12 September 2022

Europe Is Bound to Collapse

Tuomas Malinen

I have been watching, with horror, the escalation of the economic situation in Europe since around mid-February. On Feb. 21, I published a short Twitter thread detailing the economic worst-case scenario for Europe, if the war between Russia and Ukraine would break out, as it did.

The forecast had 10 stages:The West would be likely to respond with sanctions.

Russia would respond by shutting gas to Europe.

This would lead to a massive spike in energy prices in Europe pushing the continent into a recession with high inflation pressures (stagflation).

Inflation would reach double-digits within 2–3 months.

Asset markets would fluctuate heavily first, then crash.

Rampant inflation would force the European Central Bank to rise rates in a rapid manner and stop Pandemic Emergency Purchase Program (PEPP) and quantitative easing (QE).

The European banking sector would crumble.

Sovereign yields would explode.

The Eurozone would unravel.

Europe would fall into a depression.

Opinion – The Future of the USA-China Trade War

Hasnat Aslam

On September 6, 2018, the USA imposed 25 percent duties on $34 billion worth of Chinese imports, initiating the trade-war that persists to this date. Many attempts, such as the Phase One deal, have been undertaken to mitigate the escalating tensions, yet they have proven futile, as tariffs continue to take a toll on consumers and companies. China’s accession to the World Trade Organization in 2001 led to amplified trade between the USA and China, amounting to USD 657 billion in 2021. With China’s GDP rising from $1.2 trillion in 2000 to $17.5 trillion in 2021 and its subsequent establishment as the leading manufacturing country, its global influence has increased, lending greater importance to USA-China relations. Though bilateral trade has endowed immense advantages upon both countries, relations between them have been saturated by tension, with Anthony Blinken, United States’ current Secretary of State, calling China the “most serious long-term challenge to international order.”

By virtue of being the USA’s third-largest trading partner, China has a large bearing on its economic outcomes, and the trade war has been immensely detrimental to both countries. According to a Moody’s Analytics study from September 2019, the USA’s economy lost approximately 300,000 jobs and 0.3% of GDP due to the trade war, while China suffered a $35 billion loss due to reduced exports to the USA in the first half of 2019. These tensions have supplemented the economic volatility created by the Russia-Ukraine war and the COVID-19 pandemic, making the rectification of USA-China economic ties pertinent.

On 9/11 Anniversary, End the Self-Delusion About America’s Enemies

H. R. McMaster and Bradley Bowman

Sunday marks the 21st anniversary of the terrorist attacks against the United States—planned and launched by al Qaeda from Afghanistan—that killed 2,977 innocent people. Much has changed since then, but following the disastrous U.S. military withdrawal last year, the Taliban once again rule Afghanistan, and al Qaeda enjoys a safe haven there—just as it did on Sept. 11, 2001.

Some may dismiss the tragic outcome in Afghanistan as a sad episode the United States can safely relegate to the history books as Washington focuses on important challenges elsewhere. But nothing could be further from the truth. Threats remain in Afghanistan, and the failure to address the self-delusion in Washington that led to the disastrous withdrawal in the first place will invite future disasters in U.S. policy toward other adversaries.

U.S. Resumes Arms Sales to Pakistan With $450 Million F-16 Deal

Trevor Filseth

In a reversal of a decision made by the Trump administration, the White House announced on Wednesday that it had approved a proposed $450 million arms package involving the upkeep of F-16 fighter jets within the Pakistani Air Force.

The Defense Security Cooperation Agency, a branch of the Defense Department charged with overseeing foreign arms transfers, submitted a report to Congress on Wednesday outlining the terms of the sale and communicating the approval of the Defense Department and the State Department. The agency’s statement indicated that the package would sustain Pakistan’s ability to use the aircraft as part of counterterrorism efforts.

