figure 1 shows, EU share of world GDP has continued to decline from 27% in 1990 to 17% in 2024.  Figure 1: EU share of World GDP (source: IMF) As a result, EU’s GDP in 2000 was six times larger than Chinese GDP, but EU’s GDP in 2025 is expected to reach the similar level of China’s GDP as Figure 2 shows. EU’s GDP in 2000 was $3 trillion smaller than US GDP, but EU’s GDP in 2025 is expected to be over $ 10 trillion smaller than US GDP.  Figure 2: EU, US, China, Japan GDP, 2000 & 2025 (source: Alcott Global) Moreover, the Ukraine war in 2022 brought more uncertainty to Europe by creating energy problems for the European economy. Europe’s reliance on external energy sources has been a long-standing issue. The energy crisis that began in 2021, fueled by the Ukraine war and climate change, has exposed how fragile the region’s energy infrastructure remains. Skyrocketing LNG prices, unreliable renewable energy production, and Russia’s strategic use of fossil fuels as leverage have left the European continent struggling with record-high energy costs. With this information in background, this paper explores why the European economy has under-performed and fallen behind. This paper first describes the current economic situation of Europe and explains why the European economy has failed. II. The Current Situation of European Economy Europe may be a great place to live with free health care, generous welfare, and great cities. However, when we compare the economy of three major economies, the US, Europe, and China, it is obvious that the European economy is in big trouble. Europe is being squeezed by the US and China. As Figure 3 shows, economic growth has been anemic across Europe. Germany has been its worst performer in recent years. The German economy is the same size today as it was in the fourth quarter of 2019. In other words, it has had five years of lost growth. But the rest of Europe has not fared much better. The French economy is only 4.1% larger than it was in the final quarter of 2019, while Italy’s economy is 5.6% bigger. (See Figure 3.) And while Spain’s GDP has increased by 6.6% since then, this has been helped greatly by an influx of immigration that meant that GDP per capita has increased by only 2.9% over the same period. By contrast, the US economy has grown by 11.4%.  Figure 3: Real GDP (Q4 2019 = 100) (Source: LSEG, Capital Economics) As Figure 4 shows, over the period 2020-2024, the EU’s total GDP growth was 12.2% compared to 23.4% for China, 15% for the US.  Figure 4: Growth, EU, US, China, and Japan, 2020-2024 As Figure 5 shows, the EU grew only 1.1% in 2024 compared to 2.8% for the US and 5.0% for China. Figure 5: GDP growth, EU, US, China, and Japan, 2024 Moreover, when we compare the economies of two Western rivals, the US and Europe, it is obvious that the EU has grown slower than the US, as Figure 6 shows.  Figure 6: US grow faster than EU countries, 2010-2024 (source: World Bank) As Figure 7 shows, Europe’s unemployment has been higher than the US.  Figure 7: EU unemployment is higher than US, 2000-2024 As Figure 8 shows, Europe’s LNG price has been higher than US price during the 2020-2024, and higher than Asian price immediately after Russia invaded Ukraine, thereby burdening the European economy.  Figure 8: LNG price, EU, US, Asia, January 2000-January 2024 Furthermore, when it comes to new engines of growth – big tech, AI, electric cars, Europe has slipped behind both the US and China. Europe is being squeezed by cheaper imports in China and better tech in America. III. Causes of the Failure of European Economy Why has the European economy failed? According to Neil Shearing, a chief economist of Capital Economics, Europe’s under-performance has been due in part to the effects of the energy crisis following Russia’s invasion of Ukraine as Figure 9 shows Europe’s skyrocketing gas prices. [2]  Figure 9: Natural gas prices, Europe, US, Japan, January 2021- end 2024 In addition, as Figure 10 shows, energy prices in the Euro area reached an all time high of 171.75 points in October of 2022 following the Ukraine war. It decreased to 145.49 points in November 2025, but it is still too high.  Figure 10: Energy price, Euro zone (source: Eurostat) As Table 1 shows, dependence on energy imports has shown divergent trends since 2000: The US has dramatically reduced its reliance on energy imports and become a net exporter, while the European Union has maintained a high level of energy dependence, and China’s dependence has generally increased along with its enormous economic growth. The US has undergone a remarkable transformation. Around 2005, US crude oil imports reached a peak at about 60% of their consumption. Thanks to the shale revolution and growing renewable energy use, US domestic production soared, and the US became a net energy exporter in 2019. By 2024, US energy imports made up only 17% of its energy demand. China’s rapid economic growth has driven a massive increase in energy demand. As a result, its dependence on energy imports has increased significantly since 2000. China is the world’s largest importer of crude oil. While China is also the leading investor in renewable energy, which meets a portion of its growing energy demand, the absolute need for fossil fuel imports to power its industrial sector remains high. In 2024, energy imports met around 25% of their total energy demand. Table 1: Dependence on Energy Imports, 2000–2025 As Figure 11 shows, the EU consistently shows high dependence on energy imports over the last three decades during the 1993-2024 period. The EU’s dependence on oil and gas imports have been much higher than the US and China. EU’s dependence on oil imports was over 90%, while EU’s gas import dependence reached over 90% in 2023 following the Ukraine war. While the EU has made progress in renewable energy, it remains heavily reliant on oil and gas imports, and has recently shifted its import sources from Russia to other partners such as the US and Norway. This high dependence on energy imports and energy crisis in Europe following the Ukraine war led to a deterioration in the region’s terms of trade that manifested itself in a large squeeze in real incomes and loss of competitiveness of energy-intensive industries, thereby lowering economic growth in Europe.  