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Energy & Economics
A Belt And Road Initiative concept with letter tiles and Chinese Yuan bank notes on a map of China.

The Belt and Road boomed in 2025

by Tom Baxter

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.”

Defense & Security
South Korea's rocket , via Wikimedia Commons">

The History of South Korea’s Space Development

by World & New World Journal

1. The Strategic Importance of Space Development: A Measure of National Competitiveness Space has evolved beyond being a domain of scientific exploration to become a crucial strategic asset that determines a nation's survival and prosperity. Whereas the space race during the Cold War was primarily a "pride competition" to showcase ideological superiority, space development in the 21st century has become a practical battlefield for controlling economic, security, and technological dominance. First, the importance of space in national security and military aspects. Modern warfare is fundamentally an "information war." Real-time surveillance through reconnaissance satellites, precision strike capabilities using GPS, and high-speed satellite communication networks form the backbone of contemporary military power. Nations that fail to secure space assets risk becoming "blind" in terms of information, which can lead to critical gaps in their defense capabilities. The global trend of establishing "space forces" is a direct result of space becoming firmly established as the 4th battlefield, after land, sea, and air. Second, the economic value and creation of new industries. With the onset of the "New Space" era, the private sector-led space industry is growing explosively. Building a global internet network using small satellite constellations, space tourism, and the manufacturing of ultra-precise semiconductors or new drugs in space are generating enormous value. Moreover, rare resources like rare earth elements and helium-3 found on the Moon or asteroids are seen as the final hope for solving Earth's resource depletion issues. Nations that secure these resources will likely control the future global economy. Third, the spillover effect on science and technology. Space development involves overcoming extreme environmental challenges, and the technologies developed — such as rocket propulsion, advanced materials engineering, artificial intelligence, and robotics — spill over into civilian industries, revolutionizing daily life. Technologies like water purifiers, microwaves, and cordless vacuum cleaners were all originally spin-offs from space exploration. In this way, investment in space development serves as a lever to elevate a nation's overall technological level. Lastly, international status and diplomatic influence. Countries that possess independent launch vehicle technology and satellite operations capabilities gain strong influence in the international arena. Space development requires significant capital and highly advanced technologies, and nations that succeed in this field acquire symbolic capital as "technological powerhouses." This helps them play a leading role in international cooperation frameworks and enhances national pride. In conclusion, space development is not merely a future investment but an essential national strategy to protect current security and secure future resources. As the saying goes, "He who controls space, controls the Earth," pioneering the path to space is a mission for sustainable national development in this era. 2. The History of South Korea's Space Development. South Korea’s Space Development History: A Record of Challenges from Nothing to Something South Korea's journey in space development began later than that of many advanced nations, yet it has grown at an extraordinarily rapid pace — so much so that it is hard to find a parallel in the world. From laying the foundation in the early 1990s, South Korea has risen to become one of the top seven space-faring nations in just about 30 years. This journey marks the transformation from a "follower" to a "leader" in space development. 2.1. South Korea's Satellites The journey began in August 1992 with the launch of Arirang-1, South Korea’s first satellite. Built in collaboration with a British university, this small satellite was the first "eye" South Korea sent into space, making the country the 22nd nation in the world to have a satellite in orbit. Throughout the 1990s, South Korea focused on domestically producing satellite bodies and payload technology, notably through the Arirang series and multipurpose satellites, laying the foundation for the country’s space technology. Figure 1. Timeline of South Korea's Satellites (Source: Namu Wiki) 2.2. South Korea's Launch Vehicles The development of launch vehicles began in earnest in the 2000s. In 2002, South Korea successfully launched its first liquid-propelled scientific rocket, KSR-III, which helped the country accumulate crucial rocket engine technology. This laid the groundwork for the construction of the Naro Space Center in 2009, the heart of South Korea's space development. However, the road to self-sufficiency in launch vehicles was challenging. The Naro rocket (KSLV-I), developed in cooperation with Russia, faced two failed launches, a painful setback. Despite these failures, South Korea achieved a historic milestone with the successful launch of Naro-3 in January 2013, sending a domestically built satellite into space for the first time. The success of Naro-3 became a springboard for the development of South Korea’s indigenous launch vehicle, the Nuri rocket (KSLV-II). Unlike the Naro rocket, which used Russian engines, the Nuri rocket had to be entirely designed, built, tested, and operated with South Korean technology — a monumental challenge. After an incomplete success in its first launch in 2021, South Korea achieved full success with the second launch of Nuri in June 2022. With this achievement, South Korea became the seventh country in the world to launch a practical satellite weighing over 1 ton using a domestically developed launch vehicle. The country's progress continues at an even faster pace. In August 2022, South Korea launched the Korea Pathfinder Lunar Orbiter (KPLO), the country’s first lunar orbiter, which successfully entered lunar orbit. This marks South Korea's first step beyond low Earth orbit and into deep space exploration. Additionally, South Korea’s Space Agency (KASA), responsible for overseeing space development, officially opened in May 2024 in Sacheon, Gyeongsangnam-do, aligning the country's space policies with specialized expertise and consistency. Currently, South Korea is following an ambitious “Space Economy Roadmap”, which includes plans to launch a lunar lander in 2032 and a Mars exploration mission by 2045. Moving past the phase of technology imitation, South Korea is now advancing its capabilities in cutting-edge reconnaissance satellites, small satellite constellations, and high-performance next generation launch vehicles, positioning itself as a leading player in the global exploration of humanity’s new frontiers. Here is the Timeline of South Korea’s Launch Vehicles (Source: Wikipedia). Note: KSR: Korea Sounding Rocket (Korean Scientific Observation Rocket). KSLV: Korea Space Launch Vehicle (Korean Space Launch Vehicle: I represents the Naro series, II represents the Nuri series) • 1377: During the 3rd year of King Uwang of the Goryeo Dynasty, Choi Mu-seon created the first Korean rocket, called "Juhwa" (走火), later known as "Shingijeon". • 1451: The 1st year of King Munjong of the Joseon Dynasty, Munjonghwacha (a fire-wheeled vehicle, a type of rocket). • 1958 January: Inha University establishes a Department of Weapons Engineering. • 1958: The Ministry of Defense establishes a rocket research organization at the Agency for Defense Development (ADD). • 1959 July: ADD successfully launches a two-stage rocket (67th rocket) and a three-stage rocket (556th rocket) from the coastal area of Gojan-dong, Incheon. • 1960 November 15: Inha University develops the IITO-1A rocket. • 1960 November 19: Inha University develops the IITO-2A rocket. • 1960 November 19: Test launch of the IITO-1A and IITO-2A rockets from the waters off Songdo, Incheon, at 3:50 PM. • 1961: ADD disbanded. • 1962 April: Inha University establishes the Inha Rocket Research Society. • 1964 May: Inha Rocket Research Society launches the IITO-1A from the coast of Gojan-dong, Incheon. • 1964 October: Inha Rocket Research Society launches the IIT-3A rocket, which fails. • 1964 December: Inha Rocket Research Society launches the two-stage rocket IITA-4MR. • 1964 December: Inha Rocket Research Society launches the largest three-stage rocket, IITA-7CR, using a solid propellant from Japan. • 1970: Air Force Academy's Park Gui-yong and Jo Ok-chan's team launch the AXR-55 rocket with asphalt propellant, supported by the Ministry of Science and Technology. • 1971: Air Force Academy launches the AXR-73 rocket with asphalt propellant. • 1972: ADD begins rocket research. • 1972 December: Air Force Academy launches the AXR-300 rocket, with a total of three launches. • 1978: ADD develops the domestic medium-range ballistic missile, Baekgom, modeled after the U.S. Nike Hercules. • 1986: Inha University begins the development of the IS-X rocket series under the Inha Rocket Research Society. • 1987: The Space Science Institute of the Korea Astronomy and Space Science Institute (KASI) is established to start developing scientific rockets. • 1988 February: Inha University launches IS-001 and IS-002 rockets. • 1988: Scientific rocket development project is selected as a specific research task by the Ministry of Science and Technology. • 1988 December: Inha Rocket Research Society presents the IS-X research report. • 1989 October: The Korea Aerospace Research Institute (KARI) is established. • 1993 June: KARI launches the solid rocket KSR-I (KSR-420) from the Anheung Test Site on the west coast. • 1993 September: KARI successfully launches KSR-I (KSR-420) for the second time from Anheung Test Site. • 1995: South Korea develops its first pressurized liquid-fueled rocket engine with a thrust of 13 tons. • 1996: South Korea establishes its Mid- and Long-Term National Space Development Plan, aiming to achieve the capability to launch low-earth orbit satellites independently by 2010. • 1997 July 9: KARI launches the two-stage solid scientific rocket KSR-II. • 1998: The 5th Science and Technology Ministers' Meeting approved the modification of the national space development plan, shortening the goal for independent satellite launches to 2005. • 2000: The second revision of the space development plan is approved, setting goals for securing small satellite launch vehicle technology by 2005, 1-ton practical satellite launch technology by 2010, and 1.5-ton practical satellite launch technology by 2015. • 2002: KARI launches South Korea's first liquid-propelled scientific rocket, KSR-III. • 2004: South Korea and Russia sign a space technology cooperation agreement. • 2006: South Korea and Russia sign a space technology protection agreement. • 2008: KARI develops a 30-ton rocket engine, completing prototype development and partial testing of the turbo pump-gas generator system. • 2008: KARI begins the development of a 75-ton rocket engine. • 2008: The Naro Space Center is completed. • 2009 August 25: KARI attempts the first launch of Naro-1 (KSLV-I), South Korea's first satellite launch vehicle. The launch fails due to fairing separation issues. • 2010 June 10: KARI attempts the second launch of Naro-2. The rocket explodes during flight, resulting in failure. • 2013 January 30: KARI successfully launches the Naro-3, sending the Naro Scientific Satellite into orbit and achieving successful communication. • 2015 July 30: South Korea announces the successful completion of the first phase of the Korean launch vehicle development program. • 2018 November 28: South Korea successfully launches the Nuri Rocket (KSLV-II) test vehicle. • 2018: South Korea successfully launches the Arirang 2 satellite. • 2021 October 21: South Korea attempts the first launch of the Nuri rocket. The launch fails. • 2022 June 21: South Korea successfully launches the Nuri rocket (KSLV-II) for the second time. • 2023 May 25: South Korea successfully launches the Nuri Rocket (KSLV-II) for the third time. • 2025 November 27: South Korea successfully launches the Nuri Rocket (KSLV-II) for the fourth time. Upcoming Launches: • 2026: The 5th launch of the Nuri rocket. • 2027: The 6th launch of the Nuri rocket. • 2030: Development of the next generation launch vehicle. • 2035: Development of a large geostationary launch vehicle. Figure 2. South Korea’s Space Development Progress Plan 3. Nuri Rocket (KSLV-II) Technical Characteristics: The Core Mechanisms of the Korean Launch Vehicle The Nuri Rocket (KSLV-II) is the first space launch vehicle to be entirely developed using South Korea's independent technology, from design and production to testing and launch operations. This achievement is not just about launching a rocket; it represents a significant technological milestone in securing sovereign control over the "transportation vehicle" to space, marking immense technical value. The most critical technological achievement of the Nuri Rocket is the indigenous development of the 75-ton liquid rocket engine. The Nuri Rocket consists of three stages: the first stage contains four 75-ton engines clustered together to form a 300-ton engine; the second stage uses one 75-ton engine; and the third stage carries one 7-ton engine. The 75-ton engines, in particular, represent a complex technological achievement, as they must reliably burn extremely cold oxidizers at -183°C and high-pressure fuel — technologies that demand advanced precision. The Key Technical Features: 1. Engine Clustering Technology: The first stage of the Nuri Rocket uses four 75-ton engines arranged in a cluster. These engines must operate as though they were a single engine, requiring precise synchronization. To prevent combustion imbalances or vibrations between the engines, advanced synchronization technology has been applied. This ensures that the rocket achieves stable thrust. Even the slightest error in one of the four engines would cause the rocket to deviate from its flight path, making this clustering technology a central achievement of Nuri. 2. Lightweight Structure and Large-Scale Component Manufacturing: For efficient launch, the rocket structure needs to be both strong and as lightweight as possible. The fuel tanks of the Nuri Rocket are made with walls as thin as 2mm to 3mm, showcasing an advanced level of manufacturing. The large aluminum sheets used for the tanks are precisely welded, and high-pressure resistance is ensured through spinning and specialized welding techniques. These methods represent cutting-edge manufacturing capabilities in the aerospace field. 3. Cryogenic and High-Temperature Environment Control: The Nuri Rocket has to manage two extreme conditions simultaneously — cryogenic temperatures to store liquid oxidizers and high temperatures reaching thousands of degrees Celsius during engine combustion. To handle these conditions, specialized thermal insulation and heat-resistant materials are used. Additionally, the rocket's gimbaling system, which controls the angle of the engines to adjust the direction of flight, is designed to function perfectly even under high acceleration and in vacuum conditions. 4. Indigenous Flight Control and Guidance Software: The brain of the Nuri Rocket is its flight control computer, which automatically calculates and adjusts the trajectory from launch to orbit insertion. With algorithms developed entirely using domestic technology, this computer can precisely place satellites into their intended orbits without external assistance. This capability is crucial for national security, as it involves the precise and autonomous control of satellite launches. 5. Satellite Separation and Deployment Technology: As demonstrated during the third launch of Nuri, the ability to deploy multiple satellites at specific time intervals without causing collisions is a highly precise mechanism. This technology is essential for building large-scale satellite constellations in the future, laying the groundwork for future advancements in space. Overall, the Nuri Rocket's design and development represent a comprehensive mastery of advanced space technologies and mark South Korea’s leap into the forefront of space exploration. 4. Nuri Rocket (KSLV-II) Launch Achievements: Milestones in Expanding South Korea’s Space Territory The successful launch of Nuri Rocket (KSLV-II), South Korea’s domestically developed launch vehicle, is not just the achievement of putting a rocket into orbit; it represents a significant accomplishment in terms of national prestige and technological self-reliance. Through three major launches, South Korea has firmly joined the ranks of "space powers." The most notable achievement is South Korea's entry into the "Top 7 Space Powers." With the success of the Nuri Rocket, South Korea became the 7th country (after Russia, the U.S., Europe, China, Japan, and India) capable of independently launching a 1-ton or heavier practical satellite into low Earth orbit. This means South Korea has secured complete sovereignty over its "transportation vehicle" for space exploration and development, enabling the country to launch satellites at its desired time without relying on other countries. Examining the step-by-step launch achievements reveals a clear progression: 1st Launch (October 2021): South Korea successfully launched a satellite simulator to a target altitude of 700 km, proving the performance of the engine in flight. Although the rocket failed to reach orbit due to an early shutdown of the third-stage engine, the launch confirmed that most of the challenges in developing large liquid rockets had been overcome. 2nd Launch (June 2022): South Korea successfully deployed the performance verification satellite into its designated orbit. This moment proved the reliability of the launch vehicle, entirely built with 100% domestic technology, to the world. 3rd Launch (May 2023): The third launch successfully carried out a "real-world mission," deploying eight operational satellites, including Next-Generation Small Satellite 2. Notably, the technology to separate multiple satellites sequentially was successfully demonstrated, proving the launch vehicle’s operational capabilities. Industrial Achievements: The development of Nuri involved over 300 domestic companies. This collaboration allowed private companies to accumulate expertise in component design, assembly, and testing for large-scale scientific projects. This shift in expertise has accelerated the transition from Old Space (government-led space programs) to New Space (private-sector-led space ventures). Companies like Hanwha Aerospace have emerged, marking the start of a full-fledged aerospace industry ecosystem. National Security and Diplomatic Achievements: The technology behind launch vehicles has significant overlap with that of intercontinental ballistic missiles (ICBMs). Therefore, the success of Nuri symbolizes South Korea’s strong national deterrence and technological stature. Additionally, owning an independent launch vehicle has enhanced South Korea’s negotiating power in international space collaborations, such as the Artemis Program, enabling the country to participate as an equal partner in global space exploration initiatives. Public Sentiment and National Pride: Finally, Nuri has instilled a sense of pride and hope among the South Korean people. The journey from nothing to becoming a space power in 30 years has ignited a sense of ambition and a spirit of challenge in the younger generation. The ongoing 4th to 6th launch series will further increase the reliability of the rocket, laying a strong foundation for South Korea’s expanding space economy. Future missions, including the lunar lander launch, will help to further broaden South Korea's space economic territory. In conclusion, the successful launches of Nuri Rocket not only establish South Korea as a key player in space exploration but also highlight its technological self-sufficiency and the evolving space industry, setting the stage for continued advancements in space exploration. 5. Economic Competitiveness and Commercialization of the Space Industry: New Growth Drivers in the 'New Space' Era In the past, space development was seen as a massive budget expenditure aimed at enhancing national prestige. However, we have now entered the era of the ‘Space Economy’, which generates tremendous added value. Particularly, the commercialization strategy led by private companies is fundamentally reshaping the space industry’s paradigm. First, Revolutionary Reductions in Launch Costs Have Opened the Doors to Commercialization: The "reusable rocket" technology introduced by SpaceX has lowered launch costs to a fraction of what they once were — about one-tenth of previous levels. Building on the success of the Nuri Rocket, South Korea is also working to enhance its economic competitiveness through the development of next generation launch vehicles. As launch costs decrease, more companies will be able to venture into space, leading to the diversification of commercial services in the space sector. Second, Miniature Satellite Constellations Are Opening New Markets for Commercial Services: Instead of a single large satellite, hundreds or thousands of small satellites in low Earth orbit are now being launched to create global, ultra-high-speed internet networks, as seen with the Starlink model. This approach targets underserved areas like remote islands, airplanes, and ships, generating significant revenue. South Korean companies such as Hanwha Systems and KAI are actively entering the satellite communications and Earth observation data markets to enhance their commercial competitiveness. Third, Space Resource Mining and Manufacturing Offer New Opportunities: Resources like helium-3 (a potential energy source) on the Moon, and rare minerals from asteroids, are expected to be at the heart of future resource wars. Additionally, In-space Manufacturing in zero-gravity environments allows us to produce ultra-pure fiber optics, large single-crystal semiconductors, and 3D-printed bioengineered organs — products that are impossible to create on Earth. These high-value products promise to offset transportation costs and generate substantial commercial profits. Fourth, Spin-offs and Technology Transfer to the Private Sector: The technology developed for the Nuri Rocket being transferred to integrated companies (such as Hanwha Aerospace) is an example of how public-sector-led technologies can be turned into commercial business ventures. By increasing domestic production rates and establishing mass production systems, South Korea can enter global supply chains, generating economic success through exports of launch vehicle components and subsystems to the international market. Finally, the Rise of the Space Tourism and Services Market: Private space travel, led by companies such as Blue Origin and Virgin Galactic, is already creating a premium market with ticket prices in the hundreds of thousands of dollars. This trend goes beyond mere tourism and is driving the growth of related industries, including space hotels, space funerals, and space insurance. In conclusion, the commercialization of the space industry goes beyond technological perfection and depends on the ‘sustainability of profit models’. South Korea, building on the technological foundation established by the Nuri Rocket’s success, must combine private creativity and capital to develop economic strategies aimed at increasing its share in the global space market. Space has now transitioned from being merely a domain of exploration to a highly competitive business arena. 6. Next-Generation Launch Vehicle Plans South Korea's next-generation launch vehicle (commonly referred to as KSLV-III) plan can be summarized in one sentence: "After Nuri (1.5-ton class), develop a larger launch vehicle capable of sending a lunar lander into space with a focus on the private sector, and aim to launch a lunar mission (lander) in the early 2030s." Key Goals: • Development of a Next-Generation Launch Vehicle aimed at launching a lunar lander. • Nuri Rocket will undergo repeated launches and technology transfer to the private sector by 2027, after which the focus will shift to the next generation launch vehicle. Timeline (Overview): • The goal is to have the first launch of the next-generation vehicle by 2030. • The next generation launch vehicle for the lunar lander mission is expected to be ready by 2033. o Different documents may refer to these milestones as "first launch in 2030" and "lunar lander mission launch in 2033," but it’s generally understood as a staged process from initial flight testing to lunar mission deployment. Propulsion System (Direction): • The development emphasizes private sector leadership and public-private cooperation, enhancing the "industry-led" approach compared to the previous Nuri system. What About Reusability? • Officially, reusable launch vehicles haven’t been confirmed yet. However, discussions in space policy and industry circles often mention reusability as part of the next-generation vehicle's advancement, reflecting a trend toward incorporating modern launch technologies. Development Strategy: • The next generation launch vehicle is set to transition from Nuri (1.5-ton class) to larger launch vehicles capable of handling lunar lander missions. • The government and KARI (Korea Aerospace Research Institute) plan to achieve initial flight by 2030, with a lunar mission (lander launch) targeted for 2033. o The process will follow a step-by-step roadmap, from initial testing to deployment for lunar missions. Key Focus: • The development approach is shifting from state-driven initiatives to private sector-driven and public-private partnership models, aiming to expand industrial capabilities. • Reusability and other advanced technologies will likely be incorporated into the development process but are not yet finalized as the primary technical path. They remain a consideration under the broader goal of next generation launch vehicle refinement. Conclusion: South Korea's next generation launch vehicle plan is centered on industrialization and operational experience accumulated from the Nuri rocket. The long-term goal is to achieve lunar lander missions in the early 2030s, marked by larger, more advanced rockets, and a shift toward a private-sector-led space industry.