“The proposed sale will continue the sustainment of Pakistan’s F-16 fleet, which greatly improves Pakistan’s ability to support counterterrorism operations through its robust air-to-ground capability,” the DSCA report read. “Pakistan will have no difficulty absorbing these articles and services into its armed forces.” It also noted that the package would support the Pakistani Air Force’s interoperability with the United States and would not significantly affect the balance of power in Asia or adversely affect the United States’ security.

Report Slams Taliban for Failing to Protect Minorities From ISIS-K

Trevor Filseth L

The Islamic State’s Khorasan Province, or ISIS-K, has engaged in a campaign of terror against ethno-religious minorities within Afghanistan, according to a new report by Human Rights Watch—which faulted the country’s ruling Taliban movement with failing to live up to its promise to ensure security throughout the country.

ISIS-K has “repeatedly attacked Hazaras and other religious minorities [within Afghanistan] at their mosques, schools, and workplaces,” the report read. It noted that the Taliban had “done little to protect these communities from suicide bombing and other unlawful attacks or to provide necessary medical care and other assistance to victims and their families.”

Taliban leaders have repeatedly claimed since the group’s conquest of Afghanistan in August that they had brought security to the country. However, throughout the Taliban’s time in power, ISIS-K has grown in strength, launching attacks against religious minorities, including Hazaras, Sufis, and Sikhs, at an increasing rate. So far, the group has claimed responsibility for thirteen attacks and has been linked to three others, causing at least 700 casualties among Afghan civilians. The report observed that this number was likely an underestimate, as the Taliban’s strict media reporting requirements ensured that some other attacks were likely not covered in the country’s press.

Is the United States Preparing for a Forever War in Ukraine?

Scott Strgacich

When you patronize your local fresh fish place, it’s usually wise to heed the almost parabolic but time-honored rule that you should not name any of the lobsters in the tank. Once you name it, you can’t eat it. Once you name it, you just can’t bring yourself to let it go.

Last month, the Wall Street Journal reported that the United States “plans to name its military mission supporting Ukraine and appoint a general to lead the training and assistance effort,” while another $3 billion in military aid has been committed by the United States to the Ukrainian cause.

“The naming of the operation,” the Journal said, “formally recognizes the U.S. effort within the military, akin to how the Pentagon dubbed the missions in Iraq and Afghanistan Operation Iraqi Freedom, Operation Enduring Freedom and Operation Freedom’s Sentinel.”

Why National Security Isn’t Getting Respect

Paul R. Pillar

The story of the government documents that Donald Trump stashed at Mar-a-Lago continues to become increasingly alarming regarding the nature of the material and the difficulties in identifying the full extent of the resulting damage to national security. Meanwhile, a significant portion of the American body politic defends or excuses what Trump did, looks the other way, or makes contorted attempts at whataboutism. The most obvious explanation for this response is simple partisan tribalism, and that indeed is probably the main reason.

In this regard, we are seeing a repeat of the responses to many of Trump’s earlier transgressions, ranging from personal conduct as recorded by the Access Hollywood tape to his most serious offense, which was his attempt to overturn the result of the 2020 presidential election. But reflecting on the responses to those other episodes gives reason to suspect that other factors also are in play regarding Trump’s disregard for national security and responses to that disregard, as reflected in the matter of the documents.

The CNO’s Navigation Plan for 2022: A Critique

Anthony H. Cordesman

There should be a clear difference between efforts to provide unclassified documents that explain and justify U.S. military forces and issuing official reports that are little more than public relations exercises. The U.S. faces major security challenges and the annual cost of U.S. defense is over $760 billion, even if one ignores the cost of nuclear weapons, the Veterans Administration, related activities of the State Department and other agencies, and substantial additional intelligence activity.

The effort to shape U.S. forces and strategy must deal with very real threats. They include a Russia that has invaded the Ukraine, a China that is actively seeking to challenge the U.S. in military and economic power, and regional threats like Iran and North Korea. The U.S. must cope with emerging and disruptive technologies that constantly alter the nature of military forces in unexpected ways, support America’s strategic partners on a global level, and deal with near collapse of many arms control efforts and major increases in Russian and Chinese nuclear and long-range strike programs.