Figure 11: Dependence on energy imports, EU, US, and China, 1993-2024 In addition, European households have also become more reluctant to spend, thereby leading Europe to lower growth. The household saving rate in Europe is now three percentage points higher than it was before the Covid-19 pandemic in 2019, while the savings rate in the US is now lower than it was in 2019. (See Figure 12.) The tendency of Europeans to spend less leads to lower growth in Europe.  Figure 12: Euro-zone household savings rate (% of disposable income) However, the weakness of the European economy is fundamentally structural. There are several elements to this. The first key issue related to low growth in Europe is regulation in Europe that stifles competition and innovation. The EU has become increasingly protectionist, mainly through regulation. While convenient, this strategy proves counterproductive. It eliminates the incentives for creativity and efficiency. The Digital Services Act and increasingly narrow interpretations of the General Data Protection Regulation (GDPR) were intended to rein in US tech giants, but have instead held Europe back in these same sectors. The AI Act and supply chain laws are similarly damaging. It is perhaps no surprise that the major disruptive and innovative firms of the past two decades have come from the US and China rather than from the Euro-zone countries. Robot taxis are a good example. One in three taxi rides in California is already in a robot taxi. The growth has been exponential and they are set to overtake ordinary taxis. The market opportunity is huge; they will be cheaper than paying a driver. In Texas, Tesla charges just a dollar a mile. They are safer too – 90% fewer accidents. And that means cheaper car insurance. They will save income, decrease emissions and reduce the need to buy an expensive car. It’s not just America; 2,000 self-driving cars have already been transporting millions across the big cities in China. But, for Europeans, the idea of a self-driving car, is still the stuff of science fiction. Or more accurately, something blocked by the European love of regulation, risk-aversion, and a powerful car lobby still stuck in the combustion engine era. [3] Another example is the tech industry. Europe is hampered by fragmented and excessive regulation. A US start-up can launch a product under a single regulatory framework and immediately access a market of more than 330 million consumers. The EU has a population of about 450 million but remains divided among 27 national regulatory regimes. An IMF analysis shows that internal market barriers in the EU act like a tariff of around 44% for goods and 110% for services – far higher than the tariff levels that the US imposes on most imports. [4] True, Europe has some successes such as Revolut, Klarna and Spotify, but these are dwarfed by the US giants of Meta, Google, Microsoft and Apple. Today, approximately half of the world’s 50 largest technology firms are American, while only four are European companies. [5] Over the past five decades, 241 US firms have grown from start-ups into massive unicorn companies. The EU’s response has been to seek to regulate the murky world of big tech surveillance, but in a way, the sledgehammer of GDPR regulation has done more to increase costs for local European business and tech startups as Figure 13 shows. While California alone has produced a quarter of the world’s tech unicorns, Germany-a similarly sized economy-has produced just 2% of high-value start-ups. Without urgent reform, Europe risks being sidelined in the global technological race.  Figure 13: GDPR regulation and EU & US Venture capital There is an old saying: the US invents, China imitates, and Europe regulates. Harsh, but an element of truth. Though the big change is that China no longer imitates, but produces goods much cheaper than in Europe. But Europe is still stuck in a regulatory mind-set. The result is that productivity growth in Europe - which is the key determinant of economic growth over the long run - is substantially lower, averaging 0.3% a year over the past decade compared to 1.6% a year in the US. The second issue is Europe’s insufficient investment in new technologies (computers, artificial intelligence (AI), software, etc.) and the low level of spending on research and development (R&D). When we compare OECD countries, we see that these two components have a strong influence on productivity differences between countries. The econometric estimate leads to the following effects: a 1- point increase in the rate of investment in new technologies leads to a 0.8 point increase per year in productivity gains. In a similar way, a 1-point increase in GDP for research and development (R&D) expenditure leads to a 0.9 point increase per year in productivity gains. [6] The fear is that Europe will be drawn into a vicious circle By 2022, investment in new technologies represented 5% of GDP in the US and 2.8% of GDP in the Euro zone. The EU’s efforts in advanced technologies, such as AI and cloud computing, far from match those of the US. The main instrument available to the EU, the European Innovation Council, had a budget of 256 million euros in 2024, while the US allocated more than 6 billion dollars for this purpose. The situation is repeated when looking at venture capital investment. In 2023, they invested about $8 billion in venture capital in AI in the EU, compared to $68 billion in the US and $15 billion in China. The few companies that create generative AI models in Europe, such as Aleph Alpha and Mistral, need large investments to avoid losing the race to US firms. However, European markets do not meet this need, pushing European firms to look outside for funding. [7] As a result, for example, the EU has been losing the open model contest as Figure 14 shows.  