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Mission Grey Daily Brief - September 12, 2024

Summary of the Global Situation for Businesses and Investors

The global situation remains dynamic, with ongoing geopolitical tensions and economic developments shaping the landscape. The US and its allies have imposed sanctions on Iran for supplying ballistic missiles to Russia, which Moscow is likely to use in Ukraine. Venezuela's political crisis deepens as opposition leader Edmundo González Urrutia seeks asylum in Spain. Tensions flare between Ethiopia and Somalia over Ethiopian troops' seizure of airports in Somalia's Gedo region. Algeria's official media launches a campaign against France due to criticism of Algerian election coverage and France's stance on Western Sahara. Iraq faces an $18 billion railway corruption scandal, stirring public outrage ahead of the 2025 parliamentary elections.

Iran-Russia Missile Transfer and Sanctions

US Secretary of State Antony Blinken confirmed that Iran has supplied Russia with short-range ballistic missiles, marking a "threat to all of Europe." This development has prompted the US and its European allies, including France, Germany, and the UK, to impose sanctions on Iran, targeting individuals, entities, and air transport. The sanctions aim to disrupt Iran's ballistic missile program and weapons transfers to Russia. The US Treasury Department has designated individuals and entities in Iran and Russia for sanctions, freezing assets and barring transactions with US persons. The German Foreign Ministry and a joint statement by Germany, France, and the UK have condemned the transfers as a direct threat to European security. The UK has also added designations under its Iran and Russia sanctions regimes.

Venezuela's Political Crisis and Opposition Leader's Exile

Venezuela's political crisis continues to unfold as opposition leader Edmundo González Urrutia, who claimed victory in the July 2024 elections, has fled to Spain, where he has been granted political asylum. González Urrutia feared for his safety due to persecution by the Venezuelan prosecutor's office and the country's security forces. This development highlights the ongoing instability in Venezuela, with widespread human rights abuses committed by the Maduro regime against peaceful protesters, opposition leaders, and critics. Venezuela's vice president announced González Urrutia's departure, emphasizing the need for "peace and political tranquillity."

Ethiopia-Somalia Tensions over Airport Seizure

Ethiopian troops have seized key airports in Somalia's Gedo region, including Luq, Dolow, and Bardere, to prevent the airlift of Egyptian troops intended to replace Ethiopian forces in the region. This intervention worsens relations between Ethiopia and Somalia, already strained by Ethiopia's memorandum of understanding with Somaliland and Somalia's defense agreement with Egypt. The Somali government has warned that Ethiopian troops must leave the country by next year, but the entrenched presence of Ethiopian forces in various regions complicates the situation. The ongoing dispute between Ethiopia and Egypt over the Grand Ethiopian Renaissance Dam further exacerbates tensions.

Algeria-France Media Campaign

Algeria's official media has launched a campaign against France, triggered by French criticism of the recent Algerian election coverage and France's shift in position on the Western Sahara issue. Algeria's press agency, APS, accused the French media of engaging in "hostile practices" and portraying a negative image of Algeria. The Algerian media also criticized the French government of Emmanuel Macron, highlighting Algeria's economic stability and debt-free status in contrast to France's economic challenges. This media campaign reflects Algeria's displeasure with France's stance on the Western Sahara and the perceived bias in election coverage, underscoring the diplomatic tensions between the two countries.

Risks and Opportunities

  • Risk: The Iran-Russia missile transfer and subsequent sanctions on Iran heighten geopolitical tensions and increase the risk of direct confrontation between Russia and European countries. Businesses operating in the region should prepare for potential disruptions and supply chain challenges.
  • Risk: The Venezuela political crisis and ongoing human rights abuses pose significant risks to businesses, particularly those in the energy, mining, and infrastructure sectors. Companies should monitor the situation and consider contingency plans to protect their assets and personnel.
  • Opportunity: Ethiopia's intervention in Somalia highlights the country's strategic interests in the region. Businesses in the defense, security, and infrastructure sectors may find opportunities in Ethiopia's efforts to secure its influence and maintain its military presence in neighboring countries.
  • Risk: The media campaign between Algeria and France indicates ongoing diplomatic tensions and a potential deterioration of relations. Businesses with operations or investments in either country should monitor the situation and be prepared for potential political and economic fallout.