Far too often, however, the Department of Defense issues documents that are little more than sales pitches – filled with slogans, and that are an awkward cross between a shipping list that borders on being a child’s letter to Santa Claus and a used car commercial.

Software-Defined Warfare: Architecting the DOD's Transition to the Digital Age

Nand Mulchandani, Lt. General (Ret.) John N.T. “

The U.S. Department of Defense's (DOD) massive bureaucracy struggles with the kind of periodic “tech refresh” that has been instrumental to commercial industry success. While it is insulated from market competition within the U.S. economy, the DOD is not immune to revolutionary, secular, and wide-ranging technological changes outside the government. Nor is it immune from the threat of competition with other militaries around the world.

In the future, warfighting will only become more complex, chaotic, and faster. The only way for the DOD to stay competitive in a new warfighting environment is to ensure that it uses the most potent weapon available: technology, specifically software.

For the United States to retain its dominant position in the future— which is not a guaranteed outcome—the DOD needs a new design and architecture that will allow it to be far more flexible, scale on demand, and adapt dynamically to changing conditions. And it must do so at a dramatically lower cost as it delivers its critical services. This paper provides a blueprint for the way forward.

Rethinking Deterrence: How and Why

Keith B. Payne

It is a pleasure to return to Hudson Institute. In 1978, I met Herman Kahn, co-founder of Hudson Institute, at its much earlier location in Croton-on-Hudson, NY. I went to work for him a few months later. While working for Herman, he encouraged me to devote my studies to the subject of deterrence—I have done so for over four decades.

A New Deterrence Context: New Challenges

Many folks now ask me about the emerging “trilateral deterrence” threat environment. This refers to the simultaneous deterrence engagement of three great nuclear powers, the United States, Russia and China. I frequently hear that this trilateral context is different, so we must rethink U.S. deterrence policy.

But, how is it new, and why must we rethink deterrence policy? Those are the key questions now. My first comment in this regard is that the basic nature of deterrence endures, and what is new with trilateral deterrence is not primarily the obvious fact that three great nuclear powers are now involved.

JUST IN: Defense, Intel Agencies Lack ComSat Imagery Strategy, GAO Finds

Josh Luckenbaugh

The Government Accountability Office has called on the Defense Department and the intelligence community to vastly improve its practices in the acquisition of commercial satellite imagery.

The GAO’s Sept. 7 report, “National Security Space: Actions Needed to Better Use Commercial Satellite Imagery and Analytics,” was conducted to assess the Defense Department and intelligence community’s capability to utilize commercial satellite imagery for national security issues.

Space has seen a major proliferation of commercial satellites over the last few decades. The GAO report cited an Aerospace Corp. study which found “the total number of satellites in space increased from 801 in 2005 to 2,990 in 2020,” and in the United States alone “the commercial sector owned approximately 200 satellites in 2005 and nearly 1,200 by 2020.”

How the Russian Oil Price Cap Will Work

Jeffrey Sonnenfeld and Steven Tian

Last week’s bold announcement by the G-7 of a price cap on purchases of Russian oil has met with skepticism and ridicule from media commentators and pundits. Following months of planning, the oil price cap is a bid to limit the Kremlin’s earnings on exports of its most important commodity and reduce financial support for its war against Ukraine. After the G-7 announcement, the Kremlin immediately said that Russia would not sell any oil to countries abiding by the price cap.

The critics contend the scheme will never work—but they are wrong. Based on our conversations with officials from the U.S. Treasury and the British cabinet, other senior leaders in G-7 governments, and top business executives in several key sectors, it is clear that the critics are much too quick to dismiss the price cap. In fact, the business leaders we surveyed overwhelmingly support the plan. Here are some of the most common questions about the G-7 plan—and why the critics are wrong.