Figure 14: Cumulative downloads, 2023-25 (source: ATOM project, Hugging Face) Moreover, the EU falls behind the US and China in terms of R&D spending. R&D spending in 2022 amounted to 3.5% of GDP in the US and 2.3% of GDP in the Euro zone. What’s more, from 2007 on, as Figure 15 shows, R&D spending in the US and China increased significantly compared to that of the Euro zone. The lag in technological investment and R&D explains a large part of Europe’s lag behind the US in terms of labor productivity and GDP. [8]  Figure 15: Gross domestic spending on R&D, 2007-2023 The third issue related to lower growth in Europe is the size of welfare states in Europe. The size of welfare states differs markedly across OECD countries. European countries have the largest welfare states in the OECD and among the highest in the World. As Figure 16 shows, European welfare states are significantly larger than in the US, with EU countries allocating approximately 27% of GDP to social benefits in 2024, compared to roughly 19.8% in the US. Some European countries like Austria, Finland, and France spend over 30% of GDP on social benefits in 2024. While the US spends 7% of GDP on public provision of pensions, it is 16% in Italy and it is 13% in France.  Figure 16: Public social spending as a % of GDP in 2024, EU countries & US Big welfare states have a complex, debated impact on economic growth, with evidence showing they can both impede growth through higher taxes and reduced work incentives, or foster it by boosting education, stability, and innovation. However, there has recently been a groundswell of opinion among economists that the scale of the welfare state is one of the elements responsible for slower economic growth and that a retrenchment in the welfare state is necessary if growth will be revived in Europe. The welfare state is indicted with the charge of becoming a barrier to economic growth in Europe through higher taxes and reduced work incentives. As Figure 17 shows, the tax burden is higher in the EU than in the US for most taxpayers. The overall tax-to-GDP ratio for the EU averages approximately 44%. By contrast, the US ranks as one of the lowest among developed countries, with a tax-to-GDP ratio 35% in 2022 approximately 9% lower than the EU average.  Figure 17: Tax burden, EU and US, 2022 (source: OECD Government at a glance, 2023) Figure 18 shows the total tax wedge for average single workers in each member country of EU. Belgium, Germany, Austria, and France confiscate more than half of their workers’ pre-tax compensation. Compared to the EU member countries, workers in the US face the lowest average tax wedge. This distorts work incentives for Europeans and renders everyone in Europe poorer. [9] High taxes and less work incentives make EU citizens spend less than US citizens, thereby lowering economic growth in Europe as Figure 19 shows.  Figure 18: EU workers pay more taxes than US workers, 2022 (source: OECD Government at a glance, 2023)  Figure 19: Americans spend 70% more on EU citizens (Average individual consumption per capita, 2020; United States indexed to 100). (source: National Accounts of OECD countries) In fact, Gwartney, Holcombe and Lawson (1998) showed empirically that as the size of general government spending has almost doubled on average in OECD countries from 1960 to 1996, their real GDP growth rates have dropped by almost two thirds on average (see Figure 20). According to them, the worst economic performers were some Southern European countries that increased the size of the government the most.  Figure 20: Big government spending reduces growth. At the height of the Euro-zone crisis in 2012, German Chancellor Angela Merkel tried to make the case that Europe’s welfare states were too large, as Europe accounted for 7% of the global population, for a quarter of global GDP and for 50% of global social spending. The situation has not improved since then. On September 9, 2024, Draghi presented his report “The Future of European Competitiveness,” a 400-page document, to deal with Europe’s sluggish economy, but he kept untouched Europe’s over-sized welfare state, while he strongly called for reforms and investments to reinforce productivity growth. [10] The fourth issue is the Euro. The Euro has been a mixed blessing for Europe. It lowers transaction costs but highlights an unbalanced EU economy. Germany runs a large current account surplus, fringe economies like Portugal and Greece running deficits. But there is no scope for Germany to appreciate, weaker countries to devalue. One size fits all. But, this can have disastrous effects. The Euro Debt Crisis of 2012, led to high bond yields and a response of austerity, which contributed to weak growth in the last decade. Mario Draghi’s intervention reduced bond yields, but the European Central Bank has been criticized for a deflationary bias, and it has certainly struggled since the Covid-19 era, with growth in Europe much less. IV. Conclusion This paper showed that the European economy is in big trouble with lower growth. This paper explained that Europe’s economic under-performance & sluggish economy can be attributed to energy crisis and high saving, as well as over-regulation, large size of welfare state & high taxation, and lack of innovation & low investment in new technology and R&D. Referencias [1] https://www.telegraph.co.uk/business/2025/12/14/rising-fear–europe-really-is-doomed-and -taking-britain-down/ [2] https://www.capitaleconomics.com/blog/its-not-just-france-europe–faces-ongoing-decline- without-fundamental-reform-its-core [3] https://www.capitaleconomics.com/blog/its-not-just-france-europe–faces-ongoing-decline- without-fundamental-reform-its-core [4] https://www.project-syndicate.org/commentary/europe-most-serious-problem-not-immigra tion-but-technological-backwardness-by-nouriel-roubini-2025-12 [5] https://www.project-syndicate.org/commentary/europe-most-serious-problem-not-immigra tion-but-technological-backwardness-by-nouriel-roubini-2025-12 [6] https://www.polytechnique-insights.com/en/columns/economy/economy-why-europe-is-falllling-behind-the-usa/ [7] https://www.polytechnique-insights.com/en/columns/economy/economy-why-europe-is-fall ing-behind-the-usa/ [8] https://www.polytechnique-insights.com/en/columns/economy/economy-why-europe-is-fall ing-behind-the-usa/ [9] https://mises.org/mises-wire/europes-economy-slows-its-welfare-state-grows [10] https://www.csis.org/analysis/draghi-report-strategy-reform-european-economic-model