Energy & Economics
The sharp rise in gold prices signals a strong bullish market trend.

The record gold price reflects a deeper problem than recent global instability

by Hafiz Muhammad Usman Rana

The price of gold has risen to over US$5,000 (£3,662) an ounce for the first time ever, after doubling in value over the course of a very strong 2025 for the precious metal. The usual explanation for such strong rises is that gold is considered a safe bet for investors when other options look a little shaky. High inflation for example, when cash quickly loses value, is often linked to gold price rises. Trade wars and actual wars usually have a similar effect. A common view then, is that gold performs well in moments of instability. But the research I was involved with suggests that gold prices are not simply a reaction to short-term economic events. Instead, they are a response to something deeper, reflecting an overall level of confidence in how economic systems are managed over time. During recent periods of sustained economic stability in the west, gold prices have remained largely flat. The steady growth, moderate inflation and predictable policy of the early 1990s and 2000s for example, were not good times for gold. And rather than responding to every economic peak or dip, the thing that really pushes gold prices up is instability in what’s known as “monetary credibility”. In other words, when there are doubts about whether central banks and governments will be able to maintain discipline over inflation, public debt and currency value over the coming decades. At times like this gold becomes more desirable. This helps explain why gold can continue to rise even as inflation falls, as has happened recently in several big economies, including the US and parts of Europe. And although recent weakness in the dollar and political uncertainty in the US have probably added momentum to gold’s rise, these factors amplify a deeper shift in confidence rather than explain it on their own. Our findings suggest that no single set of macroeconomic variables (like inflation, interest rates and stock prices) consistently explains gold prices across developed and emerging economies. They matter sometimes, but not always. So simple narratives (whether they’re about inflation, or trade wars or the weakening of the US dollar) are not enough to account for today’s gold market. Inflation alone cannot explain why gold prices remain elevated even as headline price pressures have eased. What gold tells us about the world There is more evidence for this in the fact that, according to the World Gold Council, central banks have been buying gold at the fastest pace in decades, particularly since 2022. This has continued even as inflation has fallen in many countries, again suggesting that these decisions are driven by longer term considerations rather than short term price movements. The decisions of central banks reflect concerns about resilience, diversification and trust. And to those banks, gold’s appeal lies squarely in the fact that it carries relatively little risk. It is not issued by a government like fiat currencies. It cannot be created at will like paper money. And it does not depend on the credibility of any single institution. So, in a world of high public debt, geopolitical fragmentation and increasing pressure on central bank independence, gold offers stability and insurance. And its price rises when confidence in the rules governing money becomes uncertain. That uncertainty can persist even when growth resumes or inflation falls. Seen in this light, gold’s recent surge does not signal a kneejerk panic or imminent collapse. Instead, it reflects a reassessment of long-term monetary confidence at a time when governments face difficult trade-offs between debt sustainability, political pressures and price stability. With its current high value, gold is not predicting a specific crisis. Nor does it provide a clear forecast for inflation. But it is revealing something important about the current moment. Markets appear less certain that the frameworks governing money, debt and policy will remain unchanged. That does not mean those systems have failed, but it does suggest their credibility is no longer taken for granted in the way it has been in the past. Gold does not predict the future. But it does offer a window into how confident markets are about the foundations of the world’s economics system.

Diplomacy
No Corruption, Stop Corruption Image by Zelandia

Structural corruption and fragile democracies: the Latin American vicious circle

by Hugo Borsani

In Latin America, corruption is not an anomaly of the democratic system, but rather a structural cog that weakens it, fuels populism, and perpetuates inequality. Corruption is a constant in most Latin American countries. Regardless of ideology and party alternation, corruption has remained persistent across much of the region and, in many cases, has even increased. Between 2014 and 2024, only five countries in the region—Uruguay, Costa Rica, Colombia, Argentina, and the Dominican Republic—registered an improvement in Transparency International’s Corruption Perceptions Index. In Paraguay the index shows no variation, while in the remaining 14 countries the perception of corruption increased. Large-scale abuse of power by senior government officials, the public bureaucracy, and major private corporations contributes to undermining citizens’ trust in their representatives and in democratic institutions as a whole. How corruption is expressed Corruption in Latin America takes multiple forms and manifests itself at different levels of political, economic, and social life. In its most visible and highest-impact expression are large corruption schemes involving top state authorities and major private companies. Cases such as that of the construction firm Odebrecht, whose illicit practices spread to several countries in the region and came to light between 2014 and 2016, revealed the existence of transnational networks of bribery and illegal political financing. Similarly, scandals such as the “Mensalão” and Operation “Lava Jato” in Brazil exposed the depth of these schemes and their ability to cut across governments and political parties, seriously compromising the credibility of democratic institutions. One of the most sensitive areas in which this dynamic is expressed is the financing of electoral campaigns. The lack of clear regulations, transparency, and effective oversight has turned political financing into a privileged gateway for corruption. As a result, electoral processes tend to produce governments constrained by private interests that, once in power, seek to recoup their investment through legislative favors, budgetary allocations, or regulatory decisions, thereby weakening democratic representation. However, corruption is not limited to these major scandals. It also manifests itself in everyday practices that directly affect the relationship between citizens and the state. The payment of bribes to access public services, expedite procedures, or exercise rights that should be universally guaranteed contributes to normalizing illegality and steadily erodes trust in public institutions. At the same time, corruption in Latin America transcends the state sphere and extends into the private sector. Tax evasion, consumer fraud, and other fraudulent practices are frequent and generate serious social costs. In addition, the advance of drug trafficking has deepened these dynamics, promoting corruption at different levels of the state and society and reinforcing a vicious circle that undermines legality and institutional legitimacy. Delegitimization of democracy Although corruption is not exclusive to the political sphere, when it involves politicians, members of governments, or public officials, its impact on the loss of legitimacy of democratic institutions among the population is greater. The persistence of high levels of corruption in the state is an indicator of significant failures in control mechanisms among state institutions—that is, in so-called inter-institutional accountability, a fundamental dimension for the proper functioning of liberal representative democracy. Without oversight bodies and institutions with effective capacity to investigate and punish corruption, the quality of democracy is seriously affected. The fragility or inefficiency of oversight institutions and bodies is also reflected in insufficient sanctions, delays in institutional timelines for applying the corresponding penalties, and, in many cases, their complete absence. This undoubtedly contributes to a sense of impunity and serves as an incentive for the repetition of corrupt practices. The persistence of corruption, and the difficulties in imposing exemplary and effective punishment on those responsible, has influenced the loss of citizens’ trust in traditional political parties and leaderships, and even in the democratic system itself, boosting electoral support for populist parties and leaders. At the beginning of the century these had a left-wing profile (the so-called twenty-first-century socialism), but today they assume a clear far-right profile. These are movements and leaders critical not only of traditional political elites but also, to varying degrees, of traditional democratic institutions—especially institutions of political oversight and accountability, such as the judiciary, prosecutors’ offices, and audit bodies, among others. These populist parties and leaders come to power, in most cases, with promises to put an end to the corruption inherited from “traditional politics.” Nevertheless, once in government they tend to dismantle or co-opt oversight bodies and institutions. Examples of this were the governments of Morales in Bolivia, or the government of former president Bolsonaro in Brazil. The latter dismantled the existing network of anti-corruption bodies because, according to him, there was no corruption in his government. With the co-optation or limitation of oversight institutions and bodies, populist governments face fewer obstacles to engaging in corrupt practices. And in the context of an eroded democratic regime, institutions find it more difficult to punish those responsible. The correlation between corruption and inequality Societies marked by social and economic inequality are more vulnerable to corruption, and at the same time corruption increases those very inequalities. It is no coincidence that Latin America is considered the most unequal region in the world: according to Oxfam’s report for Latin America and the Caribbean Wealth Unchecked, Democracy at Risk. Why Latin America and the Caribbean Need a New Fiscal Pact, the top 1% of the population concentrates around 45% of regional wealth, in a context of persistently high levels of corruption. Corruption deepens inequality because it gives the corrupt greater capacity to influence government decisions and changes in legislation for their own benefit. This leads to democracies captured by particular interests and with less efficient outcomes for the population as a whole, which in turn contributes to weakening trust in democracy as a system capable of meeting, at least in basic terms, citizens’ needs and expectations. The other side of this phenomenon is the case of Uruguay. The Latin American country with the lowest perception of corruption, according to Transparency International, is also the one with the lowest level of inequality in the region and the only full democracy in Latin America, according to The Economist index. It is also, together with Argentina, one of the two countries with the highest support for democracy in the region: 70% of Uruguayans express support for democracy, compared with a regional average of 52%, according to Latinobarómetro. The corollary seems clear, though undoubtedly difficult to implement: reducing corruption requires strengthening oversight institutions and bodies, accompanied by a reduction in social inequality.

Energy & Economics
Lake Maracaibo, Venezuela. 18-03-2015.  An rig station are seen on Lake Maracaibo. Photo By: Jose Bula.

Energy Security as Hierarchy: Venezuelan Oil in the US-China-Russia Triangle

by Anya Kuteleva

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.

Diplomacy
China, Nicaragua bilateral relations concept background

A family state at the service of Beijing

by Martin Brown

The democratic collapse of Nicaragua has created the ideal conditions for China to consolidate a model of cooperation based on political control, trade dependence, and resource extraction. Throughout 2025, Nicaragua’s co-presidency under Daniel Ortega and Rosario Murillo has accelerated the consolidation of an authoritarian family state. Constitutional reforms in January eliminated the separation of powers, subordinating the judicial, legislative, and electoral branches to the executive, while subsequent legislation extended political terms and enabled the regime to weaponize electoral institutions against political opponents. Since 2018, the Ortega-Murillo government has imprisoned, exiled, or stripped citizenship from hundreds of critics and dismantled thousands of civil society organizations, hollowing out independent checks on power. These legal and institutional changes have transformed Nicaragua from a weakened democracy into a closed authoritarian system, heightening the risk of systematic human rights abuses and creating permissive conditions for opaque foreign economic engagement — particularly China — in strategic commercial and mineral sectors. Starting December 2021, President Ortega broke ties with Taiwan, establishing diplomatic relations with Beijing, marking this “new era” by opening a Chinese embassy in Managua the same month. This decision followed weeks of the Organization of American States (OAS), United States, and European Union (EU) condemning the 2021 elections as illegitimate due to the months of repression and incarceration of 39 people, including civil society leaders and presidential candidates by President Ortega. Beijing took the opportunity to enter Managua seeking to ease the sense of intensifying international isolation for Ortega’s regime. As of 2023, Managua’s total exports to Beijing were valued at an estimated $27.3 million yet increased by almost 300 percent in 2024 to $82.1 million. Also in 2024, Beijing was the second largest exporter to Nicaragua, making up 14 percent of total imports, at $1.65 billion. Recently Beijing and Nicaragua have held over $1 billion trade deficit, acting as a lifeline of the regime’s desperate survival strategy with China as a primary benefactor. As Western pressure builds, Beijing provides capital, infrastructure, trade, and opportunities for the Ortega-Murillo regime through the commercial and mineral sector. Nicaragua has directly aided in the expansion of China’s economic development in the region and passed multiple pieces of legislation to pave a simple road for Beijing. For example, on October 30th, 2025, Nicaragua’s National Assembly unanimously passed a Special Economic Zone (ZEE) directly tying China’s Belt and Road Initiative effectively boosting influence through infrastructure and trade. The ZEE includes many perks for Beijing operations in Nicaragua, such as full exemptions from income tax, dividends, import duties for up to a decade, targeted industrial sectors for manufacturing, agroindustry, tech, and exports. The head of the ZEEs will be President Ortega’s son, Laureano Ortega Murillo with a renewed promise of jobs, poverty alleviation, and technology transfers. The President’s son heading the ZEEs reflects Nicaragua’s foreign policy focus on becoming a Pacific-Caribbean trade bridge. Moreover, since 2021, the Ortega-Murillo regime has quietly granted an estimated 300,000 hectares of land, or almost 2.36 percent of Nicaragua’s national territory to four PRC affiliated mining companies: Zhon Fu Development, Nicaragua XinXin Linze Mineria Group, Thomas Metal, and Brother Metal. These companies do not contain a track record in Nicaragua, connected to a known Chinese entity, or even have a website. Yet, they are conveniently tailored by the Ortega-Murillo regime as Nicaragua allows opaque shell companies with no track record to operate in critical infrastructure sectors. To aid Beijing’s mineral campaign, the Ortega-Murillo regime has been revoking concession rights and granting those same stripped mining concessions to these opaque Chinese affiliated shell entities. In 2022, the Sandinista National Assembly reformed Law 387 to allow concession transfers without public bidding, weaken social oversight mechanisms, and concentrate decision-making for the Ministry of Energy and Mines. This “reform” allows Nicaragua exclusive control over flipping ownership on mining concessions without warning. Separate from mining, Beijing has been manipulating Nicaragua’s commercial sector reliant on Chinas exports to Nicaragua. Currently, Nicaraguan merchants claim to face “unfair competition” as their sales dwindle, due to the explosion of Chinese nationals operating in the region. Chinese businesses have frozen the Nicaraguan market through selling inexpensive products easily accessed by Chinese nationals under the low-tariff agreements between Ortega-Murillo and Beijing. Reports reflect that China’s strategy is to exploit import benefits provided by the Nicaraguan government, allowing Chinese nationals to sell goods at “rock-bottom prices”. This strategy has allowed Beijing to completely undermine Nicaraguan businesses and take over the market. In May 2024, the Confidential reported Chinese businesses have slashed 70 percent of local merchant sales. Moreover, this increase of Chinese businesses by Chinese nationals directly translates to the growth of imports from the PRC, influencing a further expansion of the already tremendous trade deficit. This inability to produce goods appealing to Beijing markets will perpetuate further trends of high imports and minimal exports by Nicaragua, granting the opportunity for Beijing to fully influence the export capacity under the Ortega-Murillo regime. Nicaragua has rapidly stepped forward to ban media by prohibiting Bibles, newspapers, magazines, books, drones, and cameras from entering the country. This came without an official decree by the government but has still been enforced by immigration and customs at border crossings. Since 2018, 61 media outlets have been closed or confiscated with over 2,300 recorded violations by journalists, forcing 300 journalists into exile from Nicaragua. Globally, the world must continue to investigate and report the egregious human rights violations conducted by this family dictatorship. Their goal of alienating their civil populace to generate wealth for themselves and Beijing through illicit and shadowy economic efforts must face legal hearings to benefit the people of Nicaragua. Nicaragua’s corrupted government continuing to weaken the foundations of their democratic institutions to favor Chinese ownership of commercial and industrial zones will freeze Nicaraguan exports in favor of dependence on Chinese imports.