1. Why do we even need a price cap on Russian oil?

Even if you don’t care about Russia or Ukraine, doing nothing is not an option for purely economic reasons. Regardless of what happens with the proposed price cap, the European Union’s sixth sanctions package is set to ban all Russian crude oil imports by sea into the bloc starting Dec. 5 and all refined oil products—such as gasoline, diesel, and fuel oil—starting Feb. 5, 2023. It is a hard cutoff with no phased implementation, which analysts say could lead to overnight supply shocks and skyrocketing prices. The oil price cap must therefore be evaluated in terms of its effect not on the current situation but relative to the possibility of supply shocks after Dec. 5—when Russian President Vladimir Putin could benefit from significantly higher oil prices even if export volumes drop.

Ukraine Holds the Future The War Between Democracy and Nihilism

Timothy Snyder

Russia, an aging tyranny, seeks to destroy Ukraine, a defiant democracy. A Ukrainian victory would confirm the principle of self-rule, allow the integration of Europe to proceed, and empower people of goodwill to return reinvigorated to other global challenges. A Russian victory, by contrast, would extend genocidal policies in Ukraine, subordinate Europeans, and render any vision of a geopolitical European Union obsolete. Should Russia continue its illegal blockade of the Black Sea, it could starve Africans and Asians, who depend on Ukrainian grain, precipitating a durable international crisis that will make it all but impossible to deal with common threats such as climate change. A Russian victory would strengthen fascists and other tyrants, as well as nihilists who see politics as nothing more than a spectacle designed by oligarchs to distract ordinary citizens from the destruction of the world. This war, in other words, is about establishing principles for the twenty-first century. It is about policies of mass death and about the meaning of life in politics. It is about the possibility of a democratic future.

Discussions of democracy often begin with the ancient city-states of Greece. According to the Athenian legend of origin, the deities Poseidon and Athena offered gifts to the citizens to win the status of patron. Poseidon, the god of the sea, struck the ground with his trident, causing the earth to tremble and saltwater to spring forth. He was offering Athenians the power of the sea and strength in war, but they blanched at the taste of brine. Then Athena planted an olive seed, which sprouted into an olive tree. It offered shade for contemplation, olives for eating, and oil for cooking. Athena’s gift was deemed superior, and the city took her name and patronage.

China watchers are on the rise in India—from civil servants to scholars to general public


India’s China watchers have gone from being in awe of the country’s rapid economic rise to reining in their interest. They now focus on understanding how China is evolving politically and socially, what the Chinese youth are discussing, and what all of this means for India’s future.

Beyond the veteran China watchers such as Shivshankar Menon, Nirupama Rao, Vijay Gokhale, Brahma Chellaney and Kavalam Madhava Panikkar before them, there are now China ‘gawkers’ who debate the latest developments in the neighbouring country on prime time television. And bureaucrats who are having to deal with the ‘Chinese affairs’, directly or indirectly, are realising what it means to be linked to the new international environment in which Beijing plays a prominent role.

Russia's Next New Strategy: Try To Stall Until 2023

Daniel Ceng Shou

KYIV — For about a month, the front line has remained almost unchanged. Russian troops have gone as far as they can.

Obviously, this situation annoys the Kremlin, forcing it to look for new, rather unconventional ways to replenish human reserves and worn-out weapons. But Moscow is also playing for time, believing that the onset of cold weather will play into its hands, as an impending energy crisis spreads through Europe.

Moreover, Putin needs time to restore the Russian army’s ability to fight. For this very reason, a day after Defense Minister Sergei Shoigu announced a deliberate slowdown in the military campaign in Ukraine, purportedly to reduce civilian casualties, Putin issued a decree to increase the size of the Russian army.

The important overlooked point is that the increase in the number of Russian armed forces by 137,000 soldiers (up to 2.04 million people) is planned in 2023. That is, Putin is trying to regain the initiative he lost a month ago and shape what the war will look like in the future.