1. Introduction The relationship between China and Africa has become one of the most influential geopolitical dynamics of the 21st century. For China, Africa represents a strategic source of raw materials, an emerging market of 1.4 billion people, and a key partner for strengthening its political influence within international organizations. For Africa, China has represented an alternative to traditional Western financing, capable of offering infrastructure, investment, and trade openness without explicit political conditions. However, this relationship has also generated debates regarding economic dependency, debt risks, and the real balance between mutual benefit and power. 2. Theoretical Framework: Realism, Core–Periphery, and Interdependence 2.1 Realism From a realist perspective, China’s engagement can be interpreted as a strategy to strengthen state power, secure energy resources, increase its influence vis-à-vis the United States, and promote international recognition of the People’s Republic of China over Taiwan. 2.2 Core–Periphery Theory Following Wallerstein, the China–Africa relationship reflects a core–periphery dynamic: China, as an industrialized country with high technological capacity, occupies the core, while African states, as exporters of raw materials, occupy the periphery. However, China seeks to project a narrative of mutual benefit in order to differentiate itself from former European colonial powers. 2.3 Power Transition Theory China’s rise demonstrates how an emerging power can alter the international system. Examples include Deng Xiaoping’s economic opening (1978), accelerated industrialization, and strategic global integration through the Belt and Road Initiative (BRI). 3. Historical Evolution of the China–Africa Relationship The formal relationship was consolidated in the 1960s, but it was significantly strengthened in the 21st century through mechanisms such as the Forum on China–Africa Cooperation (FOCAC), established in 2000. This period has been characterized by billions of dollars in foreign direct investment and the integration of African ports into the New Silk Road. Africa came to view China as a non-colonial partner, while China found diplomatic support that enabled it to occupy China’s seat at the United Nations in 1971 as the “legitimate China.” 4. Key Data and Statistics of the China–Africa Economic Relationship From a realist perspective, the volume of China’s trade and investment in Africa does not respond solely to economic dynamics, but rather to a deliberate strategy of accumulating structural power. Secured access to oil, critical minerals, and strategic metals is essential for sustaining China’s industrial growth and reducing its vulnerability to external disruptions, particularly in a context of systemic competition with the United States. Likewise, from a core–periphery perspective, the composition of bilateral trade reproduces classic patterns of unequal exchange, in which Africa continues to export primary goods with low value added while importing manufactured goods and technology. Although China discursively distances itself from European colonialism, the data suggest that the structure of exchange maintains asymmetries that may limit the autonomous industrial development of the African continent. 4.1 Bilateral Trade Trade between China and Africa reached USD 282 billion in 2023, making China the continent’s largest trading partner. African exports to China consist of approximately 70% oil, minerals, and metals. China primarily exports machinery, textiles, electronics, and vehicles. 4.2 Investment and Infrastructure Projects Between 2013 and 2023, China financed more than 10,000 km of railways, 100,000 km of roads, and over 100 ports in Africa. China is responsible for approximately 31% of total infrastructure investment on the continent. 4.3 Debt Africa’s debt to China amounts to approximately USD 73 billion. In countries such as Angola and Kenya, Chinese debt accounts for more than 20% of their total external debt. 5. Country-Specific Examples The cases of Ethiopia, Kenya, Angola, and Zambia demonstrate that China’s cooperation is not homogeneous, but rather strategically differentiated according to each country’s geopolitical and economic importance. Ethiopia, as Africa’s diplomatic hub and host of the African Union, is key to China’s political projection on the continent. Kenya and Angola stand out for their logistical and energy value, respectively, while Zambia illustrates the financial limits of this model of cooperation. From the perspective of interdependence theory, these relationships generate mutual benefits, but in an asymmetric manner: China diversifies trade routes, secures resources, and expands its influence, while African countries obtain infrastructure, often at the cost of increased financial vulnerability. In this sense, Africa is not merely a passive recipient, but a central space in the architecture of China’s global rise. 5.1 Ethiopia: A Symbol of Cooperation Ethiopia is one of China’s main allies in Africa. The Addis Ababa–Djibouti railway represents an investment of approximately USD 4 billion, almost entirely financed by China. In 2022, Ethiopia exported more than USD 200 million in agricultural and mineral products to China. 5.2 Kenya: Infrastructure and Debt The Mombasa–Nairobi railway, valued at approximately USD 3.6 billion, is the most expensive infrastructure project in Kenya’s history. Kenya owes China around USD 6.3 billion, equivalent to nearly 20% of its external debt. 5.3 Angola: Oil as Collateral Angola is one of China’s main oil suppliers. A significant portion of Angola’s debt to China is repaid through oil shipments, creating a form of structural dependency. 5.4 Zambia: Risk of Over-Indebtedness Zambia was the first African country to fall into default in the post-pandemic period. China is its principal bilateral creditor, with more than USD 6 billion in outstanding loans. 