Recommendations for Businesses and Investors

  • Given the dynamic and complex global landscape, businesses and investors should closely monitor the situations in Iran, Venezuela, Ethiopia, Somalia, Algeria, and their respective regions.
  • Companies with exposure to the aforementioned countries should conduct thorough risk assessments and develop contingency plans to mitigate potential disruptions.
  • Diversifying supply chains and seeking alternative sources of raw materials and components can help reduce reliance on a single region or country.
  • Businesses should prioritize the safety and security of their personnel and assets, especially in high-risk areas.
  • Stay apprised of changing sanctions regimes and comply with all relevant international regulations to avoid legal and reputational risks.

Further Reading:

$18bn railway corruption scandal rattles Iraq's political scene - The New Arab

'A threat to all of Europe': Iran is supplying Russia with ballistic missiles, says US secretary of state - Sky News

Algerian press lashes out at France for its criticism of Tebboune's re-election - Atalayar EN

Americas: Limited Protection for People Fleeing Venezuela, Haiti - Human Rights Watch

Belarusian Historian Ihar Melnikau Goes On Trial On Extremism Charge - Radio Free Europe / Radio Liberty

Blinken says Russia has received new ballistic missiles from Iran - The Guardian

Blinken: Iran sending ballistic missiles to Russia - POLITICO Europe

Edmundo Gonzalez’s exile to Spain marks the latest blow to the opposition - Modern Diplomacy

Ethiopia-Somalia: Ethiopian troops seize airports in Gedo region to prevent Egyptian weapons delivery - Agenzia Nova

France, Germany and UK condemn export of Iranian ballistic missiles to Russia – as it happened - The Guardian

Germany, France, U.K. slap sanctions on Iran over missiles for Russia - The Hindu

Jailed Belarusian Activist Charged With Disobeying Prison Guards - Radio Free Europe / Radio Liberty

Themes around the World:

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Thailand's Wage Hike Plan

Thailand's plan to raise the minimum wage to 400 THB (11.7 USD) a day has sparked concerns about its impact on small and medium-sized enterprises (SMEs), which make up over 90% of the country's workforce. While the wage hike addresses rising living costs, SMEs may struggle with higher labor costs and face challenges in staying competitive. However, the long-term impact could be positive, as SMEs may use this opportunity to invest in higher-value activities and improve efficiency.

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UK's Relationship with Russia

The UK has escalated its sanctions against Russia's covert seaborne oil exports, targeting a 'shadow fleet' of oil tankers. This has been done in coordination with other countries to curtail Russia's ability to bypass sanctions and sustain its war efforts. The UK has also sanctioned LNG vessels and Russia's energy sector, putting pressure on Russia's energy industry and revenue streams.

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Western Military Aid to Ukraine

Western countries have provided Ukraine with military aid in the form of weapons, jets, and tanks. However, experts argue that Ukraine needs more support, as Western supplies may not be enough to counter Russia's greater resources. The West must also be prepared for the potential destruction of their weapons in Ukraine.

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Energy Security

The UK is vulnerable to energy price shocks due to its heavy reliance on gas, which has contributed to the cost-of-living crisis. The Energy Crisis Commission warns of inadequate preparations for future crises, urging a shift towards low-carbon alternatives. Drones are now authorized to monitor energy infrastructures, improving operational efficiency and reducing costs in the transition to renewable energy.

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Challenges in the Stock Market

Japan's stock market has been characterized by the proliferation of 'punycorns', startups that go public prematurely and fail to achieve significant growth. This trend is attributed to the absence of a vibrant VC ecosystem and the stagnation of parts of Japan's corporate world, making it challenging for startups to secure later-round funding and achieve unicorn status.

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US Inflation and Consumer Prices

Inflation in the US has dropped from its peak but remains a key concern for voters in the upcoming election. While experts give the economy high marks, most Americans feel worse off than four years ago due to high prices and the lingering effects of the pandemic and Russia's invasion of Ukraine. The outcome of the election will impact economic policies and consumer spending.

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US-China Relations

The US has imposed sanctions on Chinese entities for their role in supplying Russia with weapons technology, but China denies providing weapons and claims to handle exports in accordance with laws. Growing trade ties between China and Russia indicate their efforts to circumvent sanctions, and the US is responding with further sanctions and other tools.