Energy & Economics
Silhouette of drilling rigs and oil derricks on the background of the flag of Venezuela. Oil and gas industry. The concept of oil fields and oil companies.

Trump, China and 300 billions barrels of Venezuelan oil

by Jeanfreddy Gutiérrez Torres

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). Trump insta a las petroleras a invertir 100.000 millones de dólares en Venezuela para controlar la industria. El País. https://elpais.com Swissinfo.ch. (2026, January 22). EEUU asegura que Chevron, Shell y Repsol “elevarán de inmediato” su inversión en Venezuela. Swissinfo.ch. https://www.swissinfo.ch Yahoo Finanzas. (2026, January 22). Venezuela tendrá que pagar a Exxon menos de 1.000 mln dlrs por nacionalización de activos. Yahoo Finanzas. https://es-us.finanzas.yahoo.com PaisdePropietarios.org. (2026). ”Exprópiese”: la política expropiatoria del “Socialismo del Siglo XXI”. PaisdePropietarios.org. https://paisdepropietarios.org Repsol. (2026). Perla (Cardón IV) field details. Repsol. https://www.repsol.com Euronews. (2026, January 22). ¿Por qué Chevron sigue operando en Venezuela pese a las sanciones de Estados Unidos?. Euronews. https://es.euronews.com elDiario.es. (2026, January 22). Estados Unidos necesitará más de una década para resucitar El Dorado petrolero de Venezuela. 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Venezuela climate change framework context. https://www.raisg.org

Defense & Security
Map of Arctic Ocean styled in grey color. Selective focus on label, close-up view

Greenland at the Center of the Arctic Power: US NSS 2025, NATO Cohesion, and the New Geopolitics of the High North.