6. The New Silk Road in Africa Africa’s incorporation into the Belt and Road Initiative (BRI) should be understood as an extension of China’s broader project to reconfigure the international system. Maritime and port corridors in East Africa not only facilitate trade, but also reduce China’s dependence on routes controlled by Western powers, thereby strengthening its strategic autonomy. East Africa is central to the maritime expansion of the BRI. It offers strategic ports in Djibouti, Kenya, Tanzania, and South Africa, as well as new maritime corridors that allow China to connect Asia with the Red Sea and the Mediterranean. For African countries, this integration represents greater commercial connectivity, access to modern infrastructure, and regional logistical opportunities. From the perspective of power transition theory, the BRI in Africa constitutes a key instrument through which China consolidates its position as an emerging global power, gradually displacing the traditional influence of Europe and the United States on the continent. For Africa, this integration offers opportunities for connectivity and development, while simultaneously reinforcing its centrality as a space of global geopolitical competition. 7. Criticisms of China’s Role in African Debt 7.1 Accusations of “Debt-Trap Diplomacy” China is accused of using large-scale loans to obtain strategic influence, as illustrated by the case of the Hambantota Port in Sri Lanka, although it lies outside the African continent. Similar concerns exist in Kenya regarding the port of Mombasa. Accusations of “debt-trap diplomacy” must be analyzed beyond normative discourse. While not all cases confirm a deliberate strategy of financial domination, the concentration of debt in a single creditor limits the room for maneuver of African states, especially in times of crisis. From a structural perspective, debt becomes a mechanism of indirect influence that can translate into political concessions, preferential access to resources, or diplomatic alignments favorable to China in international forums. Nevertheless, it is also true that responsibility lies partly with African governments, whose negotiation capacity and strategic planning are decisive in avoiding scenarios of prolonged dependency. 7.2 Lack of Transparency Loan contracts may include confidentiality clauses, resource-backed guarantees, and high penalties for renegotiation. 7.3 Long-Term Dependency For fragile states, the concentration of debt in a single creditor limits political and economic autonomy over the long term. 7.4 China’s Position China rejects these accusations and maintains that it has renegotiated and forgiven billions of dollars in debt. It argues that its loans are long-term, carry moderate interest rates, and that its cooperation is based on “mutual benefit” rather than imposition. 8. Conclusion The China–Africa relationship is complex, strategic, and multidimensional. It presents significant opportunities for African development, but also poses risks related to debt, economic dependency, and political influence. The challenge for Africa is to negotiate from a stronger position, diversify its partners, and ensure that agreements with China translate into sustainable long-term development. The core–periphery relationship between China and Africa constitutes one of the most relevant axes of the contemporary international system. Through trade, investment, infrastructure, and financing, China has consolidated itself as a central actor in African development while simultaneously strengthening its global projection as an emerging power. For African countries, this relationship offers real opportunities for growth, modernization, and integration into the global economy. However, these benefits will only be sustainable if accompanied by national strategies aimed at productive diversification, financial transparency, and collective negotiation vis-à-vis external actors. Looking toward the future of the international system, China–Africa cooperation reflects a transition toward a more multipolar order, in which emerging powers challenge traditional structures of power. Africa, far from being a peripheral actor, is emerging as a decisive space in the redefinition of global balances. The central challenge will be to transform this centrality into autonomy and sustainable development, avoiding the reproduction of old dependencies under renewed narratives. References - Castro, G. (2022). EL ASCENSO DE CHINA Y LAS TEORÍAS VERTICALES DE RELACIONES INTERNACIONALES: CONTRASTANDO LAS LECCIONES DE LAS TEORÍAS DE LA TRANSICIÓN DE PODER Y DEL CICLO DE PODER. 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Every few years since 1953, the Chinese government has unveiled a new master strategy for its economy: the all-important five-year plan. For the most part, these blueprints have been geared at spurring growth and unity as the nation transformed from a rural, agrarian economy to an urbanized, developed powerhouse. The task that faced China’s leaders as they met in early October 2025 to map out their 15th such plan was, however, complicated by two main factors: sluggish domestic growth and intensifying geopolitical rivalry. Their solution? More of the same. In pledging to deliver “high-quality development” through technological self-reliance, industrial modernization and expanded domestic demand, Beijing is doubling down on a state-led model that has powered its rise in recent years. President Xi Jinping and others who ironed out the 2026-2030 plan are betting that innovation-driven industrial growth might secure China’s future, even as questions loom about underpowered consumer spending and mounting economic risks. As an expert on China’s political economy, I view China’s new five-year plan as being as much about power as it is about economics. Indeed, it is primarily a blueprint for navigating a new era of competition. As such, it risks failing to address the widening gap between surging industrial capacity and tepid domestic demand. High-tech dreams At the heart of the new plan are recommendations that put advanced manufacturing and tech innovation front and center. In practice, this means upgrading old-line factories, automating and “greening” heavy industry and fostering “emerging and future industries” such as aerospace, renewable energy and quantum computing. By moving the economy up the value chain, Beijing hopes to escape the middle-income trap and cement its status as a self-reliant