Mission Grey Daily Brief - October 11, 2024

Summary of the Global Situation for Businesses and Investors

The global situation remains volatile, with rising tensions in the Middle East and Eastern Europe threatening global energy supplies and regional stability. Oil prices have soared 9% since Iran's missile attack on Israel on October 1, with 30% of the global oil supply coming from the Middle East. Western sanctions on Russia have disrupted the diamond trade in India, leading to job losses and financial hardship. In North Korea, the government has announced plans to permanently seal its border with South Korea, escalating tensions on the Korean peninsula. These developments have raised concerns about the impact on the global economy, trade, and consumer spending.

Escalating Tensions in the Middle East

The Middle East is witnessing heightened tensions with Israel and Iran at the forefront. Iran's missile attack on Israel on October 1 has increased the prospect of an all-out war, threatening global energy supplies and regional stability. Richard Doornbosch, President of the Central Bank of Curaçao and Sint Maarten (CBCS), warned that the escalating situation could have far-reaching consequences for the global economy, particularly in relation to oil prices. Experts caution that a full-scale conflict between Israel and Iran could upend the international energy supply and send shockwaves throughout the global economy.

Western Sanctions on Russia and the Diamond Trade in India

Western sanctions on Russia have disrupted the diamond trade in India, particularly in the city of Surat, which has long been a global hub for diamond polishing. The European Union and G7 have banned Russian diamonds, severely impacting the supply of rough diamonds to India's industry. This has led to job losses and financial hardship for thousands of workers in Surat, with factories shutting down or reducing their workforce. The sanctions have wiped out nearly one-third of India's diamond trade revenue, plunging families into financial hardship.

North Korea's Border Closure with South Korea

North Korea has announced plans to permanently seal its border with South Korea, escalating tensions on the Korean peninsula. The North Korean government has stated that the border closure is a self-defensive measure to inhibit war and defend its security. However, analysts remain uncertain about the impact on relations with South Korea, given that travel and exchanges across the border have been suspended for years. The South Korean government has vowed to punish any provocation from the North, further escalating tensions in the region.

The Impact of Middle East Tensions on Global Energy Supplies

The Middle East is a critical hub for global oil supplies, with around 30% of the world's oil supply coming from the region. Escalating tensions between Israel and Iran have raised concerns about the potential disruption to oil and gas exports, which could have a significant impact on the global economy. Experts warn that a full-scale conflict between Israel and Iran could upend the international energy supply and send shockwaves throughout the global economy. Farzan Sabet, senior research associate at the Geneva Graduate Institute, emphasizes that a "major disruption of regional oil and gas exports is likely to have a material impact on the global economy."

Iran has threatened to block the Strait of Hormuz, a strategic waterway through which a fifth of the world's oil supply flows. Neil Quilliam, an energy policy and geopolitics expert at Chatham House, underscores the importance of the Strait of Hormuz to the global economy. Qatar, one of the world's biggest producers of natural gas, also relies on the Strait of Hormuz for its exports.

Sabet predicts that a major disruption to the flow of oil and gas from the Middle East would have an "outsized effect" on the Chinese economy, as Beijing imports an estimated 1.5 million barrels of oil a day from Iran, accounting for 15% of its oil imports from the region. Increased energy prices for China would "filter through the supply chain to the manufactured goods the country exports to the United States, Europe, and other regions."

Sabet believes that even a major disruption to the flow of oil and gas from the Middle East would not cause the global economy to spiral out of control, largely due to the rise of the United States as a major oil and gas supplier and the decreasing global reliance on fossil fuels. However, Western consumers would "feel the price hike at the pump", although it would be "much less than it might have been in a previous era."

Themes around the World:

Treasury market liquidity drains

Large Treasury settlements and heavy auction calendars can pull cash onto dealer balance sheets, reducing liquidity elsewhere. Tightened repo and margin dynamics raise volatility across risk assets, complicate collateral management, and increase the chance of disruptive funding squeezes for corporates.

Capacity constraints and productivity ceiling

Business surveys show utilisation still elevated (around 83%+), signalling tight capacity and lingering cost pressures. Without productivity gains, growth can translate into inflation and wage pressures, affecting project timelines, construction costs, and the reliability of domestic suppliers for global value chains.

Climate shocks and heat stress

Flood reconstruction and increasingly severe heat waves reduce labour productivity, strain power systems and threaten agriculture-linked exports. Businesses face higher continuity costs, insurance constraints and site-selection trade-offs, with growing expectations for climate adaptation planning and resilient supply chains.

Infrastructure, labor, and logistics fragility

US supply chains remain exposed to chokepoints across ports, rail, and trucking, with labor negotiations and capacity constraints amplifying disruption risk. Importers should diversify entry points, build buffer inventories for critical inputs, and strengthen real-time visibility and contingency routing.