by World & New World Journal

In the chilling expanse of the Arctic, where ice and ocean frame the edges of the known world, a geopolitical drama has quietly gathered momentum. The world’s strategic gaze is no longer fixed solely on the traditional theatres of diplomacy in Europe, the Middle East, or the Indo-Pacific. Instead, the High North — and particularly Greenland, the vast Arctic territory within the Kingdom of Denmark — has emerged as a critical arena where great-power competition, national security priorities, global trade dynamics, and climate change converge. This transformation did not occur overnight. For decades, military planners, geographers, and strategic thinkers recognized the Arctic’s latent importance. Yet only in recent years have those projections translated into urgent geopolitical reality. At the center of this shift stands the United States’ National Security Strategy 2025 (NSS 2025), unveiled in late 2025, which redefines American priorities in a world shaped by renewed great-power rivalry. While the strategy addresses multiple global theatres, its emphasis on territorial security, critical resources, strategic geography, and adversarial competition underscores why Greenland has moved from the periphery to the heart of international geopolitics. Greenland today sits at the intersection of U.S. homeland defense, NATO cohesion, Arctic militarization, global trade transformation, and the accelerating race for critical minerals. The tensions surrounding the island reveal not only disputes among allies but also deeper structural changes in the international system. This article argues that Greenland is no longer a remote outpost but a strategic fulcrum of the Arctic, whose future will shape the balance of power in the High North and beyond. In addition, it analyses the geopolitical and strategical concerns from the US over Greenland. America’s Strategic Recalibration in the 2025 National Security Strategy The NSS 2025 marks a clear departure from post-Cold War doctrines centered on expansive multilateralism and global institution-building. Instead, it reflects a return to strategic realism, prioritizing the protection of core national interests, territorial security, and the prevention of adversarial dominance in critical regions. The strategy defines the United States’ primary objective as “the continued survival and safety of the United States as an independent, sovereign republic,” coupled with maintaining decisive military, technological, and economic power. Although the Indo-Pacific remains central, the strategy elevates the Western Hemisphere and adjacent strategic regions, emphasizing the need to prevent hostile encroachment on areas vital to U.S. security and economic resilience. Supply chains, critical minerals, missile defense, and strategic geography feature prominently throughout the document. Within this framework, Greenland has transitioned from a peripheral Arctic territory to a linchpin of U.S. strategic defense and resource security. While the NSS does not outline a standalone Arctic doctrine, its underlying logic — securing access to essential materials, protecting strategic approaches to the homeland, and denying adversaries positional advantages — aligns directly with the intensifying focus on Greenland. Latest developments: US position over Greenland. As already mentioned, the release of the NSS 2025 made one thing clear: US foreign policy is now defined by an assertive approach towards the entire Western Hemisphere – where Greenland is part of –. Moreover, this implies that the US might claim the right to intervene in other countries’ domestic affairs in order to guarantee its strategic and corporate interests. Therefore, after Venezuela – in addition to its rhetoric towards Cuba and Mexico – Greenland has become a hot topic, due its geopolitical, economical and strategical position and of course as part of the US “national security” and interest. In early 2026, Greenland became the unlikely epicenter of a high-stakes geopolitical drama. The U.S., under President Donald Trump, signaled an unprecedented level of interest in the island, framing it as a critical node in Arctic security, homeland defense, and global strategic competition. The announcement of a “framework of a future deal” at the World Economic Forum in Davos marked the peak of months of tension, including the president’s prior rhetoric suggesting military action to assert U.S. control — a prospect that sent shockwaves across Europe and NATO. The pathway to this framework was turbulent. Earlier proposals from the Trump administration, dating back to his first term, had openly floated buying Greenland, citing both security imperatives and access to mineral wealth. While these overtures were dismissed by Denmark and Greenland, they set the stage for heightened U.S. scrutiny. Diplomatic meetings in January 2026, including a contentious session in Washington on January 14, ended with what officials described as a “fundamental disagreement” over sovereignty. By January 18, European allies and Denmark had issued a joint statement affirming that Greenlandic sovereignty belongs exclusively to the Kingdom of Denmark and Greenland itself, while NATO and Danish troops deployed to the island to reassure Arctic security through “Operation Arctic Endurance.” Against this backdrop, Trump’s Davos announcement of a “framework” was simultaneously dramatic and deliberately vague. He described it as a long-term, “infinite” agreement designed to guarantee U.S. strategic goals, including the potential deployment of advanced missile defense systems—the so-called “Golden Dome”—and enhanced NATO involvement. The framework reportedly also aims to prevent Russian and Chinese investments in Greenland and may include increased U.S. access to the island’s mineral resources, though Greenlandic and Danish officials have made clear that no sovereignty transfer is under consideration. Crucially, no formal document has yet been produced, leaving many details unconfirmed and heightening uncertainty among allies. Greenland’s Geographic Centrality: The broader US security interest of the Island. Figure 1: Arctic states, counties and other administrative regions with capitals. Source: Map by Arto Vitikka, Arctic Centre, University of Lapland. Credit for the border data: Runfola, D. et al. (2020) geoBoundaries: A global database of political administrative boundaries. PLoS ONE 15(4): e0231866. https://doi.org/10.1371/journal.pone.0231866e. Figure 2: Arctic Population Centers. Map by Arto Vitikka, Arctic Centre, University of Lapland. When viewed from a polar perspective, the Arctic is not a distant fringe but the shortest connective space between North America, Europe, and Eurasia. The Arctic as seen in Figure 1 is composed of several administrative areas, including Canada, Alaska (USA), Russia, Norway, Sweden, Finland, Iceland and Greenland (Denmark). The latter can be said to be located at the center between North America and Europe and Eurasia, underscoring its geopolitical importance. In other words, Greenland occupies the central Atlantic–Arctic axis, the shortest air and missile trajectories between Russia and North America and a pivotal position between the Canadian Arctic Archipelago and the Russian Arctic coast. This geography carries deep strategic implications and clarifies the logic behind US interest in the island. First, Greenland is part of the so-called GIUK (Greenland-Iceland-UK) Gap, a crucial corridor and central axis for monitoring naval and air activity in the North Atlantic-Arctic corridor. The GIUK Gap played an important role during the Second World War and the Cold War and nowadays it has become crucial in securing air and sea surveillance through radar stations, while securing the sea lines of communication (SLOCs) as well as supply lines making them uninterrupted between NATO’s European members and the USA. The GIUK Gap can assist in ensuring maritime visibility and assist anti-submarine warfare (ASW) in case of conflicts. The presence of Russian submarines in the Arctic is a central pillar of Russia’s military strategy and nuclear deterrence, making the region one of the most militarized maritime spaces in the world. Russia views the Arctic as both a strategic sanctuary and a launch platform. In consequence, its Northern Fleet – headquartered on the Kola Peninsula –, is the most powerful of Russia’s fleets and operates a large share of its nuclear-powered ballistic missile submarines (SSBNs), such as the Borei and Delta IV classes. These submarines carry submarine-launched ballistic missiles (SLBMs) and are designed to remain hidden under Arctic ice, ensuring a second-strike capability in the event of a nuclear conflict. The ice cover, combined with Russia’s familiarity with Arctic waters, provides concealment and operational depth. In addition to SSBNs, Russia deploys nuclear-powered attack submarines (SSNs) and guided-missile submarines (SSGNs) in the Arctic. These vessels conduct intelligence gathering, protect ballistic missile submarines, and pose threats to NATO naval forces and undersea infrastructure, including communication cables. Russian submarines regularly transit through key chokepoints such as the GIUK Gap, bringing them into strategic relevance for Greenland, Iceland, and NATO’s anti-submarine warfare (ASW) posture. In addition, the Arctic also supports Russia’s broader bastion defense concept, which seeks to create heavily defended maritime zones where submarines can operate safely. Air defenses, surface ships, icebreakers, and coastal missile systems complement submarine operations. As climate change reduces sea ice and increases accessibility, Russian submarine activity in the Arctic is expected to remain intense, reinforcing the region’s importance for NATO surveillance, early warning systems, and transatlantic security — especially for locations like Greenland that sit astride critical Arctic–Atlantic routes. Second, Greenland’s high latitude makes it an ideal place for early detection of long-range missile launches. Russia has long-range intercontinental ballistic missiles (ICBMs), if ever launched from Russia toward the United States, the total flight time would be roughly between 25 to 35 minutes – depending on the launch location and target. But because of the Earth’s curvature, the shortest path from Russia to the continental US goes over the Arctic which is why Greenland is so strategically important for early detection and missile-warning defense. In practical terms, US decision-makers would have only minutes to assess the threat and respond after a launch is detected, therefore Greenland is critical for US security. Establishments such as the U.S. Pituffik Space Base underscore how Greenland functions as a first line of surveillance against possible ballistic missile threats from the Eurasian landmass. Therefore, Greenland is indispensable to early-warning and missile-defense systems. Sensors, radars, and space-tracking infrastructure based on the island form a crucial layer of “U.S. homeland defense”. Finally, Greenland is the only large Arctic landmass under Western democratic control outside Eurasia. Russia dominates the Eurasian Arctic coastline, while Alaska and Canada anchor North America. Greenland bridges these spaces, serving as a keystone for transatlantic Arctic security. Its isolation does not diminish its importance; rather, it magnifies it. – making Greenland a linchpin of US homeland defense and NATO’s northern security architecture. Greenland and NATO: The Fragile Architecture of Arctic Security Figure 3: NATO’s and Russia’s militarization in the Arctic. Figure 3 exposes a stark asymmetry in Arctic militarization between NATO and Russia. Moscow maintains a dense, continuous network of military installations stretching from the Kola Peninsula to the Bering Strait. These bases support air defense, naval operations, missile forces, and surveillance, forming an integrated arc of control along Russia’s northern frontier. NATO’s Arctic posture, by contrast, is structurally different. Rather than territorial saturation, it relies on discrete strategic nodes, interoperability over mass, and coordination among multiple sovereign states. Within this fragmented architecture, Greenland constitutes NATO’s most critical node, functioning as the geographic and operational linchpin between North America and Northern Europe. Without Greenland, NATO’s Arctic posture would fracture into disconnected segments—North America on one side and Scandinavia on the other—with no central anchor to bind the alliance’s northern defenses. The United States already maintains a crucial presence on the island through the Pituffik Space Base (formerly Thule Air Base) in northwest Greenland. The installation is indispensable for early missile warning, space surveillance, and tracking adversary launches across the polar region. Complementary allied infrastructure, such as the UK’s logistical presence at Camp Viking in Norway, underscores NATO’s node-based approach rather than a strategy of continuous territorial control. It is precisely Greenland’s role as this irreplaceable strategic node that explains the sharp European response in 2025–2026 to U.S. rhetoric suggesting unilateral action or coercive pressure regarding the island. The deployment of European troops under Operation Arctic Endurance was not merely symbolic; it was a clear assertion that Greenland is a collective NATO concern, not a bilateral bargaining chip between Washington and Copenhagen. In this sense, the military logic of Arctic defense translated directly into alliance politics. Yet the episode also revealed the limits of U.S. power when confronting established allies. Danish and Greenlandic officials consistently emphasized that sovereignty constituted a non-negotiable “red line.” Greenland’s Prime Minister, Jens-Frederik Nielsen, framed the issue not as a local dispute but as one of global order, stressing that Greenland would align with Denmark, the EU, and NATO while retaining full control over its territory. NATO Secretary General Mark Rutte reinforced this position by confirming enhanced cooperation while deliberately refraining from endorsing any transfer of sovereignty—an illustration of the alliance’s careful balancing act between accommodating U.S. strategic priorities and preserving the credibility of its member states. When viewed in this broader context, the episode appears less as an attempt at dramatic territorial acquisition and more as an effort to formalize and modestly expand pre-existing arrangements. The 1951 U.S.–Denmark agreement already permitted permanent U.S. military presence, exclusive jurisdiction over defense areas, and broad operational freedom at installations such as Pituffik. The proposed framework likely reinforced these rights while adding provisions for expanded NATO participation and strategic safeguards against Russian or Chinese influence. From Washington’s perspective, the episode allowed the appearance of a strategic victory, even as sovereignty and political control remained firmly with Greenland and Denmark. Analytically, the Greenland case illustrates a central tension in contemporary U.S. foreign policy: the interplay between assertive unilateralism and the constraints of alliance politics. By elevating Greenland into a symbol of hemispheric and Arctic security, the United States signaled its willingness to test diplomatic norms using both the rhetoric of necessity and instruments of coercion, including threatened tariffs. Yet the ultimate outcome—an unratified verbal framework reinforcing existing agreements—demonstrates the limits of coercion within a multilateral system. In this sense, Greenland has become a lens through which to observe the evolving dynamics of great-power competition, alliance management, and Arctic geopolitics. Its strategic geography, resource potential, and political status converge to make the island central to 21st-century security calculations. The resulting “framework of a future deal” represents not a victory of acquisition but a negotiation of influence—one that codifies U.S. ambitions while respecting allied sovereignty, subtly reshaping the contours of Arctic security and transatlantic relations. Greenland’s Resources: Strategic Minerals in a Fragmenting World Beyond military geography, Greenland’s subsoil wealth significantly enhances its geopolitical importance. The island holds substantial deposits of rare earth elements (REEs), lithium, graphite, niobium, titanium, uranium and zinc. As it is well known these strategic materials are indispensable and critical for renewable energy systems, electric vehicles, advanced electronics, missile guidance and radar technologies and space and defense infrastructure. Last but not least there is also oil and gas, but the conditions and viability to extract them make them an economic challenge. In the context of the control of natural resources, the NSS 2025 repeatedly stresses the need to reduce U.S. dependence on adversarial supply chains — an implicit reference to China’s dominance in rare-earth processing. Therefore, US eyes are on Greenland, as it represents one of the few politically aligned alternatives with large-scale potential reserves – ironically not under Chinese or Russian influence, but under US “allies” control. Yet resource abundance does not automatically translate into strategic advantage. Mining in Greenland faces severe challenges: extreme climate conditions, environmental risks, limited infrastructure, and strong local opposition to environmentally destructive projects. As a result, Greenland’s mineral wealth is strategically valuable but politically sensitive. Its development requires local consent and long-term cooperation, not coercion — a fact often overlooked in external strategic calculations. The Arctic Trade Revolution: Melting Ice, Shifting Routes Figure 4: Arctic Seaways (Northern Sea Route, Northwest Passage and Transpolar Sea Route). Source: Map by Arto Vitikka, Arctic Centre, University of Lapland. Climate change is transforming the Arctic faster than any other region on Earth. As sea ice recedes, new maritime routes are becoming seasonally viable, with potentially transformative consequences for global trade. The Northern Sea Route (NSR) along Russia’s Arctic coast already reduces transit times between Europe and Asia by up to 40%, even though some parts are free of ice for some months per year. On the other hand, a future transpolar route, cutting directly across the Arctic Ocean, could bypass traditional chokepoints such as: The Suez Canal, The Panama Canal or The Strait of Malacca. Therefore, Greenland importance relies on its geographic position that places it adjacent to these emerging corridors. Potential roles for the island include: the search-and-rescue hubs, refueling and logistics points, maritime surveillance and communications infrastructure. This elevates Greenland from a military asset to a potential gatekeeper of future Arctic trade, linking regional security directly to global economic flows. Icebreakers and Power Projection: Mobility as Sovereignty Figure 5: Major Icebreakers and Ice-Capable Patrol Ships highlight a decisive but underappreciated imbalance. Source: generated with Chat GPT using Routers Nov 2022 data. The transit in the Arctic can be defined by the possibility to move freely without any inconvenience due its extreme conditions – or at least with the least inconveniences. In consequence major ice breakers and ice-capable patrol ships became very important assets for the countries in the region. In a simple comparison, Russia possesses more icebreakers than NATO combined, as shown in Figure 5, including nuclear-powered vessels capable of year-round Arctic operations. These ships are instruments of sovereignty, enabling continuous military presence, escort of commercial shipping, enforcement of Arctic regulations and rapid crisis responses. By contrast, the United States has long underinvested in icebreaking capacity. NATO relies on a patchwork of national fleets, with Finland and Sweden contributing significantly but still lagging behind Russia’s scale. The strategic implication is clear: Russia controls mobility while NATO controls nodes. In such an environment, fixed strategic anchors like Greenland become even more critical. Competing Arctic Visions Russia Russia views the Arctic as a core strategic and economic priority, central to its national identity, security, and long-term development. Its Arctic vision emphasizes sovereignty, military security, and the exploitation of vast natural resources, particularly hydrocarbons and minerals. Moscow sees the Northern Sea Route as a critical shipping corridor that can enhance Russia’s control over Arctic navigation and generate economic revenues. To support this vision, Russia has invested heavily in Arctic infrastructure, icebreaker fleets, and military modernization, positioning itself as the dominant Arctic power and framing the region as vital to its great-power status. The Arctic is not an extension of Russian power; it is central to it. Figure 6: Cargo volume in Russia’s Northern Sea Route (1933-2023) China China approaches the Arctic as a “near-Arctic state,” framing its vision around scientific research, economic opportunity, and global governance. Beijing emphasizes participation in Arctic affairs through international law, particularly the UN Convention on the Law of the Sea, and promotes cooperation rather than territorial claims. Its strategy emphasizes long-term access to resources, influence over Arctic governance norms, and participation in future trade routes. Its concept of a “Polar Silk Road” reflects an interest in future shipping routes, energy projects, and digital connectivity, linking the Arctic to China’s broader Belt and Road Initiative. Even though China presents its Arctic engagement as peaceful and mutually beneficial, while gradually expanding its strategic and economic footprint in the region, it also has interest in Greenland’s mining sector, for example, which has heightened concerns about strategic leverage rather than direct control. Figure 7: Map of China’s Polar Silk Road. Source: Map by Arto Vitikka, Arctic Centre, University of Lapland. United States The U.S. approach, as reflected in the NSS 2025, is reactive but intensifying. Greenland crystallizes American concerns about strategic vulnerability, supply-chain dependence, and alliance credibility. Yet pressure tactics risk undermining the very alliances that make Arctic stability possible. The United States views the Arctic as an increasingly important region for national security, environmental stewardship, and economic opportunities. At the same time, it recognizes the strategic implications of growing Russian and Chinese activity in the region. Arctic States The European Arctic states emphasize sustainability, human security, and regional cooperation as the foundation of their Arctic vision. Their policies prioritize environmental protection, responsible resource management, and the rights and livelihoods of Indigenous peoples, while balancing economic development in sectors such as fisheries, renewable energy, and limited resource extraction. These states strongly support multilateral governance through institutions like the Arctic Council and stress adherence to international law. Collectively, they view the Arctic as a region where stability, cooperation, and climate leadership are essential, especially amid rising geopolitical tensions and accelerating environmental change. Canada Canada’s Arctic vision centers on sovereignty, Indigenous partnership, and sustainable development, reflecting the region’s importance to national identity and security. Ottawa emphasizes the protection of its northern territories and views the Northwest Passage as internal waters, while supporting a rules-based Arctic order. A core pillar of Canada’s approach is its collaboration with