tech superpower. To insulate China from export controls put in place by other countries to slow China’s ascent, Beijing is doubling down on efforts to “indigenize” critical technologies by pumping money into domestic companies while reducing dependence on foreign suppliers. This quest for self-reliance is not just about economics but explicitly tied to national security. Under Xi, China has aggressively pursued what the Chinese Communist Party calls “military-civil fusion” – that is, the integration of civilian innovation with military needs. The new five-year plan is poised to institutionalize this fusion as the primary mechanism for defense modernization, ensuring that any breakthroughs in civilian artificial intelligence or supercomputing automatically benefit the People’s Liberation Army. Reshaping global trade China’s state-led push in high-tech industries is already yielding dividends that the new five-year plan seeks to extend. In the past decade, China has surged to global leadership in green technologies such as solar panels, batteries and electric vehicles thanks to hefty government support. Now, Beijing intends to replicate that success in semiconductors, advanced machinery, biotechnology and quantum computing. Such ambition, if realized, could reshape global supply chains and standards. But it also raises the stakes in China’s economic rivalry with advanced economies. Chinese prowess in building entire supply chains has spurred the United States and Europe to talk of reindustrialization to avoid any overreliance on Beijing. By pledging to build “a modern industrial system with advanced manufacturing as the backbone” and to accelerate “high-level scientific and technological self-reliance,” the new plan telegraphs that China will not back down from its bid for tech dominance. An elusive rebalancing What the plan gives comparatively modest attention, however, is the lack of strong domestic demand. Boosting consumer spending and livelihoods gets little more than lip service in the communiqué that followed the plenum at which the five-year plan was mapped out. Chinese leaders did promise efforts to “vigorously boost consumption” and build a “strong domestic market,” alongside improvements to education, health care and social security. But these goals were listed only after the calls for industrial upgrading and tech self-sufficiency – suggesting old priorities still prevail. And this will disappoint economists who have long urged Beijing to shift from an overt, export-led model and toward a growth model driven more by household consumption. Household consumption still accounts for only about 40% of gross domestic product, far below advanced-economy norms. The reality is that Chinese households are still reeling from a series of recent economic blows: the COVID-19 lockdowns that shattered consumer confidence, a property market collapse that wiped out trillions in wealth, and rising youth unemployment that hit a record high before officials halted the publication of that data. With local governments mired in debt and facing fiscal strain, there is skepticism that bold social spending or pro-consumption reforms will materialize anytime soon. With Beijing reinforcing manufacturing even as domestic demand stays weak, the likelihood is extra output will be pushed abroad – especially when it comes to EVs, batteries and solar technologies – rather than be absorbed at home. The new plan is cognizant of the need to maintain a strong manufacturing base, particularly among beleaguered industrial farms and other older industries struggling to stay afloat. As such, this approach may prevent painful downsizing in the short run, but it delays the rebalancing toward services and consumption that many economists argue China needs. Ripple effects Beijing has traditionally portrayed its five-year plans as a boon not only for China but for the world. The official narrative, echoed by state media, emphasizes that a stable, growing China remains an “engine” of global growth and a “stabilizer” amid worldwide uncertainty. Notably, the new plan calls for “high-level opening-up,” aligning with international trade rules, expanding free-trade zones and encouraging inbound investment – even as it pursues self-reliance. Yet China’s drive to climb the technological ladder and support its industries will likely intensify competition in global markets – potentially at the expense of other countries’ manufacturers. In recent years, China’s exports have surged to record levels. This flood of cheap Chinese goods has squeezed manufacturers among trading partners from Mexico to Europe, which have begun contemplating protective measures. If Beijing now doubles down on subsidizing both cutting-edge and traditional industries, the result could be an even greater glut of Chinese products globally, exacerbating trade frictions. In other words, the world may feel more of China’s industrial might but not enough of its buying power – a combination that could strain international economic relations. A high-stakes bet on the future With China’s 15th five-year plan, Xi Jinping is making a strategic bet on his long-term vision. There is no doubt that the plan is ambitious and comprehensive. And if successful, it could guide China to technological heights and bolster its claim to great-power status. But the plan also reveals Beijing’s reluctance to depart from a formula that has yielded growth at the cost of imbalances that have hurt many households across the vast country. Rather than fundamentally shift course, China is trying to have it all ways: pursuing self-reliance and global integration, professing openness while fortifying itself, and promising prosperity for the people while pouring resources into industry and defense. But Chinese citizens, whose welfare is ostensibly the plan’s focus, will ultimately judge its success by whether their incomes rise and lives improve by 2030. And that bet faces long odds.