Ukraine Could Be The Spark For A War Between Russia And America

Harrison Kass

The United States has been walking a geopolitical high wire for several months, balancing conflicting objectives in the Russo-Ukraine War. On the one hand, the US is working to bolster Ukrainian defenses, allowing Zelensky’s forces to thwart Russian invaders. Simultaneously, the US is being careful not to antagonize Russia to the point of escalation. Obviously, the US is antagonizing Russia – by donating weapons, money, and expertise to the Ukrainian cause. The question, however, is how much can the US antagonize Russia before eliciting escalation.

Early in the conflict, which began last February, there was acute fear that US aid would antagonize Russia to escalation. So far, that has not happened; the Russian tolerance for US assistance appears high – or Russia simply lacks the capacity to retaliate. Russia has sat by while the US-led “West” functionally enables the ongoing Ukrainian resistance.

While the potential for escalation is lower than believed in the Russo-Ukrainian War’s early days, the potential nonetheless remains. Here are some possible escalation ignitors.

A Brighter Future for Africa?


In the summer of 2016, then–Assistant Secretary of State for Africa Linda Thomas-Greenfield’s office called me to ask if I would accept a short stint as chargé d’affaires in Abuja, Nigeria, because the post was between ambassadors and needed help preparing for a Secretary of State visit. Even though I had retired in 2003 after a lengthy career in Africa and was then happily ensconced as vice provost at Texas Tech University, one could not say no to LTG.

Little did I realize that those few weeks would lead to my own return to the State Department—this time as assistant secretary—for my second African “adventure.” In Nigeria, I was struck again by Africa's incredibly stark choices: either a dystopian disaster of misery, instability, growing extremism, more conflicts and huge migrations; or an invigorated continent bursting with youthful energy, economic promise and greatly improved societies.
The Reality

In the 60-some years since Africa’s decolonization, the continent has always been Washington’s lowest geopolitical priority. In explaining this to my African friends, I use the example of a pick-up basketball game among Olympic athletes—even though they are all Olympians, someone must get picked last. This is reality. Anyone who disagrees needs simply to compare how State resources the Bureau of African Affairs and our embassies in Africa compared to other regions; resources, not statements, reflect priorities. For example, where else would a country of more than 100 million people (Ethiopia) merit only one diplomatic post?

Will Xi Jinping Continue to Rule China?

Bradley Devlin

The Chinese Communist Party is preparing to make a pivotal decision next month: whether to give a third term to President Xi Jinping. If the CCP breaks precedent, as expected, and votes for him yet again come October’s twice-a-decade Communist Party congress, Xi will become the longest serving head of state in the history of the People’s Republic.

At 69 years old, a year beyond the CCP’s customary age for retirement, it seemed Xi might decide to ride off into the sunset. But that will not be the case, given that Indonesian President Joko Widodo said Xi plans on attending the Group of 20 summit in Bali come November.

It may be true that the last few years of Xi’s second term have not gone according to plan. China continues to struggle in vain for Covid-zero, and new lockdowns in Chengdu amidst a new viral outbreak suggest China does not have plans to abandon the strategy. The economy’s growth rate was slowing before Covid, but has further declined because of the pandemic. And a Western pivot toward Taiwan is ratcheting up tensions in China’s backyard, increasing pressure on Xi from within the party to take the island by force if necessary.

Russia’s Air Force Is Somehow Dying In Ukraine

Peter Suciu

Russia Continues to Lose a Lot of Planes in Ukraine: The Kremlin has lost a significant number of aircraft in the skies over Ukraine, and on Tuesday, one Ukrainian Army commander even reportedly downed a Russian plane without firing a missile.

As commander of a Buk M1 anti-aircraft missile battery, Yaroslav Melnyk has “scored” a significant number of “kills,” which include destroying 28 targets in total, including 11 combat aircraft, two helicopters, two cruise missiles, and 13 unmanned aerial vehicles (UAVs).

Melnyk has been fighting in the eastern Kharkiv region since the start of the invasion on February 24, Newsweek reported.

His impressive tally also includes one where his unit didn’t even fully deploy its full surface-to-air capabilities with the Buk’s illumination radar system, which is used to track and illuminate a target. Instead, simply by locking onto the target, the Russian pilot maneuvered away – and that quick reaction resulted in the pilot losing control of his aircraft.