Indigenous peoples, recognizing their rights, knowledge, and role in governance and stewardship. Canada also prioritizes climate change adaptation, environmental protection, and responsible economic development, seeking to ensure that increased Arctic activity benefits northern communities while maintaining peace and stability in the region. India India’s Arctic vision is primarily science-driven and climate-focused, reflecting its broader emphasis on environmental security and multilateral cooperation. Through its Arctic research station, Himadri, and active participation in the Arctic Council as an observer, India seeks to understand the Arctic’s impact on global climate systems, particularly the Indian monsoon. New Delhi also recognizes the long-term economic and geopolitical significance of the Arctic but approaches the region cautiously, prioritizing sustainable development, international collaboration, and respect for Arctic states’ sovereignty. Strategic Futures: Cooperation or Fragmentation The future of Greenland and the Arctic more broadly will hinge on whether the region evolves toward structured cooperation or strategic fragmentation. In a cooperative scenario, Greenland becomes a stabilizing anchor within a renewed Arctic security framework, where the United States, Denmark, and NATO align their defense priorities with Greenlandic self-determination and environmental safeguards. Such an approach would emphasize multilateral governance, transparency in resource development, confidence-building military measures, and shared investment in infrastructure, search-and-rescue capabilities, and climate resilience. Cooperation would not eliminate competition, particularly with Russia and China, but it would establish rules, norms, and mechanisms to prevent escalation and miscalculation in an increasingly accessible Arctic. By contrast, a fragmented Arctic would be characterized by unilateral actions, coercive diplomacy, and the erosion of trust among allies. Pressure tactics aimed at securing access, influence, or control over Greenland could weaken NATO cohesion, fuel local resistance, and open political space for external actors to exploit divisions. In such a scenario, the Arctic risks becoming a patchwork of contested zones rather than a managed strategic commons. Therefore, fragmentation would increase the likelihood of militarization without coordination, resource development without legitimacy, and crisis dynamics without effective communication channels — conditions that historically precede instability rather than security. Conclusion Greenland’s elevation from a peripheral Arctic territory to a central object of U.S. strategic concern reflects a deeper transformation in American national security thinking. Under the logic of the National Security Strategy 2025, geography has reasserted itself as a core determinant of power. Greenland matters to Washington not because of symbolic territorial ambition, but because it sits at the intersection of missile warning, homeland defense, transatlantic security and critical resource resilience and control. From early-warning radars at Pituffik to the GIUK Gap’s role in anti-submarine warfare, the island functions as a forward shield for the United States rather than a distant outpost. In this sense, U.S. interest in Greenland is less about expansion and more about insulation — protecting the American homeland in an era of compressed warning times and renewed great-power rivalry. At the same time, the Greenland episode exposes the limits of unilateralism in a system still structured by alliances and sovereignty norms. While Washington’s strategic rationale is compelling, its use of coercive rhetoric and pressure tactics toward Denmark and Greenland revealed a misalignment between U.S. security imperatives and alliance diplomacy. The backlash from European allies and the reaffirmation of Greenlandic sovereignty demonstrated that even overwhelming military and economic power cannot easily override the political legitimacy of allied states. Ultimately, the United States secured no new sovereignty, only the likely reinforcement of pre-existing military arrangements — underscoring that influence in the Arctic must be negotiated, not imposed. From a U.S. perspective, Greenland thus represents both a strategic necessity and a diplomatic constraint. The island is indispensable to missile defense, space surveillance, and Arctic access, yet it remains politically autonomous and embedded within a NATO framework that demands consultation and restraint. This dual reality forces Washington to reconcile its desire for strategic certainty with the realities of alliance management. The “framework of a future deal” reflects this compromise: a mechanism to safeguard U.S. security interests while formally respecting Danish and Greenlandic control. The outcome illustrates that American power in the Arctic is real, but conditional — strongest when exercised through institutions rather than outside them. Looking ahead, Greenland will remain a focal point of U.S. Arctic strategy not because of dramatic territorial ambitions, but because it is irreplaceable. No alternative location offers the same combination of geographic centrality, political alignment, and strategic utility. As missile technologies advance, Arctic routes open, and resource competition intensifies, Greenland’s role in U.S. security planning will only grow. Yet the lesson of recent tensions is clear: securing Greenland’s strategic value requires partnership, legitimacy, and long-term engagement rather than pressure. In the final analysis, Greenland is not only a measure of American power, but a barometer of the Arctic’s future political order. The island sits at the intersection of U.S. homeland defense, European security, and the growing assertiveness of Russia in the High North, while also remaining a point of interest for external actors such as China or India. Europe views Greenland primarily as a stabilizing pillar within a rules-based Arctic governed through NATO coordination, international law, and multilateral institutions. Russia, by contrast, treats the Arctic as a strategic rear area and military bastion, where control, mobility, and deterrence dominate its vision of regional order. The United States is thus navigating between these competing logics — seeking to secure its own vital interests without fracturing alliance cohesion or accelerating Arctic militarization. Whether Greenland becomes a cornerstone of cooperative security or a flashpoint of strategic rivalry will depend less on geography, which is fixed, and more on political choices. In this sense, Greenland encapsulates the broader Arctic dilemma: a region where power, restraint, and cooperation must coexist if stability in the High North is to be preserved. Also, it is important to highlight Greenland’s voice – referring to sovereignty and identity. Usually under great-power maneuvering, Greenland’s own population has often been sidelined. Yet Greenland is not merely an object of strategy; it is a political community with a strong Indigenous identity, environmental concerns, and aspirations for greater autonomy. Therefore, it is important to keep in mind its constitutional status within the Kingdom of Denmark, their principle of self-determination and the political costs of alienating local consent. Alienating local consent would not only undermine legitimacy, but also weaken the long-term sustainability of any security arrangement. Finally, the Arctic transformation is no longer a distant projection but an unfolding reality. Climate change is accelerating the opening of Arctic Sea routes, reshaping patterns of trade, mobility, and access, and in doing so redefining how sovereignty and power are exercised in the High North. In this emerging environment, traditional markers of security such as missile defense and military presence will increasingly coexist with less conventional—but equally strategic—assets, including icebreakers, critical minerals, infrastructure, and regulatory authority over maritime corridors. The future balance of power in the Arctic will therefore depend not only on geography or military capability, but on the ability of states and alliances to adapt to a rapidly changing region where environmental transformation, economic opportunity, and strategic competition intersect. How the United States, its allies, and other Arctic stakeholders respond to this transformation will shape whether the Arctic evolves as a space of managed cooperation or intensifying rivalry. References Agneman, G. (2025, February 04). Trump wants Greenland – but here’s what the people of Greenland want. Retrieved from The Conversation: https://theconversation.com/trump-wants-greenland-but-heres-what-the-people-of-greenland-want-248745 Aljazeera. (2026, January 15). European troops arrive in Greenland as talks with US hit wall over future. Retrieved from Aljazeera: https://www.aljazeera.com/news/2026/1/15/european-troops-arrive-in-greenland-as-talks-with-us-hit-wall-over-future Aljazeera. (2026, January 18). Trump announces new tariffs over Greenland: How have allies responded? Retrieved from Aljazeera: https://www.aljazeera.com/news/2026/1/18/trump-announces-new-tariffs-over-greenland-how-have-eu-allies-responded Arctic Centre University of Lapland. (n.d.). Arctic Region. Retrieved from https://arcticcentre.org/en/arctic-region/maps/polar-silk-road/ Bassets, M. (2026, Enero 11). “Por las buenas o por las malas”: así puede Trump conquistar Groenlandia. Retrieved from El País: https://elpais.com/internacional/2026-01-10/por-las-buenas-o-por-las-malas-asi-puede-trump-conquistar-groenlandia.html Bateman, T. (2026, January 14). Danish minister says 'fundamental disagreement' remains after 'frank' Greenland talks with US. Retrieved from BBC: https://www.bbc.com/news/live/cn824zzp670t BBC News. (2026, January 21). Trump drops threat of tariffs over Greenland after Nato talks in Davos. Retrieved from BBC News: https://www.bbc.com/news/live/cjrzjqg8dlwt Bierman, P. (2025, February 19). Greenland’s melting ice and landslide-prone fjords make the oil and minerals Trump is eyeing dangerous to extract. Retrieved from The Conversation: https://theconversation.com/greenlands-melting-ice-and-landslide-prone-fjords-make-the-oil-and-minerals-trump-is-eyeing-dangerous-to-extract-249985 Bierman, P. (2025, February 19). Greenland’s melting ice and landslide-prone fjords make the oil and minerals Trump is eyeing dangerous to extract. Retrieved from The Conversation: https://theconversation.com/greenlands-melting-ice-and-landslide-prone-fjords-make-the-oil-and-minerals-trump-is-eyeing-dangerous-to-extract-249985 Bierman, P. (2026, January 14). US military has a long history in Greenland, from mining during WWII to a nuclear-powered Army base built into the ice. Retrieved from The Conversatiion: https://theconversation.com/us-military-has-a-long-history-in-greenland-from-mining-during-wwii-to-a-nuclear-powered-army-base-built-into-the-ice-273355 Bonsoms, J. (2025, Dececmber 16). ‘Extreme melting’ episodes are accelerating ice loss in the Arctic. Retrieved from The Conversation: https://theconversation.com/extreme-melting-episodes-are-accelerating-ice-loss-in-the-arctic-272114 Brincat, S. (2026, January 18). Trump has threatened European countries with higher tariffs if he doesn’t get Greenland. Will it work? Retrieved from The Conversation: https://theconversation.com/trump-has-threatened-european-countries-with-higher-tariffs-if-he-doesnt-get-greenland-will-it-work-273698 Brincat, S., & Naranjo Cáceres, J. Z. (2026, January 07). Trump wants Greenland. Europe’s tepid response is putting NATO and global security at risk. Retrieved from The Conversation: https://theconversation.com/trump-wants-greenland-europes-tepid-response-is-putting-nato-and-global-security-at-risk-272819 Brooks, J. (2026, January 20). Pro-Greenland protesters mock Trump’s MAGA slogan with ‘Make America Go Away’ caps. Retrieved from AP: https://apnews.com/article/denmark-greenland-maga-trump-protest-cd1213dd73e9ea1e4da43285704c95ea Bryant, M., & Sabbagh, D. (2026, January 15). Greenland's defence is 'common concern' for Nato, Danish PM says as European troops fly in. Retrieved from The Guardian: https://www.theguardian.com/world/2026/jan/15/greenland-defence-nato-denmark-prime-minister-european-troops Burrows, E., Ciobanu, C., & Niemann, D. (2026, January 16). European troops arrive in Greenland as talks with US highlight 'disagreement' over island's future. Retrieved from AP: https://apnews.com/article/greenland-united-states-denmark-trump-vance-rubio-meeting-b10f5151008f1f18a788dc0751473c0e CNN. (2026, January 21). Trump says he’s formed a ‘framework of a future deal’ on Greenland. Retrieved from CNN: https://edition.cnn.com/politics/live-news/trump-administration-news-01-21-26 Davies, M. (2026, January 19). Starmer holds phone call with Trump over Greenland tariff threat. Retrieved from BBC: https://www.bbc.com/news/articles/cwyn90l1dneo Dodds, K. (2026, January 09). As the Arctic warms up, the race to control the region is growing ever hotter. Retrieved from The Conversation: https://theconversation.com/as-the-arctic-warms-up-the-race-to-control-the-region-is-growing-ever-hotter-273118 Dunbar, M. (2026, January 18). Trump's calls to seize Greenland ignite fresh criticism from Republican party. Retrieved from The Guardian: https://www.theguardian.com/us-news/2026/jan/18/trump-greenland-republican-party FitzGerald, J. (2026, January 19). Why does Trump want Greenland and what could it mean for Nato? Retrieved from BBC: https://www.bbc.com/news/articles/c74x4m71pmjo Fleck, A. (2025, January 24). NATO’s and Russia’s Militarization of the Arctic. Retrieved from statista: https://www.statista.com/chart/33824/military-bases-in-the-arctic-belonging-to-nato-and-russia/?srsltid=AfmBOoqwc5PmGe6_JB6mYjQSP9pr9fIZE_LcEtMOo_rtnCD86zMcQpwn Gjedssø Bertelsen, R. (2025). Divided Arctic in a Divided World Order. Strategic Analysis, 48(Issue 6: Changing Dynamics in the Arctic: Actors and Alliances), 568-577. doi:https://doi.org/10.1080/09700161.2025.2453322 Government Offices of Sweden. (2026, January 18). Statement by Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden and the United Kingdom. Retrieved from Government Offices of Sweden: https://www.government.se/statements/2026/01/statement-by-denmark-finland-france-germany-the-netherlands-norway-sweden-and-the-united-kingdom/ Grillo, F. (2026, January 08). As the US eyes Greenland, Europe must turn a global problem into an opportunity. Retrieved from The Conversation: https://theconversation.com/as-the-us-eyes-greenland-europe-must-turn-a-global-problem-into-an-opportunity-272872 Gupta, P. (2024, September 18). Understanding the potential of the Northern Sea Route. Retrieved from ORF: https://www.orfonline.org/expert-speak/understanding-the-potential-of-the-northern-sea-route Harvey, L. (2026, January 16). European nations send additional troops to Greenland as US annexation threats escalate. Retrieved from CNN: https://edition.cnn.com/2026/01/15/world/europe-troops-greenland-trump-nato-intl-hnk Hastings Dunn MBE, D., Webber, M., & Wolff, S. (2026, January 07). US action against Greenland would undermine Nato, but now is not the time to panic. Retrieved from The Conversation: https://theconversation.com/us-action-against-greenland-would-undermine-nato-but-now-is-not-the-time-to-panic-272911 Holland, S., Mason, J., & Erickson, B. (2026, January 07). Trump discussing how to acquire Greenland, US military always an option, White House says. Retrieved from Reuters: https://www.reuters.com/world/trump-advisers-discussing-options-acquiring-greenland-us-military-is-always-an-2026-01-06/ huaxia. (2026, January 19). China urges U.S. to stop using so-called "China threat" as pretext for pursuing selfish gains. Retrieved from Xinhua: https://english.news.cn/20260119/57899ee8d43345ddbfa222828ec1d0a4/c.html Jakes, L., Tankersley, J., & Kanno-Youngs, Z. (2026, January 22). Trump Touts Greenland Framework as NATO Mulls U.S. Sovereignty Over Bases. Retrieved from The New York Times: https://www.nytimes.com/live/2026/01/21/us/trump-davos-greenland-news Karjee, M. (2025, August 20). Russia’s Arctic Corridor: Between Ice and Isolation. Retrieved from E-International Relations: https://www.e-ir.info/2025/08/20/russias-arctic-corridor-between-ice-and-isolation/ Katila, A. (2026, January 15). As US and Denmark fight, Greenland’s voices are being excluded once again. Retrieved from The Conversation: https://theconversation.com/as-us-and-denmark-fight-greenlands-voices-are-being-excluded-once-again-273131 Kennedy-Pipe, C. (2026, January 14). Whether or not US acquires Greenland, the island will be at the centre of a massive military build-up in the Arctic. Retrieved from The Conversation: https://theconversation.com/whether-or-not-us-acquires-greenland-the-island-will-be-at-the-centre-of-a-massive-military-build-up-in-the-arctic-273301 Khanna, M. (2025, March 19). China and the Arctic: An Overview. Retrieved from ORF: https://www.orfonline.org/research/china-and-the-arctic-an-overview Kirby, P. (2026, January 16). European military personnel arrive in Greenland as Trump says US needs island. Retrieved from BBC: https://www.bbc.com/news/articles/cd0ydjvxpejo Kotak, S. (2025, September 08). Leveraging India’s Arctic Observer Status: Scientific Diplomacy as a Lever for Climate, Resource and Security Advancement. Retrieved from World & New World Journal: https://worldandnewworld.com/india-arctic-observer-status/ Kottasová, I., & Edwards, C. (2026, Enero 19). Trump le dice a Noruega que ya no se siente obligado a "pensar únicamente en la paz" en carta sobre el Nobel y Groenlandia. Retrieved from CNN Español: https://cnnespanol.cnn.com/2026/01/19/eeuu/trump-paz-noruega-nobel-reux Kumar, A., & Haldar, S. (2024, October 2024). An evolving partnership in the Arctic between China and Russia. Retrieved from ORF: https://www.orfonline.org/expert-speak/an-evolving-partnership-in-the-arctic-between-china-and-russia L. Montgomery, S. (2026, January 14). 4 reasons why the US might want to buy Greenland – if it were for sale, which it isn’t. Retrieved from The Conversation: https://theconversation.com/4-reasons-why-the-us-might-want-to-buy-greenland-if-it-were-for-sale-which-it-isnt-246955 Lebowitz, M. (2026, January 18). Treasury secretary defends Greenland tariffs: 'The national emergency is avoiding the national emergency'. Retrieved from NBC News: https://www.nbcnews.com/politics/trump-administration/treasury-secretary-bessent-tariffs-national-emergency-greenland-eu-rcna254650 Levison, J., & Russell, L. (2026, January 19). Why Trump says the US 'needs' Greenland - and what the fallout could be. Retrieved from Sky news: https://news.sky.com/story/why-trump-says-the-us-needs-greenland-and-what-the-fallout-could-be-13285350 Lubold, G., Kube, C., Williams, A., & Alba, M. (2026, January 14). Buying Greenland could cost as much as $700 billion. Retrieved from NBC News: https://www.nbcnews.com/politics/white-house/buying-greenland-cost-much-700-billion-rcna253921 Manners, I. (2026, January 09). Four ways to understand what’s going on with the US, Denmark and Greenland. Retrieved from The Conversation: https://theconversation.com/four-ways-to-understand-whats-going-on-with-the-us-denmark-and-greenland-272873 Nicholas, P., & Smith, A. (2026, January 20). Trump won't say whether he would use force to seize Greenland. Retrieved from NBC News: https://www.nbcnews.com/politics/trump-administration/trump-greenland-use-of-force-nobel-norway-europe-tariffs-ukraine-rcna254786 Passi, R. (2018, February 21). One belt, one road, and now one circle. Retrieved from ORF: https://www.orfonline.org/expert-speak/one-belt-one-road-and-now-one-circle Paul, J. (2026, January 08). Greenland is rich in natural resources – a geologist explains why. Retrieved from The Conversation: https://theconversation.com/greenland-is-rich-in-natural-resources-a-geologist-explains-why-273022 Reuters. (2021, July 16). Greenland ends unsuccessful 50-year bid to produce oil. Retrieved from Reuters: https://www.reuters.com/business/energy/greenland-puts-an-end-unsuccessful-oil-adventure-2021-07-16/#:~:text=Naaja%20Nathanielsen%2C%20Greenland's%20minister%20of,profits%20or%20make%20a%20loss Rønberg, N., Gjerding Nielson, E., & Haugaard, M. (2026, January 06). Kampen om Grønlands fremtid. Retrieved from Nyheder: https://nyheder.tv2.dk/live/2025-01-06-kampen-om-groenlands-fremtid/over-200-soldater-i-groenland-lige-nu?entry=c342b2d3-e01d-4f60-b1dc-8df98fdac85b Sergunin, A., & Konyshev, V. (2025, April 21). The Arctic Great Game: The Need for Cautious Optimism. Retrieved from ORF: https://www.orfonline.org/expert-speak/the-arctic-great-game-the-need-for-cautious-optimism Sheftalovich, Z., & Jack, V. (2026, January 07). How Trump gets Greenland in 4 easy steps. Retrieved from Politico: https://www.politico.eu/article/donald-trump-greenland-easy-steps-nato-policy-deal-military/ Shetty, K. (2023, June 06). The Northern Sea route: A gamechanger or a road to hegemony? Retrieved from ORF: https://www.orfonline.org/expert-speak/the-northern-sea-route Slothuus, L. (2026, January 12). Why Greenland’s vast natural resources won’t necessarily translate into huge profits. Retrieved from The Conversation: https://theconversation.com/why-greenlands-vast-natural-resources-wont-necessarily-translate-into-huge-profits-273137 Soufi Burridge, T., Gardiner, C., & Pereira, I. (2026, January 16). France, other NATO countries send troops to Greenland for exercises after meeting with Vance and Rubio. Retrieved from ABC News: https://abcnews.go.com/Politics/france-nato-countries-send-troops-greenland-exercises-after/story?id=129241103 Talmazan, Y. (2026, January 15). European troops arrive in Greenland as Trump throws another curveball. Retrieved from NBC News: https://www.nbcnews.com/world/greenland/european-troops-arrive-greenland-trump-throws-curveball-rcna254166 Tanno, S., & Waldenberg, S. (2026, Enero 10). Trump dice que Estados Unidos tomará Groenlandia "por las malas" sino puede hacerlo por las buenas. Retrieved from CNN Español: https://cnnespanol.cnn.com/2026/01/10/eeuu/trump-groenlandia-malas-trax Testoni, M. (2026, January 16). US-Greenland negotiations have hit a wall. Here are three ways the crisis could end. Retrieved from The Conversation: https://theconversation.com/us-greenland-negotiations-have-hit-a-wall-here-are-three-ways-the-crisis-could-end-273629 tg24. (2026, January 16). Groenlandia, scattata la missione "Arctic Endurance": cosa sapere. Retrieved from tg24: https://tg24.sky.it/mondo/2026/01/16/groenlandia-arctic-endurance-esercitazione-militare Bertrand, N., Liptak, K., Atwood, K., & Sclutto, J. (2026, January 23). No written document memorializes the future deal framework for Greenland, sources say. Retrieved from CNN: https://edition.cnn.com/2026/01/22/politics/future-deal-framework-greenland Blake, A. (2026, January 23). Trump’s Greenland framework sounds a lot like an already existing 1951 deal. Retrieved from CNN: https://edition.cnn.com/2026/01/22/politics/us-greenland-framework-1951-deal Curtis, J., & Stefano, F. (2026, January 23). President Trump and Greenland: Frequently asked questions. Retrieved from House of Commons Library: https://commonslibrary.parliament.uk/research-briefings/cbp-10472/ Kola, P. (2026, January 23). What we know about Trump's 'framework of future deal' over Greenland. Retrieved from BBC: https://www.bbc.com/news/articles/c86vvjxe9z7o Meredith, S. (2026, January 28). Greenland will not give in, PM says, as Denmark warns world order as we know it is over. Retrieved from CNBC: https://www.cnbc.com/2026/01/28/greenland-trump-nato-denmark-security-defense.html The White House. (2025, November). National Security Strategy of the United States of America. Retrieved from The White House: https://www.whitehouse.gov/wp-content/uploads/2025/12/2025-National-Security-Strategy.pdf