Coca-Cola and Pepsi are among the most recognized and consumed soft drinks in the world, with Coca-Cola leading as the global favorite (World Population Review, 2025). However, in recent years, geopolitics has shaped their presence in certain regions, particularly in the Middle East and Muslim-majority countries. The reason behind this is interesting, these brands are often seen or associated with the United States (Hebblethwaite, 2012), a nation whose fame in these regions has always been questioned and been controversial, and whose policies in the region have long sparked controversy and criticism. Overview of Coca-Cola and Pepsi in the US Coca-Cola was born on May 8th, 1886, when Dr. John Pemberton delivered his newly perfected syrup to Jacob’s Pharmacy in downtown Atlanta, USA. After 139 years, what started as medicine evolved into the iconic soft drink that is enjoyed in more than 200 countries and territories every day (The Coca Cola Company, 2025). On the other hand, a few years later, in 1893, Brad’s drink, later rebranded as Pepsi-Cola, was invented in New Bern, North Carolina, USA by Caleb Brandham, as an aid in digestion (History of the Birthplace, 2018). Pepsi’s presence worldwide also covers more than 200 countries and territories and can be said it is Coca-Cola’s closest rival. While these brands have built a reputation, they have a long history, their competition has been fierce to the dominance of their market across the globe. The term “Cola Wars” represents this fierce competition. Cola wars gained global attention and likely reached their peak around the 1970s and 1980s in the US, while nowadays the fight keeps on, those years were key in how their presence around the globe has resulted nowadays. A bit of the context of the Cola Wars; during the beginning of the 20th century Coca-Cola led the market, while Pepsi had a rough time and went bankrupt in 1923. After its restructured, Pepsi maintained but Coca-Cola advertisements, such as those featuring Santa Claus, made it difficult for Pepsi to compete and by the time of WWII, Coca-Cola could be found in 44 countries already. In 1965 Pepsi merged with Frito-Lay-Inc trying to gain better footholds in restaurants and supermarkets. At the time Coca-Cola was expanding its brand into other soft drinks beverages, Pepsi could simply not compete against them. But by the mid-1970s, Pepsi launched its “Pepsi Challenge”, a genius blind test marketing bet in which over 50% of Americans chose Pepsi over Coca-Cola due its sweeter taste, of course Pepsi claimed its first victory over giant Coca-Cola and started its rise. Coca-Cola's response came with celebrity endorsement and the diet coke in the early 80’s. But by the mid 80’s, Pepsi sales skyrocketed due to its collaboration and promotion with Michael Jackson and appearance in several movies like Back to the Future. Coca-Cola had an identity crisis at the time, but after going back to its roots, (Weird History Food, 2022) once again it came back to fight and claimed its important place in the industry. Coca-Cola and Pepsi around the world While the Cola Wars were largely defined within the American market, their global expansion strategies took very different trajectories once they reached international audiences. Coca-Cola made their debut in the international market in the early 20th century, but it was until WWII when it got international recognition. A marketing associated with American optimism and modernity was followed by the company, and during the war, the company produced millions of bottles for US troops abroad, introducing the drink to soldiers and civilians across Europe, Africa and Asia. The strategy transformed Coca-Cola from a domestic beverage into a global cultural symbol. Pepsi, meanwhile, took a more opportunistic route. After financial struggles between the 1920s and 1930s, the brand re-emerged with a more aggressive global approach. Its internationalization came in 1949 with exports to Canada and later expanded to Mexico, Brazil and the Philippines, but it was until the Cold War, when its real global expansion began (FBIF Food & Beverage Innovation, 2014), when it merged with Frito-Lay and diversified its portfolio. By 2024, PepsiCo generated $92 billion net revenue (PepsiCo, 2025) while Coca-Cola grew 3% to stand at $47.1 billion net revenues (The Coca-Cola Company, 2025) that same year and their products and diversifications not only include the classical soft drinks, but also other beverages and foods. Yet despite their shared dominance in over 200 countries, both face different degrees of acceptance depending on local political, cultural and religious attitudes. The role of geopolitics: soft power, sanctions, wars, risks and opportunities As stated already, both brands are known globally, however, it is important to highlight that their presence in different regions of the world has been shaped by other actors more than just commercial advertisements, or even due to their advertisements and commercial strategies. Let me explain in more detail. In the case of Coca-Cola, during WWII and the Cold War, many people outside of the United States associated the product with American culture, Coca-Cola became a symbol of American soft power and globalization, clearly seen in war advertisements featuring soldiers enjoying cokes suggesting the commonly used “bring people and nations together” phrases. (Edelstein, 2013) On the other hand, with a more social-cultural strategy, Pepsi used the American pop-culture as their approach to gain attention worldwide. Michael Jackson, Madonna, Britney Spears, Beyoncé, among others (Kalgutkar, 2024) were iconic in the brand. In addition, Pepsi’s marketing leveraged music, youth, and rebellion, giving a softer and aspirational appeal. However, this cultural and ideological symbolism also made both companies vulnerable to political backlashes and somehow have defined their reputation and presence in some areas of the world. In the 1950’s, France coined the term “coca-colonization” denouncing American influence. During the Cold War, Coca-Cola became a capitalist symbol (in the eyes of outsiders), and it was banned in the Soviet Union, an opportunity Pepsi took advantage of there. Later, when the Berlin Wall fell, Coca-Cola became a representation of freedom. (Hebblethwaite, 2012) However, the most notable geopolitical response came when the Arab League boycotted the brand between 1968-1991 in the 13-nation organization, because