Can Seoul and Tokyo mend ties?


The relationship between South Korea and Japan seems to be moving in a positive direction, with two high-level meetings held this week between officials from both sides. Although dialogue seems to be increasing, several points of contention remain unresolved between the neighbours.

It was the first time in six years when vice-ministers from each country sat down on Wednesday for defence talks on the sidelines of the three-day Seoul Defence Dialogue. South Korean Vice Defence Minister Shin Beom-chul and Japan’s Vice Defence Minister for International Affairs Oka Masami reportedly emphasised the need for greater security cooperation involving the United States and also brought up the North Korea nuclear issue.

On the same day, trilateral talks between the nuclear envoys of South Korea, Japan, and the United States were held in Tokyo. During the meeting, the parties agreed to strengthen security ties in the face of potential “provocation” from North Korea in the form of a seventh nuclear test.

The End of Real Social Networks


CAMBRIDGE – Not only are billions of people around the world glued to their mobile phones, but the information they consume has changed dramatically – and not 

This argument implies that a combination of stronger regulation and other new technologies can overcome the challenges posed by social media. For example, platforms could provide better information about the provenance of articles; or the same platforms could be discouraged from algorithmically boosting items that might be incendiary or contain misinformation.

But such measures fail to address the depth of the problem. Social media is not only creating echo chambers, propagating falsehoods, and facilitating the circulation of extremist ideas. It also may be shaking the very foundations of human communication and social cohesion, by substituting artificial social networks for real ones.

McKinsey Technology Trends Outlook 2022

Michael Chui, Roger Roberts, and Lareina Yee

Technology continues to be a primary catalyst for change in the world. Technology advances give businesses, governments, and social-sector institutions more possibilities to lift their productivity, invent and reinvent offerings, and contribute to humanity’s well-being. And while it remains difficult to predict how technology trends will play out, executives can plan ahead better by tracking the development of new technologies, anticipating how companies might use them, and understanding the factors that affect innovation and adoption.

To that end, we have worked with the external and internal experts on the McKinsey Technology Council to identify and interpret 14 of the most significant technology trends unfolding today. This study builds on the trend research we shared last year, adding fresh data and deeper analysis to provide a more granular assessment of trends in two thematic groups: Silicon Age, which encompasses digital and IT technologies, and Engineering Tomorrow, which encompasses physical technologies in domains such as energy and mobility.

Data, the new oil of the 21st century

Nishakant Ojha

Data is the new oil. If refined like oil, it can be put to various uses. A valuable resource then that will and is already deciding the fate of individuals, organizations, corporates, and even countries. But till it is in the right hands it is innocuous and an asset but the moment miscreants get access to it, data becomes one of the biggest nightmares. Imagine an oil rig at the fire that becomes uncontrollable!

My data is my data and nobody has any business to use it in another way than the intended purpose. If you go into the dark and deep web, a lot of data is sold freely. And we are not even talking about sensitive information which is also available for a price. Anybody there can buy credit card info, get an Aadhar card, and even sensitive information of an individual which is bought and sold like veggies in the market. Chances are your credit card is already there for sale and you might never know about it. Ever wondered how cold marketing callers have precise info on your requirements? But the problem is nobody controls the internet; controlling the dark and deep web is almost impossible.

Cyber experts often say that you are secure till you are compromised. Everything is secure and nothing is secure. Sounds funny but that is a reality. No one can guarantee that its data cannot be stolen. All you need is a committed hacker with enormous resources and voila your data is gone. I have come across the Aadhar cards of foreign nationals. These Ids are created to snoop into systems, create telegram accounts for recruiting individuals for anti-national activities, and even incite riots and spread fake news.