Defense & Security
Soldier in engineering role uses AI application on laptop to manage server hub systems. Army commander reviews secret intelligence information using artificial intelligence in data center, camera A

Dual-Use AI Technologies in Defense: Strategic Implications and Security Risks

by Mayukh Dey

Introduction Artificial intelligence has become a critical technology in the 21st century, with applications spanning healthcare, commerce, and scientific research. However, the same algorithms that enable medical diagnostics can guide autonomous weapons, and the same machine learning systems that power recommendation engines can identify military targets. This dual-use nature, where technologies developed for civilian purposes can be repurposed for military applications, has positioned AI as a central element in evolving global security dynamics. The strategic implications are substantial. China views AI as essential for military modernization, with the People's Liberation Army planning to deploy "algorithmic warfare" and "network-centric warfare" capabilities by 2030 (Department of Defense, 2024). Concurrently, military conflicts in Ukraine and Gaza have demonstrated the operational deployment of AI-driven targeting systems. As nations allocate significant resources to military AI development, a critical question emerges: whether the security benefits of dual-use AI technologies can be realized without generating severe humanitarian consequences. The Reversal Commercial Innovation Driving Military Modernization Historically, military research and development drove technological innovation, with civilian applications emerging as secondary benefits, a phenomenon termed "spin-off." The internet, GPS, and microwave ovens all originated in defense laboratories. This dynamic has reversed. Commercially developed technologies now increasingly "spin into" the defense sector, with militaries dependent on technologies initially developed for commercial markets. This reversal carries significant implications for global security. Unlike the Cold War era, when the United States and Soviet Union controlled nuclear weapons development through state programs, AI innovation occurs primarily in private sector companies, technology firms, and university research institutions. Organizations like DARPA influence global emerging technology development, with their projects often establishing benchmarks for research and development efforts worldwide (Defense Advanced Research Projects Agency, 2024). This diffusion of technological capacity complicates traditional arms control frameworks based on state-controlled military production. The scale of investment is considerable. The U.S. Department of Defense's unclassified AI investments increased from approximately $600 million in 2016 to about $1.8 billion in 2024, with more than 685 active AI projects underway (Defense One, 2024). China's spending may exceed this figure, though exact data remains unavailable due to the opacity of Chinese defense budgeting. Europe is pursuing comparable investments, with the EU committing €1.5 billion to defense-related research and development through initiatives like the European Defence Fund. Dual-Use Applications in Contemporary Warfare AI's military applications span the spectrum of warfare, from strategic planning to tactical execution. Current deployments include: Intelligence, Surveillance, and Reconnaissance (ISR): AI systems process large volumes of sensor data, satellite imagery, and signals intelligence to identify patterns beyond human analytical capacity. In 2024, "China's commercial and academic AI sectors made progress on large language models (LLMs) and LLM-based reasoning models, which has narrowed the performance gap between China's models and the U.S. models currently leading the field," enabling more sophisticated intelligence analysis (Department of Defense, 2024). Autonomous Weapons Systems: Autonomous weapons can identify, track, and engage targets with minimal human oversight. In the Russia-Ukraine war, drones now account for approximately 70-80% of battlefield casualties (Center for Strategic and International Studies, 2025). Ukrainian officials predicted that AI-operated first person view drones could achieve hit rates of around 80%, compared to 30-50% for manually piloted systems (Reuters, 2024). Predictive Maintenance and Logistics: The U.S. Air Force employs AI in its Condition-Based Maintenance Plus program for F-35 fighters, analyzing sensor data to predict system failures before occurrence, reducing downtime and operational costs. Command and Control: AI assists military commanders in processing battlefield information and evaluating options at speeds exceeding human capacity. Project Convergence integrates AI, advanced networking, sensors, and automation across all warfare domains (land, air, sea, cyber, and space) to enable synchronized, real-time decision-making. Cyber Operations: AI powers both offensive and defensive cyber capabilities, from automated vulnerability discovery to malware detection and sophisticated social engineering campaigns. Gaza and Ukraine: AI in Contemporary Conflict Recent conflicts have provided operational demonstrations of AI's military applications and associated humanitarian costs. Israel's Lavender system reportedly identified up to 37,000 potential Hamas-linked targets, with sources claiming error rates near 10 percent (972 Magazine, 2024). An Israeli intelligence officer stated that "the IDF bombed targets in homes without hesitation, as a first option. It's much easier to bomb a family's home" (972 Magazine, 2024). The system accelerated airstrikes but also contributed to civilian casualties, raising questions about algorithmic accountability. The system's design involved explicit tradeoffs: prioritizing speed and scale over accuracy. According to sources interviewed by 972 Magazine, the army authorized the killing of up to 15 or 20 civilians for every junior Hamas operative that Lavender marked, while in some cases more than 100 civilians were authorized to be killed to assassinate a single senior commander (972 Magazine, 2024). Foundation models trained on commercial data lack the reasoning capacity humans possess, yet when applied to military targeting, false positives result in civilian deaths. Data sourced from WhatsApp metadata, Google Photos, and other commercial platforms created targeting profiles based on patterns that may not correspond to combatant status. Ukraine has implemented different approaches, using AI to coordinate drone swarms and enhance defensive capabilities against a numerically superior adversary. Ukrainian Deputy Defense Minister Kateryna Chernohorenko stated that "there are currently several dozen solutions on the market from Ukrainian manufacturers" for AI-augmented drone systems being delivered to armed forces (Reuters, 2024). Ukraine produced approximately 2 million drones in 2024, with AI-enabled systems achieving engagement success rates of 70 to 80 percent compared to 10 to 20 percent for manually controlled drones (Center for Strategic and International Studies, 2025). Both sides in the conflict have developed AI-powered targeting systems, creating operational arms race dynamics with immediate battlefield consequences. Civilian Harm: Technical and Legal Limitarions The integration of AI into lethal military systems raises humanitarian concerns extending beyond technical reliability. AI's inability to uphold the principle of distinction, which requires protecting civilians by distinguishing them from combatants in compliance with international humanitarian law, presents fundamental challenges. Current AI systems lack several capabilities essential for legal warfare:  Contextual Understanding: AI cannot comprehend the complex social, cultural, and situational factors that determine combatant status. A person carrying a weapon might be a combatant, a civilian defending their home, or a shepherd protecting livestock.  Proportionality Assessments: International humanitarian law requires that military attacks not cause disproportionate civilian damage. Human Rights Watch noted that it is doubtful whether robotic systems can make such nuanced assessments (Human Rights Watch, 2024).  Moral Judgment: Machines lack the capacity for compassion, mercy, or understanding of human dignity, qualities that have historically provided safeguards against wartime atrocities.  Accountability: With autonomous weapon systems, responsibility is distributed among programmers, manufacturers, and operators, making individual accountability difficult to establish. As one expert observed, "when AI, machine learning and human reasoning form a tight ecosystem, the capacity for human control is limited. Humans have a tendency to trust whatever computers say, especially when they move too fast for us to follow" (The Conversation, 2024). The risks extend to specific populations. Autonomous weapons systems trained on data predominantly consisting of male combatants in historical records could create algorithmic bias. In the case of Lavender, analysis suggests "one of the key equations was 'male equals militant,'" echoing the Obama administration's approach during drone warfare operations (The Conversation, 2024). Communities of color and Muslim populations face heightened risks given historical patterns of discriminatory force deployment. Export Controls and Technology Transfer Challenges Recognizing AI's strategic importance, governments have implemented export control regimes. The U.S. Bureau of Industry and Security now requires licenses for exports of advanced computing chips and AI model weights, imposing security conditions to safeguard storage of the most advanced models. These controls face inherent tensions. Overly broad restrictions risk hampering legitimate research and commercial innovation. Analysis suggests that if AI technology is too extensively controlled, American universities may face difficulties performing AI research, resulting in a less robust U.S. AI ecosystem. Insufficient controls enable adversaries to acquire cutting-edge capabilities. The effectiveness of export controls remains uncertain. In 2024, hundreds of thousands of chips, totaling millions of dollars, were smuggled into China through shell companies, varying distributors, and mislabeling techniques (Oxford Analytica, 2025). China's DeepSeek models, which achieved performance approaching U.S. systems, were reportedly trained on chips that circumvented export restrictions. International Governance: Fragmentation and Competing Frameworks The international community has struggled to develop coherent governance frameworks for dual-use AI. Rather than a cohesive global regulatory approach, what has emerged is a collection of national policies, multilateral agreements, high-level summits, declarations, frameworks, and voluntary commitments. Multiple international forums have addressed AI governance: ● The UN Secretary-General created an AI Advisory Board and called for a legally binding treaty to prohibit lethal autonomous weapons systems without human control, to be concluded by 2026 ● The Group of Governmental Experts on Lethal Autonomous Weapons Systems has held discussions under the Convention on Certain Conventional Weapons since 2013, with limited concrete progress ● NATO released a revised AI strategy in 2024, establishing standards for responsible use and accelerated adoption in military operations ● The EU's AI Act, adopted in 2023, explicitly excludes military applications and national security from its scope This fragmented landscape reflects geopolitical divisions. The perceived centrality of AI for competition has led the U.S. to position itself as leader of ideologically aligned countries in opposition to China, including for security purposes. China promotes its own governance vision through initiatives like the Belt and Road, exporting technology standards alongside infrastructure. Strategic Stability Implications AI creates strategic stability challenges. Autonomous weapons enable substitution of machines for human soldiers in many battlefield roles, reducing the human cost and thus political cost of waging offensive war. This could increase the frequency of conflicts between peer adversaries, each believing they can prevail without significant domestic casualties. For conflicts between non-peer adversaries, reduced casualties further diminish domestic opposition to wars of aggression. The implications extend beyond conventional warfare. Armed, fully-autonomous drone swarms could combine mass harm with lack of human control, potentially becoming weapons of mass destruction comparable to low-scale nuclear devices. The technical barriers to such systems are declining as components become commercially available. AI also complicates nuclear stability. Advances in AI-enhanced sensors and data processing could undermine second-strike capabilities by improving detection of mobile missile launchers and submarines. This erosion of assured retaliation could incentivize first strikes during crises. Simultaneously, AI systems managing nuclear command and control create risks of accidents, miscalculations, or unauthorized launches. Ethical Framework Limitations The integration of AI into warfare strains traditional ethical frameworks. Just War Theory requires that combatants maintain moral responsibility for their actions, possess the capacity to distinguish combatants from civilians, and apply proportionate force. Automation bias and technological mediation weaken moral agency among operators of AI-enabled targeting systems, diminishing their capacity for ethical decision-making. When operators interact with targeting through screens displaying algorithmic recommendations rather than direct observation, psychological distance increases. This mediation risks transforming killing into a bureaucratic process. The operator becomes less a moral agent making decisions and more a technician approving or rejecting algorithmic suggestions. Furthermore, industry dynamics, particularly venture capital funding, shape discourses surrounding military AI, influencing perceptions of responsible AI use in warfare. When commercial incentives align with military applications, the boundaries between responsible innovation and reckless proliferation become unclear. Companies developing AI for civilian markets face pressure to expand into defense contracting, often with insufficient ethical deliberation. Conclusion Dual-use AI technologies present both opportunities and risks for international security. One trajectory leads toward normalized algorithmic warfare at scale, arms races in autonomous weapons that erode strategic stability, and inadequate international governance resulting in civilian harm. An alternative trajectory involves international cooperation that constrains the most dangerous applications while permitting beneficial uses. The timeframe for establishing governance frameworks is limited. AI capabilities are advancing rapidly, and widespread proliferation of autonomous weapons will make policy reversal substantially more difficult. The challenge resembles nuclear non-proliferation but unfolds at greater speed, driven by commercial incentives rather than state-controlled programs. Because AI is a dual-use technology, technical advances can provide economic and security benefits. This reality means unilateral restraint by democratic nations would cede advantages to authoritarian competitors. However, uncontrolled competition risks adverse outcomes for all parties. Concrete action is required from multiple actors. States must strengthen multilateral agreements through forums like the UN Convention on Certain Conventional Weapons to establish binding restrictions on autonomous weapons without meaningful human control. NATO and regional security alliances should harmonize AI ethics standards and create verification mechanisms for military AI deployments. Military institutions must implement mandatory human-in-the-loop requirements for lethal autonomous systems and establish clear chains of accountability for AI-driven targeting decisions. Technology companies developing dual-use AI systems bear responsibility for implementing ethical safeguards and conducting thorough threat modeling before commercial release. Industry alliances should establish transparency standards for military AI applications and create independent audit mechanisms. Universities and research institutions must integrate AI ethics and international humanitarian law into technical training programs. Export control regimes require coordination between the United States, EU, and allied nations to prevent regulatory arbitrage while avoiding overreach that stifles legitimate research. Democratic governments should lead by demonstrating that military AI can be developed within strict ethical and legal constraints, setting standards that distinguish legitimate security applications from destabilizing weapons proliferation. As Austrian Foreign Minister Alexander Schallenberg observed, this represents the Oppenheimer moment of the current generation, recognizing that dual-use AI, like nuclear weapons, represents a technology whose military applications demand collective restraint. The policy choices made in the next few years will have long-term consequences. They will determine whether AI becomes a tool for human advancement or an instrument of algorithmic warfare. The technology exists; the policy framework remains to be established. The actors are identified; the question is whether they possess the political will to act before proliferation becomes irreversible. References 972 Magazine (2024) 'Lavender': The AI machine directing Israel's bombing spree in Gaza. https://www.972mag.com/lavender-ai-israeli-army-gaza/ Center for Strategic and International Studies (2024) Where the Chips Fall: U.S. Export Controls Under the Biden Administration from 2022 to 2024. https://www.csis.org/analysis/where-chips-fall-us-export-controls-under-biden-administration-2022-2024 Center for Strategic and International Studies (2025) Ukraine's Future Vision and Current Capabilities for Waging AI-Enabled Autonomous Warfare. https://www.csis.org/analysis/ukraines-future-vision-and-current-capabilities-waging-ai-enabled-autonomous-warfare Defense One (2023) The Pentagon's 2024 Budget Proposal, In Short. https://www.defenseone.com/policy/2023/03/heres-everything-we-know-about-pentagons-2024-budget-proposal/383892/ Department of Defense (2024) Military and Security Developments Involving the People's Republic of China 2024. https://media.defense.gov/2024/Dec/18/2003615520/-1/-1/0/MILITARY-AND-SECURITY-DEVELOPMENTS-INVOLVING-THE-PEOPLES-REPUBLIC-OF-CHINA-2024.PDF Foreign Policy Research Institute (2024) Breaking the Circuit: US-China Semiconductor Controls. https://www.fpri.org/article/2024/09/breaking-the-circuit-us-china-semiconductor-controls/ Human Rights Watch (2024) A Hazard to Human Rights: Autonomous Weapons Systems and Digital Decision-Making. https://www.hrw.org/report/2025/04/28/a-hazard-to-human-rights/autonomous-weapons-systems-and-digital-decision-making National Defense Magazine (2024) Pentagon Sorting Out AI's Future in Warfare. https://www.nationaldefensemagazine.org/articles/2024/10/22/pentagon-sorting-out-ais-future-in-warfare Queen Mary University of London (2024) Gaza war: Israel using AI to identify human targets raising fears that innocents are being caught in the net. https://www.qmul.ac.uk/media/news/2024/hss/gaza-war-israel-using-ai-to-identify-human-targets-raising-fears-that-innocents-are-being-caught-in-the-net.html Reuters (2024) Ukraine rolls out dozens of AI systems to help its drones hit targets. https://euromaidanpress.com/2024/10/31/reuters-ukraine-rolls-out-dozens-of-ai-systems-to-help-its-drones-hit-targets/

Defense & Security
The Map and Flag of China and Japan.