it chose to operate in Israel while the Palestinian land was under occupation. Pepsi capitalized on this absence, solidifying its position in the Arab markets. In addition to the Arab League boycott, there are other cases where sanctions imposed by the US to different countries have led to a small or lack of sales of the products, such as Myanmar, North Korea, Cuba or the Soviet Union, back on time. Moreover, occasional protests and bans in countries like Iran, Venezuela or Thailand (Hebblethwaite, 2012) has also affected the brands at certain points of the history and of course have created an image and reputation in the society, with positive, neutral or negative perceptions. Moving towards present day, after the war in Gaza broke out in October 2023, pressure on the brands reappeared on the Middle East; Coca-Cola, who has a factory in the illegal settlement in East Jerusalem in the Atarot Industrial Zone, was accused of complicity and violations of the international law, in addition to being “related” with the Israeli army. These led to the BDS Movement to add it to a boycott list, which led to protests and has also been spread across other Muslim-majority countries. Of course, sales have dropped sharply in different countries in the region like Egypt and Bangladesh. (Boycat Times, 2025) Pepsi, on the other hand, even though it has a major presence in the Middle East market built over the space left by Coca-Cola during the 1968-1991 boycott, has also been affected by the War in Gaza and the boycotts in the region. PepsiCo reported stagnation in beverage growth across Egypt, Lebanon and Pakistan, compared with 8-15% growth a year earlier the war started. (Awasthi, 2024) The boycott of these American brands in the Middle East and some Muslim-majority markets has led to important losses in the share market and the sales itself. For instance, Coca-Cola sales reportedly fell by 23% in Bangladesh and dropped by over 10% in Egypt, overall, there is an estimation of 7% regional revenue loss in the MENA region. The losses of the American brands had become an opportunity to the local brands, like Pakistan’s Cola Next and Pakola (shared market increased from 2.5% up to 12% after the boycott (The Economic Times, 2024)), Qatar’s Kinza or Egypt’s V7, which have up to 40% in market share growth and up to 350% growth in exports, canalizing consumer preferences for local alternatives. (The Economic Times, 2024), (Awasthi, 2024), (CBC, 2024), even in the West Bank, the Palestinian Chat Cola has been positioned in the market, with sales of over 40% in 2023 compared to the previous year. (Associated Press, 2025) Coca-Cola and Pepsi boycotts are not the only ones, other companies like McDonald’s or Starbucks have also been affected in the region, due to similar or same reasons. Even more, in Canada, another great example is the “americano” [coffee] being renamed as “canadiano”, (Barista Magazine, 2025) as response to the economic and political tensions developed earlier this year between Canada and the USA. Despite the boycotts, Coca-Cola and PepsiCo have a base in the region, and they have seek opportunities to continue, through investments (Coca-Cola invested $22 million in upgrading technology in Pakistan) or new strategies (PepsiCo reintroduced Teem soda in Pakistan with a “Made in Pakistan” printed on the label) (Shahid, DiNapoli, & Saafan, 2024). Overall, both companies are trying to maintain, penetrate and expand their products in the market, they have been using and relying on bottling companies as a strong tool for those purposes, creating alliances with local companies as well as innovating and testing different new products in the region. Conclusion The current boycott of Coca-Cola and Pepsi across the Middle East and Muslim-majority countries is not only a reflection of political anger – it is a window into how geopolitics can directly reshape consumer economies. What once symbolizes Western globalization, and cultural appeal has now become a marker of political identity and economic nationalism. In a society driven by consumerism – where success is often measured by how much one owns – people tend to care less about genuine human values such as love, kindness, respect, empathy and consideration (MET, 2022). Ironically, today that statement seems reversed. For many consumers, boycotting Western brands has become not only a moral choice but also an act of solidarity and empowerment. Beyond economics, the boycott also reflects a psychological and cultural response. For many consumers in the Middle East, choosing what to drink has become a symbolic act of identity, resistance and empathy. Avoiding brands such as Coca-Cola and Pepsi offers a sense of agency and unity Palestine, turning everyday consumption into an expression of political consciousness. Although both companies remain resilient and continue to invest heavily in local markets, their challenges go beyond short-term losses. The rise of local brands such as V7. Kinza and Cola Next highlights a deeper regional shift – where consumers are not merely reacting to politics, but redefining loyalty based on ethics, identity and sovereignty. In the long term, this phenomenon could accelerate the regionalization of the markets, as local producers gain confidence and international corporations are compelled to adapt – by respecting cultural sensitivities, building genuine local partnerships, and ensuring transparency across their supply chains. Ultimately, the story of Coca-Cola and Pepsi in the Middle East demonstrates that in today’s interconnected world, soft power is no longer a one-way export. Consumer behavior itself has become a form of diplomacy – capable of rewarding inclusion or punishing complicity.ReferencesAssociated Press. (2025, 03 02). Coca-Cola's appeal to Palestinians fizzles amid war. Retrieved from VOA News: https://www.voanews.com/a/coca-cola-s-appeal-to-palestinians-fizzles-amid-war/7991182.htmlAwasthi, S. (2024, 09 15). Middle East conflict bites Coca-Cola, Pepsi. Retrieved from SBS News: https://www.sbs.com.au/news/podcast-episode/middle-east-conflict-bites-coca-cola-pepsi/z445sv6glBarista Magazine. 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