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US Election Impact

The upcoming US presidential election is causing uncertainty for businesses, with companies postponing or scaling down investment plans. The election outcome will also impact the direction of US tariffs and trade policies, with a potential Trump victory seen as inflationary and affecting global trade.

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Scam Epidemic

Scams are a growing issue in Thailand, with over 1.5 million scam numbers detected and 612,603 online scam cases reported between March 2022 and July 2024, resulting in financial losses. The private and public sectors are collaborating to combat scams, and companies like Gogolook are offering anti-scam solutions to protect consumers and businesses.

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Military Spending Impact

Russia's extensive military spending is pushing its economy into overdrive, with heavy spending on occupying forces, high wages, and inflation. This has contributed to economic growth but is unsustainable in the long term, and Russia's economy is overheating.

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Supply Chain Resilience

Thailand is part of the US-led Indo-Pacific Economic Framework for Prosperity (IPEF), which aims to strengthen economic relations and supply chain resilience among member countries. The agreement focuses on identifying vulnerabilities, diversifying sourcing, and establishing rapid response frameworks to mitigate the impact of disruptions. Thailand's role in IPEF enhances its position in global supply chains and promotes economic growth.

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Industrial Overcapacity and Exports

China's industrial sector is producing more output than can be sustainably absorbed, leading to a flood of cheap exports and trade tensions. This overproduction is causing global market instability and protectionist responses from other countries.

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Israel's International Relations

Israel's relations with other countries are influenced by its conflict with Iran and its treatment of Palestinians. US and European officials have urged restraint and warned of regional destabilization. Israel's military actions have also drawn mixed responses, with the US encouraging a targeted approach while the UK and others express concern. Israel's potential severing of the West Bank from the global financial system could strain ties with Western partners.

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US Food Security

Environmental, economic, and political shocks have led to food insecurity globally, impacting pillars of food security: availability, access, utilization, and stability. Food insecurity can result in social unrest and economic instability, with potential implications for US and global security. US leadership is essential to strengthen partnerships and advance solutions.

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Economic Contraction

Germany's economy is expected to contract by 0.2% in 2024, following a 0.3% decline in 2023, marking a second consecutive year of recession. This is due to a combination of conservative public investment, over-reliance on manufacturing and exports, external shocks like the Russia-Ukraine conflict, and structural challenges such as aging infrastructure and population.

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Semiconductor Industry Opportunities

Japan has emerged as a pivotal player in the global semiconductor industry, with the government allocating 2 trillion yen to bolster the industry. The country's close ties with the US and affinities with Taiwan and South Korea position it well in the midst of US-China tensions. This presents opportunities for investors and businesses in the semiconductor space.

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Thailand's Energy Transition

Thailand is exploring hydrogen underground injection with Mitsubishi Power to contribute to a greener environment and enhance technology. This supports Thailand's goal of carbon neutrality by 2050 and net-zero emissions by 2065. However, underground hydrogen storage presents risks, including the possibility of explosions due to hydrogen's flammability. The project also requires costly infrastructure, and Thailand may face serious economic repercussions if it fails.

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High-Speed Rail Competition

France has opened its high-speed train market to competition, with domestic and international operators offering alternatives to the national carrier SNCF. This will improve accessibility and comfort for passengers, but there are concerns about the impact on scheduling and pricing.

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Healthcare Crisis and Reforms

Russia's attacks on Ukraine's healthcare infrastructure have caused a crisis in the sector. The World Health Organization (WHO) reports that Ukraine's response to the crisis is an opportunity to align its health system with EU rules in preparation for future EU accession talks. Ukraine is adapting national frameworks to EU law in areas like water quality, cosmetics regulation, and tobacco and alcohol rules.

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Thailand's Economic Transition

Thailand is transitioning its economy towards environmentally sustainable practices. The United Nations estimates an annual investment need of 400-500 billion baht in industries facilitating this transition. The Bank of Thailand (BOT) and the Securities and Exchange Commission (SEC) are implementing a classification system, with activities categorized into green, yellow, and red based on their environmental impact. This provides clarity for investors and has led to the introduction of green financial products such as green bonds and loans.

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Foreign Investment Opportunities

Japan is attracting more foreign investment, with streamlined processes for foreign lawyers, making it easier for international law firms to operate in the country. The depreciation of the yen has also made Japanese assets more attractive, boosting mergers and acquisitions.