The Effect of China-Japan Conflict on Global Economy

by World & New World Journal Policy Team

I. Introduction Relations between Japan and China entered a state of crisis on November 7th, 2025, after Japanese prime minister Sanae Takaichi said in the Japanese parliament that a Chinese attack on Taiwan potentially constituted an “existential crisis” under the Legislation for Peace and Security, allowing Japan to take military action in collective self-defense [1]. Following Takaichi’s remarks, the Chinese general consul in Osaka, Xue Jian, made threatening comments against Takaichi on X, triggering a diplomatic row between the two countries. Both sides protested the other’s remarks. In response to questions from the members of Japanese parliament, Takaichi refused to withdraw her remarks, claiming that they were consistent with the Japanese government’s existing position on the issue. Japan requested that China take “appropriate measures” against Xue. China refused the Japanese request and instead demanded Takaichi retract her statements. Then the Chinese government issued numerous retaliatory measures against Japan, including restricting travel and cultural exchanges, issuing a travel advisory, and cutting off seafood imports from the country. Moreover, On November 15th, the China Maritime Safety Administration announced that the People’s Liberation Army would conduct live-fire exercises in the central Yellow Sea from November 17th to 19th, and that navigation in this area would be prohibited during this period. The notice drew criticism from Taiwan, which accused China of saber-rattling in Japan for political gain [2]. On November 16th, the China Coast Guard announced that a formation of its ships carried out a patrol within the territorial waters of the Senkaku Islands, a territory disputed between Japan, China, and Taiwan. On December 2nd, Chinese and Japanese coastguard vessels engaged in a standoff over the islands. China said that it had implemented “necessary control measures” and driven a Japanese fishing boat away from the islands. On the other hand, Japan stated that it had intercepted and driven away two Chinese coastguard vessels, which approached the Japanese fishing boat. [3] From December 6th to 7th, Chinese Liaoning aircraft carrier transited through the Miyako Strait between the islands of Okinawa and Miyakojima and began takeoff and landing drills with Shenyang J-15 jets; aircraft took off from and landed on the aircraft carrier roughly 100 times in two days. [4] On December 7th, Japanese defense minister Shinjirō Koizumi accused China of two incidents on December 6th in which Shenyang J-15 jets from the Liaoning aircraft carrier at locking their fire-control radar at Japanese F-15 jets near the Miyako Strait. The Japanese government strongly protested to China. Takaichi also called the incident “extremely disappointing.” Japanese vice foreign minister Takehiro Funakoshi summoned Chinese ambassador Wu Jianghao over the incident. [5] In response, the PLA Navy spokesperson Wang Xuemeng accused Japan of a “slander and smear campaign,” saying that the Liaoning was carrying “routine carrier-based fighter jet flight training. [6]” In addition, he said that Japan Self-Defense Forces' aircraft had repeatedly approached and disrupted its fighter jet training. Japanese officials later said that their Chinese counterparts didn’t answer the hot line during the incident. Japanese defense minister Koizumi also said that while notified, Japan “did not receive sufficient information” regarding the military exercises, while Kihara said Japanese jets were far away from the Chinese jets while training. [7] The US criticized the radar targeting of Japanese aircraft and strengthened the US alliance with Japan. A US State Department spokesperson also said that “China’s actions do not contribute to regional peace and stability.” [8] The Liaoning aircraft carrier group traveled northeast from their position east of Kikai Island following the incident. A Chinese naval Type 054 frigate also sailed through the Miyako Strait on December 8th, while another traveled through the Osumi Strait. On December 9th, two Russian Tupolev Tu-95 bombers, four Chinese Shenyang J-16 fighter jets, and two Chinese Xi’an H-6 bombers flew through the Miyako Strait into the Pacific Ocean as part of joint military drills. On December 10th, two US B-52 bombers flew together with three Japanese F-15 jets and three F-35 jets. The Japanese defense ministry said that the US and Japan “reaffirmed their strong resolve to prevent any unilateral attempt to change the status quo by force.” [9] With this recent tension between China and Japan in the background, this paper explores the impacts of the China-Japan conflict on the global economy. This paper first explains major conflicts between China and Japan in the past and then examines the effects of the China-Japan conflict on the global economy. II. Past Conflicts between China and Japan The First Sino-Japanese War The First Sino-Japanese War (July 25th, 1894 – April 17th, 1895) was a conflict between the Qing dynasty of China and the Empire of Japan primarily for influence over Korea. [10] After more than six months of unbroken successes by Japanese naval and land forces and the loss of the ports of Lüshunkou (Port Arthur) and Weihaiwei, the Qing government sued for peace in February 1895 and signed the unequal Treaty of Shimonoseki with Japan two months later, thereby ending the war. In the late 19th century, Korea remained one of the Qing tributary states, while Japan viewed Korea as a target of imperial expansion. In June 1894, the Qing government, at the request of the Korean emperor Gojong, sent 2,800 troops to aid in suppressing the Donghak Peasant Revolution. The Japanese government considered this a violation of the 1885 Convention of Tientsin and sent an expeditionary force of 8,000 troops to Korea. The Japanese force landed in Incheon. The Japanese army moved to Seoul, seized the Korean emperor, and set up a pro-Japanese government on July 23rd, 1894 in the occupation of Gyeongbokgung. The Qing government decided to withdraw its troops, but rejected recognition of the pro-Japanese government, which had granted the Imperial Japanese Army the right to expel the Qing’s Huai Army from Korea. However, approximately 3,000 Qing troops remained in Korea, and could be supplied only by sea; on July 25th, the Japanese Navy won the Battle of Pungdo over the Qing navy and sank the Qing’s steamer Kowshing, which was carrying 1,200 Qing reinforcements. Japan declared war against the Qing on August 1st. Following the Battle of Pyongyang on September 15th, Qing troops retreated to Manchuria, allowing the Japanese army to take over Korea. Two days later, the Qing’s Beiyang Fleet suffered a decisive defeat at the Battle of the Yalu River, with its surviving ships retreating to Port Arthur. In October 1894, the Japanese army invaded Manchuria, and captured Port Arthur on November 21st. Then Japan captured Weihaiwei on the Shandong Peninsula on February 12th, 1895. This gave the Japanese army control over the approaches to Beijing, and the Qing court began to negotiate with Japan in early March. The war concluded with the Treaty of Shimonoseki on April 17th, which required the Qing government to pay a massive indemnity and to cede the island of Taiwan to Japan. Japan gained a predominant position in the Korean peninsula. The war demonstrated the failure of the Qing dynasty’s attempts to modernize its military and fend off threats to its sovereignty, especially when compared with Japan’s successful Meiji Restoration. For the first time, regional hegemony in East Asia shifted from China to Japan; the prestige of the Qing dynasty, along with the classical tradition in China, suffered a major blow. [11] Inside China, the defeat was a catalyst for a series of political upheavals led by Sun Yat-sen and Kang Youwei, culminating in the 1911 Revolution and ultimate end of the Qing dynasty in China. The Second Sino-Japanese War The Second Sino-Japanese War was fought between the Empire of Japan and the Republic of China and between 1937 and 1945, after a period of war localized to Manchuria that started in 1931. [12] It was the largest war in Asia in the 20th century. [13] On September 18th, 1931, the Japanese staged the Mukden incident, a false flag event fabricated to justify their invasion of Manchuria and establishment of the puppet state of Manchukuo. This is sometimes marked as the beginning of the war between the Empire of Japan and the Republic of China. From 1931 to 1937, China and Japan engaged in skirmishes, including Shanghai, as well as in Northern China. The military forces of Nationalist and Chinese Communist Party, led by Chiang Kai-shek and Mao Zedong respectively, had fought each other in the Chinese Civil War since 1927. In late 1933, Chiang Kai-shek encircled the Chinese Communists in an attempt to finally destroy them, forcing the Communists into the Long March. The Communists lost almost 90% of their men. Although a Japanese invasion became imminent, Chiang still refused to form a united front with the Communists before he was placed under house arrest by his subordinates who forced him to form the Second United Front in late 1936 in order to resist the Japanese invasion together. [14] The full-scale war started on July 7th, 1937 with the Marco Polo Bridge incident near Beijing, which prompted a full-scale Japanese invasion of the rest of China. The Japanese army captured the capital of Nanjing in 1937 and perpetrated the Nanjing Massacre. After failing to stop the Japanese capture of Wuhan (China’s de facto capital at that time) in 1938, the Nationalist government relocated to Chongqing in the Chinese interior. After the Sino-Soviet Non-Aggression Pact, Soviet aid bolstered the National Revolutionary Army and Air Force. By 1939, after Chinese victories at Changsha and with Japan’s lines of communications stretched deep into the interior, the war reached a stalemate. The Japanese forces could not defeat the Communist forces in Shaanxi, who waged a campaign of sabotage and guerrilla warfare. In November 1939, Nationalist forces carried out a large-scale winter offensive, and in August 1940, Communist forces launched the Hundred Regiments Offensive in central China. In April 1941, Soviet aid was halted with the Soviet–Japanese Neutrality Pact. [15] In December 1941, Japan launched a surprise attack on Pearl Harbor in Hawaii and declared war on the US. The US increased its aid to China under the Lend-Lease Act, becoming its main financial and military supporter. With Burma cut off, the US Air Forces airlifted material over the Himalayas. In 1944, Japan launched Operation Ichi-Go, the invasion of Henan and Changsha. In 1945, the Chinese Expeditionary Force resumed its advance in Burma and completed the Ledo Road linking India to China. China launched large counter-offensives in South China, repulsed a failed Japanese invasion of West Hunan, and recaptured Japanese occupied regions of Guangxi. [16] Japan surrendered on September 2nd, 1945, after the atomic bombings of Hiroshima and Nagasaki by the US, Soviet declaration of war against Japan and subsequent invasions of Manchukuo and Korea. The war resulted in the deaths of approximately 20 million Chinese. China was recognized as one of the Big Four Allied powers in World War II and one of the “Four Policemen,” which formed the foundation of the UN. [17] It regained all lost territories and became one of the five permanent members of the UN Security Council. The Chinese Civil War resumed in 1946, ending with a communist victory and the Proclamation of the People’s Republic of China in 1949. The government of the Republic of China relocated to Taiwan. Senkaku Islands Dispute September 2010 Senkaku Boat Collision The Senkaku boat collision incident occurred on the morning of September 7th, 2010, when a Chinese trawler (Minjinyu 5179) collided with Japanese Coast Guard patrol boats near the Senkaku Islands. The Senkaku Islands are a group of five uninhabited islands and three islets located in the East China Sea, which are under the administrative control of Japan, but also claimed by China and Taiwan. The Senkaku Islands have both economic and military value. There are rich fishing grounds in the exclusive economic zone (EEZ) surrounding the Senkaku islands, as well as significant oil and gas deposits. The islands are also of great geostrategic value, facilitating control over the East China Sea. [18] The Senkaku Islands are claimed by Japan, the People’s Republic of China and the Republic of China (Taiwan). [19] In 2008 a sports fishing boat from Taiwan, Lien Ho, was rammed and sunk by Japanese Coast Guard patrol ships which led to an official apology and monetary compensation of NT$10 million paid by Japan. Multiple events involving Japanese Coast Guard and fishing boats from nearby Chinese provinces and Taiwan have occurred since 1972. From 2005 to the 2010 incident, however, bilateral relations between Japan and China had been positive.  [20] According to the Japanese Coast Guard, the patrol boat Mizuki of the 11th Regional Coast Guard Headquarters encountered Minjinyu 5179 at around 10:15 (JST) on September 7th, 2010. Mizuki ordered Minjinyu 5179 to stop for inspection since Minjinyu 5179 was traveling 12 km (7.5 mi) north-west of the Senkaku Islands, which is outside the agreed area for Chinese fishing, and within disputed Japanese territorial waters. Minjinyu 5179 refused to follow the order and attempted to flee from the scene. During the chase and interception, Minjinyu 5179 collided with Japanese Coast Guard patrol vessels. On September 8th, 2010, Japanese Coast Guard boarded the Chinese trawler and arrested its captain for obstruction of performance of public duty and illegal fishing. [21] The trawler, the captain, and 14 crew members were transported to Ishigaki Island of Japan for detention. A Japanese investigator told the press that he smelled alcohol on the arrested captain but apparently no alcohol test results were ever released. The collision and Japan’s subsequent detention of the captain, Zhan Qixiong resulted in a major diplomatic dispute between Japan and China. When China’s repeated demands for the release of the captain were refused and his detention extended for ten more days, the Chinese government canceled official meetings of the ministerial level and above. [22] In response to the arrest, the Chinese government made a series of diplomatic protests, demanding the immediate release of the trawler and all its crew. China summoned Uichiro Niwa, the Japanese ambassador to China in Beijing, six times, each time with an official of higher diplomatic rank, on one occasion after midnight. Moreover, China initiated a series of escalatory measures, including rhetorical threats, encouraging popular protests across China, the arrest of four Japanese citizens in China for allegedly photographing military targets and the implementation of an unofficial embargo on Rare Earth Elements (REE). These measures were implemented with various degrees of ambiguity and designed to exploit a number of Japanese vulnerabilities – including the Japanese government’s weakened domestic position and the Japanese economy’s high dependency on Chinese REE exports. [23] In the short-term, China attempted to force Japan to release the detained trawler captain immediately. In the long-term, however, China tried to demonstrate its ability to use a strong economic instrument which could be used as deterrent, and as coercive measure. The detained Chinese crew members were released without charge and were allowed to return home. In China, the overall event is perceived as a diplomatic victory, while the Japanese government’s “weak-kneed” handling of the issue was criticized in Japan, in particular by former Prime Minister Shinzo Abe. [24] One hundred Japanese conservative lawmakers signed a letter criticizing the release of the Chinese captain, and Japanese citizens took to the street to protest both China’s behavior and the “weakness” of the Japanese government. Video footage proving the deliberate nature of the boat ramming was only shown to Japanese lawmakers in a closed screening, but not released to the wider public, likely out of fear of further diplomatic clashes with China. The footage was eventually leaked online and led to increased criticism of the Japanese government for keeping details of the incident from the public. The crisis was resolved by the end of November 2010 when diplomatic dialogue between Japan and China was fully restored, and a significant de-escalation of measures took place. September 2012 Japanese Government’s Island Purchase The Senkaku Islands dispute in September 2012 was a major flare-up between Japan and China, triggered by Japan‘s purchase (from private owners) and nationalization of three of the uninhabited islands, which China claims as its territory. In April 2012, the governor of Tokyo, Shintaro Ishihara, a right-wing nationalist, announced a plan for his municipal government to purchase three of the islands (Uotsuri, Minamikojima, and Kitakojima) from their private owner and build on them in order to assert Japanese sovereignty. In August 2012, Chinese activists from Hong Kong briefly landed on the islands, triggering a visit by Japanese activists in response. In September 2012, the Japanese government completed the purchase of the three islands from a private Japanese owner. This action triggered massive anti-Japanese protests across China, disruptions to Japanese businesses, boycotts of Japanese products, and increased patrols by Chinese vessels near the islands, thereby escalating tensions between China and Japan over sovereignty. This action also impacted trade between the two countries and tested the US-Japan security alliance. Consequences of the conflict were as follows: First, the dispute intensified nationalist feelings in both China and Japan, with demonstrations occurring in more than 100 Chinese cities, coinciding with the anniversary of the Mukden Incident. The Japanese embassy in Beijing was attacked. Major Japanese companies temporarily shut their factories and offices in China. Two more Japanese activists landed briefly on the islands. Secondly, Chinese Boycotts and business disruptions hit Japanese companies like Panasonic, Honda, and Canon, with significant drops in Japanese car sales and exports to China. Third, in response to Japan’s purchase of the three islands, China sent patrol boats to the area, challenging Japan’s administration and marking a new, more confrontational status quo. Later six Chinese ships sailed into the waters around the islands, staying for a short period of time to assert China’s territorial claim. Chinese maritime surveillance vessels made 12 forays into the waters close to the Islands after Japan bought the three islands in September 2012. Japan increased the number of coastguard vessels patrolling the island from three to thirty. Moreover, in December 2012, a Chinese maritime surveillance plane flied over the islands for the first time. Japan responded by scrambling eight F-15 fighter jets. The incident demonstrated that the dangers of an armed clash existed not only at sea, but also in the air. The dispute wasn’t resolved; instead, it marked a significant escalation, with Japan solidifying its de facto administrative control and China increasing its assertive presence. Fourth, since 2012, China has maintained a daily presence with its coast guard vessels near the islands, thereby creating the situations of confrontation with the Japanese navy. III. The Economic Effects of Conflicts between China and Japan 1. Evolution of China-Japan Conflict It is hard to predict what effects China-Japan conflicts will have on global economy, as well as the economy of both countries. Cambridge Centre for Risk Studies at University of Cambridge carried out research on this issue in June 2014 after Japanese government purchased three of the uninhabited Senkaku islands and then the conflict between China and Japan took place in September 2012. Cambridge Centre for Risk Studies categorizes China-Japan Conflict as a magnitude 3 conflict. Table 1: Magnitude scale of conflict (source: Cambridge Centre for Risk Studies) Cambridge Centre for Risk Studies provided three scenario for the China-Japan Conflict (S1, S2, and X1). Standard Scenario S1 consists of 9 months of conflict before stalemate occurs and intervention enables peace to be concluded. Scenario Variant S2 is similar to the standard scenario, but the conflict period lasts for 2 years, with trade disruption continuing for a further 3 years. An important aspect of the macroeconomic consequences is the duration of the disruption to international trade. Phase 4 in the scenario is prolonged, with double the economic losses and around 250,000 people dead. Scenario Variant X1 (Extreme 1) is the most severe variant considered in the impact analysis. Conventional weapons are still preferred but the conflict lasts more than 5 years, thereby causing over 3 times the losses and nearly 500,000 deaths. Such a variant plunges the whole world into a three-year recession after 90% of export trade is lost. According to Cambridge Centre for Risk Studies, the China-Japan Conflict evolves through Phase 1 through 7. Phase 1: escalating tensions Diplomatic posturing, Naval maneuvers, and large-scale war-games have defined recent tensions between Japan and China. Amid military modernization, increased Chinese nationalism, the legacy of conflict (Sino-Japanese wars) and an extreme thirst for natural resources, Japan and China have continued to clash over the Senkaku Islands. As Japan imports 90% of its energy, it is eager to maintain an open and free flow of maritime trade, but despite bilateral trade reaching US$ 345 billion, China has pursued a more assertive position, fueled by nationalism and a rise in anti-Japanese sentiment. [25] Since Japan’s nationalization of three of the disputed Senkaku islands in 2012, China has increased the frequency and scale of incursions. For example, Chinese aircraft have entered the disputed airspace, and Chinese frigates have engaged Japanese destroyers. Tensions have reached their highest level since the end of World War II in 1945. In a show of self-determination, Japan’s Diet (parliament) passed new laws that repealed limitations of the Constitution on use of military force to settle international disputes. There is a growing concern that the situation in the East China Sea will soon escalate beyond the disputes in the South China Sea, where the Chinese navy attacked commercial Vietnamese vessels over proximity to the Spratly Islands. [26] A Japanese fishing vessel is fired upon after straying into Chinese waters. Although the crew of the damaged boat are returned safely, angry diplomatic exchanges begin from the highest levels of both Japanese and Chinese governments. Japan acknowledges the error of the fishing boat and promises immediate action to prevent further incidents. [27] Although tight-lipped at first, details emerge that the Japanese government deployed naval engineers to install radar equipment on the disputed Senkaku islands to ‘help ships and boats navigate the area safely.’ The Chinese government and state-run media react angrily to the news, stating that the objective of ‘preventing marine accidents’ is a ‘thinly veiled attempt to disguise a notorious, unlawful and dangerous attempt to claim Japan’s sovereignty over the Senkaku islands.’ Phase 2: provocation and posturing Stocks tied to Japanese businesses suffer heavy losses on Chinese stock markets as tensions between Japan and China increased amid uncertainty over the Chinese response. Although expected to call for a UN Security Council meeting, the Chinese government bypass diplomatic protocols and issue a public condemnation and ultimatum, demanding that Japan remove immediately the radar and personnel within 72 hours. Failure to do so, the statement from the Chinese government continues, is considered “an unacceptable act of aggression against Chinese sovereignty.” Despite international calls for calm action and volatility in global stock markets, Japan refuses to remove the radar equipment, reiterating their “honest and responsible intent to protect all in the East China Sea.” After 24 hours, China orders an immediate cessation of all trade import agreements with Japan. China also issues a travel advisory, warning all Chinese citizens to leave Japan immediately. The US and several EU countries urge calm. The Dow Jones and FTSE100 are among many global markets that suffer heavy losses on fear of war and the implications for long-term economic growth. The world waits anxiously for the deadline. Rumors of negotiations excite the press and prop up the markets but the sudden and conspicuously coordinated departure of all non-essential personnel from the Chinese embassies and consulates in Japan creates widespread pessimism. Many international operations decide to withdraw executives from their offices in key cities in the region. Phase 3: military incidents Seventy-two hours after the ultimatum, a Chinese People’s Liberation Army Navy (PLAN) Lanzhou-class destroyer launches a C-602 cruise missile against the radar installation on the disputed islands. The missile destroys the radar along with a naval transportation unit, killing 18 members of Japan’s Maritime Self-Defense Force (JMSDF). The Western countries condemn the Chinese missile attack with UK, US, and France calling an urgent meeting of the UN Security Council. Japanese citizens are outraged. The Japanese government publicly promises retaliation against China. The US government urges restraint on Japan and warns that any proactive Japanese actions to provoke China could compromise US ability to support them in future actions. Stock markets plunge as fear of war sets in, with commodity prices, in particular oil, increasing significantly. The following evening two Japanese Mitsubishi F2 fighter planes from Tsuiki Air Base in Fukuoka, armed with ASM-2 anti-ship missiles, destroy the Chinese ship responsible for the missile attack on Senkaku Islands. China state news agencies report 37 Chinese sailors killed in the attack, with the destroyer afloat in open water but damaged beyond repair. Protestors in China take to the streets, criticizing Japan’s attacks. Japanese citizens are jubilant, with nationalistic media coverage. The wider international community condemns the retaliation act. China instigates a full blockade of Japanese vessels traveling through the Taiwan Strait and South China Sea, while promising safe passage for all non-Japan bound ships; China closes its airspace to airplanes coming to or from Japan. Japan reacts similarly, restricting movement of Chinese ships and airplanes. To prevent any attempt on the part of Japan’s Maritime Self-Defense Force to access the islands, Chinese PLAN enacts a familiar mine warfare strategy to block access. The ‘Elfreida’, a commercial US$200m Ultra Large Container Vessel traveling from Busan in South Korea to Singapore, is lost at sea along with nearly 15,000 TEUs (twenty-foot equivalent units) of cargo. Although the cause is not confirmed, speculation mounts that the ship struck a Chinese mine that had drifted into open water. Japan is quick to label it as another Chinese act of recklessness, while China blames a Japanese submarine attack for the disaster. Amid the high level of tension, another civilian disaster occurs as a commercial aircraft carrying 400 passengers disappears. A 747-400 heading from Beijing to Sydney disappears from the radar over the East China Sea. Accident investigators cannot determine whether it was destroyed in an act of war. Aside from the human cost, insurance claims are expected of up to a billion dollars. The US, Australia, and India create a total blockade of the East China Sea. Ships traveling from Japan are forced to travel south of the Philippines, thereby increasing journey times by over 30%. South Korea’s trade routes with Asia and Europe are also severely affected, however, as it is summer, trade with Europe suffer less, as they can use Arctic-shipping lanes and actually reduce shipping times by almost one week. China’s imports and exports are hit hardest. Their cross-Pacific journeys are rendered almost impossible, severely hampering trade and diplomatic relations with the US. [28] Chinese citizens take to the streets in protest. Although protests are generally anti-Western, they focus on anti-Japanese protests. Japanese businesses are ransacked and burned, and Japanese commercially branded products destroyed on the street. A Japanese factory in Shanghai is stormed by an angry mob, killing Japanese managers. Dozens more Japanese workers are taken hostage by Chinese protestors. Phase 4: all-out conflict Japan’s Special Forces mount a clandestine operation to rescue the Shanghai hostages, bringing commandoes ashore and into the factory compound in central Shanghai, undetected by Chinese defense forces. The clandestine operation successfully extracts the Japanese hostages, and the Japanese Special Forces escape before the Chinese army react, but several Chinese protestors are killed. China responds with a subtle but devastating act. A cyber attack shuts down Japan’s Futtsu Power station, near Tokyo, the second largest gas power station in the world and key provider of energy to the Keihin and Keiyo Industrial Zones (the largest industrial region in Japan). The attack cripples Japan’s industrial sector and denies power to military bases in the region. Power shortages restrict industries to three-day weeks as Japan starves for energy. At the same time, Washington D.C. suffers a mysterious but temporary power outage. Despite China denying responsibility for computerized hacking of the US power grid, military commentators interpret it as ‘virtual shot across the bow’, to warn the US away from military intervention in the China-Japan conflict. Trading is suspended on global stock markets as fear of a world war triggers sharp falls. Panic strikes Japan as people begin to evacuate the major cities in Japan. Many foreign nationals have already left but those who remain struggle to find ways to exit Japan. A full diplomatic effort is launched to remove citizens from both China and Japan. Foreign governments provide a constant stream of flights to India, Singapore and Australia as fear of escalation spreads. After a short period of relative calm, Japan carries out a pre-dawn air strike against mainland China. Ship-launched cruise missiles and aircraft-launched air-to-ground missiles target the military bases and radar stations around Shanghai, Beijing, and the Hong Kong - Guanghzou region. It is the start of a major period of offensive action by Japanese military forces, which continues for nearly three months of nightly bombing. As the anti-aircraft defenses around the cities in China are degraded, air raids are launched targeting the major industrial and commercial centers, in a concerted action of strategic bombing to reduce the economic power of China and change the strategic balance of military power and global influence in the region after the conflict. Assembly plants, office buildings, factories, ports, trucking and rail facilities are destroyed in concerted waves, night after night. Chinese air defense is fierce, and Japanese aircraft suffer heavy losses. Despite the night timing of the attacks, and air raid warnings, tens of thousands of Chinese workers are reported killed in the first few weeks. The death toll mounts over the coming months. China’s retaliation is swift; carrying out similar airstrikes against industrial and commercial sites in Japan’s Sendai region, and commencing an intensive bombing campaign of Japan’s power plants, liquid petroleum gas plants and shipping terminals. Japan’s already restricted energy supply is further damaged, and China’s strategy is now to cripple Japan’s economic infrastructure and to place pressure on the Japanese government to back down. China launches waves of missile attacks against industrial sites in the Tokyo-Yokohama region. In addition to tens of thousands of casualties, Japan’s industrial capacity suffers severe damage. Phase 5: stalemate The hostilities between Japan and China provokes global condemnation and the international community suffers economically from the fallout of the war, but for some period of time nobody can prevent the conflict from continuing. China’s membership of the UN Security Council is suspended. The UN Security Council calls for an immediate ceasefire and de-militarization of the area, but is unable to get agreement to mandate trading sanctions against the belligerent nations. Shipping of gas and oil supplies to both Japan and China are severely curtailed and energy reserves in both countries are reported running low, but critically so in Japan. The US declares that it is not prepared to let the Japanese citizens run out of fuel, and soon will provide Japan with the gas and oil supplies it needs. Japan agrees to suspend military attacks against China. A US shipping convoy of oil tankers heads for Japan, and the US demands that China withdraws its naval blockade around Japan to let it pass. Aircraft carriers and supporting ships from the US Pacific fleet move into tactical positions around the South China Sea. The implication is clear. The US can not allow Japan to lose the conflict and now prepare to intervene militarily if necessary. Russia protests against the US action and hints that it will make its gas and oil available to China in reciprocation, but after diplomatic pressure Russia finally aligns with the international consensus to end the China-Japan conflict. The rest of the ‘democratic security diamond’- i.e. Australia and India, as well as the UK, France, Germany, and regional actors, Vietnam and the Philippines – shows public solidarity around the initiative to end the war. For weeks the US navy and Chinese navy face off at sea, circling and withdrawing, but no shots are fired. There are no further attacks on the Japanese mainland and there is a period of stalemate between the two countries. Phase 6: negotiated peace The US, along with Russia as a partner, calls for an immediate ceasefire, the removal of the weapons on the disputed islands, and the opportunity for both China and Japan to address the UN on the issue of each country’s Exclusive Economic Zone (EEZ). The Chinese premier and the Japanese prime minister finally meet at peace talks in Singapore. After three days of negotiations, a peace treaty is signed, thereby guaranteeing the free flow of trade through the South and East China Sea and gestures towards the reconstruction of each other’s infrastructure. Global markets respond positively. Phase 7: aftermath China agrees to the conditions that any further attack would void all agreements, and that Pacific and South China Sea shipping lanes will be opened as soon as possible so that trade with the US and Canada can begin again. Japan also agrees to the ceasefire and to the US and Russia’s role in negotiating trade relations with China and restoring most of the US$ 345 billion agreement. The free flow of shipping routes returns within 3 months, causing an increase in global stock markets as some normality returned. It requires a large presence and deployment of US Naval forces, at significant cost to their economy. Commodity prices began to drop within hours of the agreement. Ownership of the Senkaku islands remains disputed, but after 9 months of conflict, 100,000 deaths, and billions of dollars in losses, neither side has the political will, energy supplies, the public support, or the money to continue the conflict. 2. Examination of the Effects of China-Japan Conflict on Global Economy To model the effects of a China-Japan conflict, Cambridge Centre for Risk Studies at University of Cambridge selected a number of key indicators. Shocks were chosen based on historical precedents that would be expected to occur during a China-Japan conflict. While the conflict may last for only a few months, most of the shocks applied in the model persist and generally last for a period of one year before returning to baseline over the next several years. Several of the variables were shocked for a longer period to represent the ongoing macroeconomic effects created by conflict. The effects of conflict. on some variables were very long lasting and have very high macroeconomic inertia in the system, thereby taking several years to return to pre-disaster levels. Such an example is the effect of conflict on global trade. The modeling by Cambridge Centre for Risk Studies was carried out in 2014, but the Cambridge Centre is interested in generic results for whenever a conflict might break out in future years. Variable descriptions The three independent scenarios (S1, S2, and X1) have been modeled using the Oxford Economics Global Economic Model. Following are the variables in the model to which the shocks were applied. Table 2 provides an overview of the input (parameter) variables applied. Table 2: Input (parameter) variables in macroeconomic modeling   Inward foreign direct investment is investment in business and capital. China has significant inflows of foreign direct investment and is therefore much more affected by a conflict shock to this variable than Japan. A 40% reduction of inward foreign direct investment represents a loss of approximately US$ 100 billion per year to the Chinese economy at its peak in year 2. In Japan, this represents a loss of about US$ 2.1 billion per year at its peak in year 2. Government consumption increases during the conflict to pay for military, ammunition and additional resources required for conflict. China spent 2% (US$ 166 billion) of GDP on defense in 2014, while Japan spent 1% (US$ 59.3 billion) of GDP on defense. In each of the three scenarios, government spending increased 7% in the first year and then returned to baseline levels by the end of the second year. This represents an increase in government spending of US$ 86 billion per year for China and US$ 70 billion per year for Japan. Exports and imports account for a significant share of GDP for both Japan and China. In China, exports account for 26% of GDP and in Japan, exports account for 18%. One of the largest economic effects that will occur as a result of this conflict will result from exports and imports being prevented to entering the East China Sea. Exports and imports are both shocked simultaneously and equally in each scenario. The peak of the shock to exports and imports occurs at the outbreak of conflict but takes a further six years to recover to pre-conflict levels. Capital destruction is defined as capital that can no longer be used as a productive resource and is an expected but unfortunate consequence of conflict. A declining capital base therefore has very serious consequences for economic growth and output. The level of capital destruction increases in each of the three scenarios from 2% of the capital stock in S1, 5% in S2 and 10% in X1. Share (stock) prices capture the market valuation of firms within an economy and incorporate the assets into a firm’s books and the expected value of future revenue and profit. Share prices therefore capture the level of confidence that the market has in the future profitability of a firm. Any firm that operates in a country that is in conflict will face increasing risks to its normal business operation and long-term strategic objectives. Increased uncertainty about future growth will have significant downward pressure on the market valuation of firms that operate in these areas. Share prices have been shocked 2% in S1, 5% in S2 and 10% in S3 compared to the baseline. Share prices are also expected to decline in other parts of the world as future global expectations are amended downward. These effects are modeled directly on neighboring Asian countries and the US stock market. In all three scenarios, however, share prices return to baseline by the end of second year after the conflict began. Capital flight occurs when assets and money rapidly move out of a country or region. Capital flight is most likely to occur when investment and business outlooks are uncertain, and investments are placed at risk. In Japan, capital flight is modeled as a devaluation of its exchange rate benchmarked against the US dollar. A 10% devaluation of the Japanese currency takes place in S1, 15% in S2 and 50% in X1. Modeling capital flight from China is more problematic. China has strict controls on capital, and the Yuan does not float on international currency markets. As a result, the exchange rate in China is fixed at present levels across all scenarios. Capital flight from China is therefore indirectly captured through a decline in investment funded by loans. This is represented by a shock of 40% in S1, 60% in S2 and 80% in X1 with recovery back to baseline projections taking six years. World oil prices typically rise during conflict due to increased demand for energy and heightened uncertainty around supply. This is modeled as a 20% increase in S1, 30% increase in S2 and 50% increase X1. The rise in oil prices lasts for 12 months during the conflict and then is allowed to return to base during the second year. Impact of China-Japan conflict on exports and imports A shock on exports and imports to Japan and China represents one of the most significant effects that will affect global economic output. Figures 1 and 2 show the international exports from Japan and China which are halted by the conflict. The biggest recipient of exports from Japan and China, apart from each other, is the US. Figure 1: China exports by value and type to different countries Figure 2: Japan exports by value and type to different countries. As a result of the conflict, total exports in China for the year 2 drop by 80% in the X1 scenario or approximately US$ 1.5 trillion. And for Japan exports decline by US$ 726 billion. Behind Japan and China, exports from the US are the most adversely affected international market dropping in traded value by over US$ 450 billion in the X1 scenario. Globally, the aggregate value of total exports declines by over US$ 6 trillion. A similar picture can be described for imports. Imports to the US reach a minimum in year 2 with a drop of US$ 165 billion, while the value of aggregate global imports drops by almost $4 trillion across all markets and sectors. Impact of China-Japan conflict on energy prices Brent crude spot price spikes at US$ 120 per barrel in scenario X1 and roughly US$ 110pb in each of the other two scenarios. This occurs despite downward pressure on global aggregate demand due to a decline in aggregate output, a substantial shock to global trade and a significant drop in market confidence. The biggest impact on global oil prices occurs 12 months after the conflict began with a steep decline in oil prices as the world recovers from the shock of conflict. There is then a period of two years of persistent decline in oil prices until the end of year 3. Global oil prices does not fully recover to pre-conflict levels by the end of the model period in year 7. Impact of China-Japan conflict on commodity prices A similar pattern will occur in the price of most other natural resources and commodities. Prices of raw commodities will initially rise as Japan and China increase demand for raw materials and resources in preparation for conflict. Coal, iron ore, natural gas and other rare earth metals will all spike in price as the threat of conflict looms. Once a long and protracted conflict between Japan and China looks unlikely and the international community is successful in getting the peace treaty signed, the price of natural resources will then decline rapidly as aggregate demand drops. By this point, the signs of a global recession are imminent. Aggregate demand is down, and trade between Japan and China has ceased. And market confidence will be at an all-time low. China, which was once the world’s largest exporter, struggles to attract foreign direct investment and cannot find sufficient buyers for its manufactured goods. This leads to lower demand for raw materials, which in turn leads to persistently low prices for raw commodities and resources for the next several years. Impact of China-Japan conflict on employment A drop in global aggregate demand leads to a rapid increase in unemployment caused primarily by a drop in exports and a loss in the value of share price. In both Japan and China, there is a rapid increase in unemployment as the economy adjusts in the post-conflict period between year 2 and year 7. Unemployment in Japan skyrockets after the end of the conflict and reaches a peak at 14% in year 5, 10% higher than baseline. In China, the effects of unemployment are much more acute, reaching a peak unemployment rate of 9% during the first year, 5% above baseline. Similarly, unemployment in the rest of the world is also adversely affected. Unemployment in the US reached 9.4% in year 3, 2 years after the conflict has started, 3.8% above baseline projections. Impact of China-Japan conflict on inflation Historically, one of the most devastating macroeconomic consequences in post-conflict periods is high and runaway inflation. Figure 3 shows the effects of the conflict on inflation in different countries in the scenario S1. Figure 3: Impact of the conflict on inflation in different countries, in scenario S1 In the conflict scenario, both Japan and China experience inflationary pressure and a rise in consumer prices precipitated by a combination of import inflation and cost-push inflation. Cost push inflation occurs because important resources and goods are diverted away from the real economy and used for the war effort. Manufacturing plants that once made goods for general consumption are now used to produce weapons required for conflict – this drives up the price of normal goods in the economy as there are limited supplies of alternatives. Import inflation will occur because the import of goods from international markets are blocked from coming through the South and East China Seas, with a limited supply of local substitutes, prices for these goods will also rise. In China, prices are down in line with a drop in aggregate demand, a direct result of a reduction in foreign direct investment. In the most extreme scenario X1, there is a short period of deflation in the Chinese economy, peaking at -1.5%, which is followed by increasing inflationary pressure after the conflict ends. Inflation reaches a peak at 9.6% in year 4 in the S1 scenario before declining to pre-conflict levels by year 7. In Japan, where FDI is quite small, inflationary pressure accompanies the start of the conflict. Scenario S1 peaks at 5% inflation in year 2 before going into deflation in year 6. In scenario X1, inflation reaches 20% in year 2 before plunging to negative levels (deflation) from year 5 onwards. The global economy experiences a similar pattern of inflation. During the conflict, inflation increases and reaches peaks in scenarios S2 and X1 before starting a long decline. Average global consumer prices then go down for 4 to 5 years before returning to positive growth rates from year 6. Impact of China-Japan conflict on government balance and reserves The scenario results in a significant decrease (compared to baseline) in foreign reserves for both Japan and China. In the X1 scenario, Japan and China will decrease their foreign reserve holdings by US$ 2.2 trillion and US$ 430 billion respectively when compared to baseline by year 7. In a similar way, gross government debt as a percentage of GDP will also increase. In China, the debt to GDP ratio approaches 45% in scenario X1 and a little over 30% in scenario S1 by year 7. In Japan, the debt to GDP ratio increases from 212% in year 0 to around 277% in year 7. Impact of China-Japan conflict on interest rates Interest rates are often used exogenously as a policy instrument to affect economic activity. Lowering interest rates gives the economy a boost and encourages borrowing, while raising interest rates has the effect of slowing down an economy that is overheating. In the scenario, interest rates are allowed to adjust endogenously (not through policy intervention) to reflect economic pressures that occur in the economy. For example, interest rates adjust to inflationary expectations and demand. When inflation is expected to go up in the future, borrowers need to compensate lenders for the expected drop in the value of money. Figure 4: Short-term interest rate impacts from the conflict, scenarios S1 and X1. Inflation in both Japan and China increases over the scenario period, contributing to a rise in the interest rates in both nations. Interest rates also increase because of increased risk. During and after the conflict both Japan and China experience increased exposure to risk, which places upward pressure on interest rates. Exchange rates represent the relative value of a nation’s currency and are closely correlated with a nation’s interest rates. In the scenario, Japanese exchange rates are free to adjust on currency markets, reflecting relative value of the Japanese Yen, while China controls its currency on international markets, depressing the value of the Yuan to favor its own exports. This different policy approaches to currency will result in different impacts on interest rates in both countries. In China, where exchange rates are fixed during the modeling period, short-term interest rates experience the highest increase in scenario S1, reaching a peak at a little over 12%. Because the Yuan is fixed and not allowed to devalue, the major forces acting on interest rates are dominated by inflation and the money supply. In Japan, where exchange rates are allowed to fluctuate on international markets, high interest rates are caused by an increase on the risk premium of US denominated debt and the lagged effects of the exchange rates affecting investment and consumption. In Japan, therefore, the highest interest rates will occur in scenario X1. Figure 5: Long-term interest rate impacts from the conflict, scenarios S1 and X1. As Figures 4 and 5 show, short-term interest rates increase over the medium term before steadily declining. In China, a small decline in short-term interest rates for a period of 18 to 24 months after the conflict began is caused by the drop in foreign direct investment and increase in capital flight. Short-term interest rates then start to rise above baseline projections two to three years after the conflict started due to rising inflation and an increase on the risk premium of US denominated debt. By contrast, Japan experiences an immediate increase in short- term interest rates caused by rising inflation and increased risk premiums. Interest rates in the rest of the world are represented by the US in Figure 5. Historically, UK and US interest rates behave very similarly. Short-term interest rates are shown to decrease and plateau at a little over 0% for four years after the conflict before rising again. In a similar way, long-term interest rates drop to a low of 0.5% and 1.5% in the UK and US respectively in year 6 before rising once again. Impact of China-Japan conflict on productivity and growth In all scenarios, both Japan and China go into recession in the first year of the conflict, year 1. In China, the recession lasts approximately 12 months, with negative growth reaching a peak at -10% in scenario X1 (see Figure 6). Figure 6: Result of the conflict on China GDP In Japan, the recession is much more protracted, lasting five years in scenario X1 (see Figure 7). Figure 7: Result of the conflict on Japan GDP Globally, the recession lasts 1.5 years in scenario S2 and 2 years in scenario X1 with negative growth peaking at -2%. The conflict is shown to have a significant effect in terms of lost output (see Figure 8). Figure 8: Result of the conflict on Global GDP Table 3 shows the cost of the conflict compared to baseline over a five-year period between the start of year 1 and the end of year 5 for different regional economies. It is notable that the global economic consequences of the conflict are almost as significant in the US and the EU as they are in Japan and China. Table 3: Lost output over 5 years from China-Japan Conflict scenario, ‘GDP@Risk’, US$ Trillions.   IV. Conclusion This paper examined the effects of China-Japan conflict on global economy through three scenarios. The conflict had negative effects on all aspects of global economy, including exports & imports and GDP. 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