The most dangerous war is not the one fought with weapons but waged clandestinely. Indeed we are vulnerable to cyber-attacks from all hostile players and countries. All you need is a will to do it and you can quickly put in place a piece of cyber-war machinery employing the best talent from across the world working in their own locations and collaborating on a project. Though having a protocol in place and laws to deal with data protection do help but have limitations. The data protection bill was a step in this direction. Though there is nothing wrong with it but it must be made more robust else it will not serve its purpose. While making such laws, we replicate and use European standards as a reference, but that does not always work. General data protection regulation GDPR in the western world and GDPR here are poles apart. Our bill was a copy-past of GDPR without taking into account our specifics.

Theoretically, we can say that government agencies must add filters to ensure data security. But that is easier said than done. And will not happen unless we have bilateral contracts across the globe because data doesn't remain static, it travels and traverses national boundaries. Your law is not enforceable there. until you have a bilateral. So an eco-system has to be developed where data is safe. This is the first step we must take. Our conditions are different from theirs, the character of data and stakeholders are different so are the conditions. Here sheer volume of data is mindboggling; which is next to impossible to keep track of. They can do it there but not possible here until we have a huge infrastructure in place. For instance, whenever data be it voice text or video etc. reaches European Union it is scrutinized on their parameters. They can track and fetch data legally from the signatory countries. India is not even part of the Budapest convention. So the biggest challenge is to integrate our system with the rest of the world. In a digital terms, the whole world is your playground and if you don't cover it there would always be grey areas where cyber criminals would take refuge.

Our data protection, as well as cyber war preparedness, leaves much to be desired. Interestingly enough we have even failed to screen the data thugs operating in broad daylight. A seminar is organized in India, duly cleared by the government. Many experts participate and get access to data to prepare a report. Turns out that the institute that organized it was a front for Beijing's cyber warfare.

The new technologies and AI makes the task easier and more difficult at the same time when employed to counter data theft it can be effective but when used by data thieves it becomes near impossible to even detect the crime let alone stop it. To ensure data protection and protect the country we need to have a two-pronged approach; first, establish a robust ecosystem in which we have tie-ups across the world and protocols are in place to follow in wake of data theft, and second of course building the technical capabilities which would give us the capacity to counter such incidents. Both would need political will and resources. The work must start now it might be too late to catch up!

The Flaw in the Plan to Cap Russian Oil Prices

Sergey Vakulenko

Russia and the West have each landed powerful blows on their opponent this month in their ongoing energy war. Gazprom has stopped gas supplies to Europe via the Nord Stream pipeline, citing technical problems, while the G7 countries have announced their intention to implement a price cap on Russian oil exports. A proposal to curtail Russia’s oil revenues through a price cap had been discussed since July. Now it is finally taking shape, although questions about its feasibility remain.

The G7 proposals appear to replace the complete ban on insuring Russian oil shipments that was due to come into force on December 3 as part of the EU’s sixth sanctions package. Now it would be permitted to insure Russian oil shipments so long as the oil price does not exceed the cap.

The reason for this change of plan seems to be that the G7 leaders, already facing recession and high inflation at home, are keen to avoid exacerbating the problems created by gas shortages. If fully implemented, the ban on insuring Russian oil shipments would have deprived the market of 6 million barrels of oil a day (the total volume of Russian oil exports minus pipeline and railroad shipments to China). It would have been impossible to substitute such a significant amount on today’s market, leading to sharp price increases: J.P. Morgan forecasts prices of up to $380 a barrel.

The current developments on the gas market only make such an outcome more likely and provide a glimpse of the scale of potential damage to the global economy. In addition, such a steep rise in oil prices would create too much temptation to violate any prohibitions and sanctions. To maintain global economic stability, the G7 states are seeking to preserve the current volume of Russian oil shipments, but at significantly reduced prices, calling for creating a broad coalition of buyers.

It appears that responsibility for ensuring the price cap is not breached will be put on the insurance companies of the countries that join the coalition. After all, insurers know the value of the insured shipment and the cargo capacity of the insured vessel, which should allow them to determine the purchase price and deny their services if it’s above a certain threshold—or else risk incurring penalties from their countries’ governments.