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US-India Relations

The US presidential election outcome will significantly impact India, particularly in defence, trade, and strategic sectors. A Trump victory may lead to higher tariffs and immigration restrictions, while a Harris presidency is likely to emphasize economic resilience and reduce reliance on global supply chains. The US is a major investor in India across various sectors.

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Impact of Sanctions on Russia-China Relations

US and UK sanctions on Chinese and Russian entities involved in supplying weapons technology to Russia are impacting Russia-China trade and investment projects. While China denies providing weapons, the sanctioned transactions contradict their statements. The sanctions target entities involved in developing and shipping attack drones, as well as Russia's 'shadow fleet' of oil tankers, aiming to disrupt their military-industrial base.

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International Cooperation

Germany is intensifying economic exchanges with China, with German companies investing heavily in the Chinese market. This cooperation helps control trade friction between China and the EU, ensuring supply chain stability.

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Supply Chain Challenges

Germany's heavy reliance on raw material and rare metal imports from China leaves it vulnerable to supply chain disruptions. The country is taking steps to reduce this dependence, but it still faces challenges in securing enough supply to meet rising demands, particularly in the cannabis and automotive sectors.

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International Business Relations

India's Tata Group faces backlash for its involvement with Israel, particularly in manufacturing weapons and providing IT services for the military. Additionally, Israel seeks to strengthen its national security and economic opportunities by establishing a military base in Somaliland, leveraging its historic success in agriculture and other fields.

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Challenges in Accessing Finance

German firms are facing challenges in securing loans due to economic uncertainty and hesitancy from banks, impacting business investments and job creation. This is particularly difficult for smaller companies, with larger firms like Volkswagen and BMW opting to increase investments abroad.

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US Tariffs and Trade

US firms are bracing for potential tariffs as the election approaches, with Republican candidate Donald Trump proposing new tariffs on imports and Chinese goods. These tariffs may lead to higher prices for consumers and impact various industries. The impact of tariffs on inflation and US relations with allies is uncertain.

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Drone Technology

The UK has authorized the use of drones to monitor critical energy infrastructures, offering significant benefits in terms of operational efficiency, cost reduction, and safety improvements. This technology enhances the reliability of renewable energy infrastructures and accelerates the development of new wind farms.

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Digital Supply Chain Security

The UK faces increased cyberattacks from state-sponsored threat actors, particularly Russia and China. These attacks target critical national infrastructure and digital supply chains, posing significant risks to the economy and national security. Securing digital supply chains is a key focus for the UK and NATO allies.

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Supply Chain Resilience

Thailand is a member of the Indo-Pacific Economic Framework for Prosperity (IPEF), which aims to build resilient and inclusive supply chains. The agreement addresses vulnerabilities and promotes diversification to withstand disruptions. Thailand's role in supply chains has been further bolstered by companies adopting a 'China plus one' strategy, reducing reliance on China.

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Russia-Ukraine Conflict

The UK has imposed sweeping sanctions on Russia's shadow fleet of oil tankers, targeting their ability to sustain war efforts through illicit exports. This is part of coordinated efforts with the US, Canada, and Europe to neutralize the threat to international trade and the environment posed by these vessels.

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US-China Battery Race

The US is trying to catch up with China in the battery race, focusing on next-generation solid-state battery technology to reduce dependence on Chinese-produced graphite. China has a commanding lead in lithium-ion batteries, controlling over 70% of the market, while the US lags with investments in outdated technology.

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Western Military Aid to Ukraine

Ukraine has received military aid, including weapons and fighter jets, from Western countries to support its defense against Russia. However, experts warn that many of these weapons may not survive the war if used to their maximum potential. The West needs to be prepared for potential losses while understanding that the support is crucial for Ukraine's victory.

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Digital Services Tax Hike

France is considering raising the Digital Services Tax (DST) from 3% to 5%, which could damage the economy and inflame trade tensions with the US. It may hinder digital trade and job creation, and undermine global tax talks, setting a destabilizing precedent for other countries.

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US-China Trade Relations

The US and China are engaged in a trade war with significant tariffs on Chinese goods, impacting supply chains and business operations. The US aims to protect national security and reduce dependence on China, while China prioritizes technological self-reliance. This decoupling of economies may lead to global fragmentation or US isolation.