Nevertheless, there are numerous shortcomings to the new G7 proposals. Firstly, they assume that insurance companies representing the G7 and coalition countries have a virtual monopoly on the insurance market, but in recent months, Russia has been actively trying to create its own insurance entities for this purpose (though it’s unclear whether insurance policies from those underwriters will be accepted by vessel owners and port authorities across the globe).

The proposed restrictions could also be easily circumvented. Whenever countries on sanctions lists face difficulties in selling their natural resources, creative minds will find a way to thwart the proposed measures with help from companies prepared to turn a blind eye to the shady elements of ostensibly legal transactions. Oil shipments could be bundled with some symbolic but pricey services, such as customs services, laboratory analysis, or document translation. Another scheme would involve loading a supposedly full 80,000-ton oil tanker with only 50,000 barrels of oil, bringing the cargo price per barrel closer to the market price.

Such schemes would, of course, require some collusion on the part of intermediary countries, but that is unlikely to be a problem. In recent months, Malaysia’s oil exports to China have exceeded the country’s actual oil production by one third. Malaysia also cooperates with Iran and Venezuela in contravention of sanctions regimes.

It’s also unclear how seriously Russia will resist the imposition of a price cap. The plan’s architects claim that the capped price will still generate enough profit for it to be worth Russia’s while to sell the oil. But that logic assumes that Moscow will act rationally and try to maximize its economic gains. That might be how the economists in the Russian government think, but it’s visionaries rather than pragmatists who determine Russia’s policies now. The country’s behavior since February has demonstrated that it’s prepared to sacrifice its economic interests for the sake of political and military goals.

Russia is also willing to suffer economic losses if they mean privations for the West. In the Kremlin’s logic, Russia—with its wealth of energy and food resources—is in a better position to weather the crisis than other countries. Therefore, Moscow should sabotage any attempts at reconciliation and seize opportunities to create crises not only on the gas market, but on the oil market too.

Paradoxically, Russia may get some help from the OPEC countries here. For them, an emerging buyers’ cartel risks potentially manipulating the entire oil market and its prices. If the cartel succeeds in forcing Russia to obey its rules, the Arab countries may be next. If Russia counters the price cap by reducing its output, therefore, Saudi Arabia may be reluctant to increase its oil exports to compensate for the reduction, whether it has sufficient available production capacity or not.

Finally, the jury is still out on whether India and China, the biggest new buyers of Russian oil, are prepared to join the price cap coalition. To persuade them to cooperate, the West might use the threat of secondary sanctions as the stick to accompany the carrot of low prices for Russian oil.

If Russia resists the pressure and cuts its supply to the global market, India and China may decide to stay out of the fray and sign separate agreements with Russia and offer to insure oil shipments. In that case, the G7 states will be saddled with the tough choice of whether to impose sanctions on their largest trading partners and risk waging an economic war on several fronts. The Trump administration dared to impose sanctions on the Chinese tech giants ZTE and Huawei for violating U.S. sanctions against Iran with no significant pushback from China, but the world has changed a lot since then.

Iraq faces a Shia-Shia civil conflict - opinion


When Western politicians announce they are retiring, their supporters normally express regret and wish them well. Iraq (to misquote the well-known aphorism) is a foreign country – they do things differently there.

When the powerful Shia leader Muqtada al-Sadr announced his “final retirement” from politics on August 29, his supporters took to the streets and subjected Baghdad to its worst bout of violence in years. Many of his followers had been holding a sit-in inside Baghdad’s Green Zone, where government offices and diplomatic missions are located. Hearing their leader’s decision, they scaled the gates of the Republican Palace that used to be Sadam Hussein’s powerhouse, paraded through it, sharing the scenes on social media.

Soon afterward, sounds of live ammunition echoed around the streets as Iran-backed opponents of al-Sadr, including the security forces, descended on the protesters. The two sides traded gunfire all night and well into the next morning, and at least 47 people were killed.