Sanctions Exposure via Russia Links

Turkey’s balanced stance toward Russia and deep energy/trade links create secondary-sanctions and compliance complexity for multinationals. Firms must strengthen counterparty screening, dual-use controls and trade-finance diligence, especially around sensitive goods, re-exports and shipping/insurance arrangements involving Russian entities.

LNG Export Expansion and Permitting Shifts

US LNG capacity is expanding rapidly; Cheniere’s Corpus Christi Stage 4 filing would lift site capacity to ~49 mtpa, while US exports reached ~111 mtpa in 2025. Faster approvals support long‑term supply, but oversupply and policy swings create price and contract‑tenor risk.

Decarbonisation incentives for heavy industry

A new A$321m grants round under the Powering the Regions Fund supports Safeguard Mechanism covered facilities to cut emissions, funding up to 50% of project costs. It boosts demand for clean-tech, electrification and low-carbon materials while increasing compliance expectations for high emitters.

US trade talks and tariff risk

Vietnam is negotiating a more “reciprocal” trade framework with the US amid tariff pressure and scrutiny of Vietnam’s export surplus. Outcomes could reshape duties, rules-of-origin enforcement and supply-chain routing, affecting apparel, electronics, and China-plus-one strategies.

Outbound investment screening expansion

U.S. controls on outbound capital and know-how—particularly toward China-linked advanced tech—are widening. Multinationals must map covered transactions, restructure joint ventures, and adjust funding routes to avoid penalties, potentially slowing cross-border R&D, venture investment, and supply-chain partnerships in dual-use sectors.

Consolidation budgétaire et fiscalité

Le budget 2026, adopté via 49.3, comporte des mesures fiscales contestées et sécurisées devant le Conseil constitutionnel. Effets: incertitude sur fiscalité du capital et transmissions, arbitrages d’investissement, pression sur dépenses publiques et commandes.

Weak growth, high household debt

Thailand’s growth outlook remains subdued (around 1.6–2% in 2026; ~2% projected by officials), constrained by tight credit and household debt near 86.8% of GDP (higher including informal debt). This depresses domestic demand, raises NPL risk, and limits pricing power.

Trade remedies and export barriers

Vietnam faces intensifying trade-defense actions in key markets. Example: the US imposed antidumping duties of 47.12% on Vietnamese hard empty capsules, alongside CVDs. Similar risks can spread to steel and other goods, elevating legal costs and reshaping sourcing strategies.

Sanctions compliance incentives harden

OFSI now states penalties can be reduced up to 30% for self-reporting and cooperation. For online investing firms with cross-border clients, stronger screening, escalation and audit trails become strategic necessities as UK sanctions enforcement intensity rises.

China EV import quota tensions

A new arrangement allows up to 49,000 Chinese-made EVs annually at low duties, while excluding them from new rebates. This creates competitive pressure on domestic producers and raises security, standards, and political-risk concerns—potentially triggering U.S. retaliation or additional screening measures.

Data-center edge boosts XR

Finland’s rapid data‑center buildout and edge computing expansion strengthen local capacity for low‑latency XR rendering and industrial digital twins, improving service reliability for exports. However, proposed electricity-tax changes and grid constraints may reshape operating costs and location choices.

Canada pivots trade diversification

Ottawa is explicitly pursuing deeper trade ties with India, ASEAN and MERCOSUR to reduce U.S. dependence, while managing frictions around China-linked deals. Exporters may see new market access and compliance needs, but also transition costs, partner-risk screening and logistics reorientation.

Aranceles y reconfiguración automotriz

Aranceles de EE. UU. y peticiones de México para reducir tasas a autos no conformes con T‑MEC presionan exportaciones. Cierres/ajustes de plantas y potencial compra por BYD/Geely muestran reconfiguración; sube el escrutinio sobre “backdoor” chino y el riesgo de medidas.

Critical minerals export leverage

China’s dominance in rare earths and magnet refining (about 70% mining, ~90% processing) increases vulnerability to licensing delays or curbs. US-led “critical minerals bloc” initiatives may accelerate decoupling, raising compliance, sourcing, and price-volatility risks.

Critical minerals alliance, China risk

Japan is aligning with the US and EU on a critical minerals framework to diversify mining, refining, recycling and stockpiling, responding to China’s export controls on rare earths. Expect tighter compliance expectations, higher input costs, and new investment incentives in non-China supply.

Global trade remedies against overcapacity

Rising anti-dumping and safeguard actions targeting China-made steel and other industrial goods reflect persistent overcapacity and subsidization concerns. More tariffs, quotas, and investigations increase landed costs, disrupt procurement, and heighten retaliation risk across unrelated sectors, including commodities.

Défense: hausse des dépenses 2026

Le budget 2026 prévoit 57,2 Md€ pour les armées (+13%) et une actualisation de la LPM attendue au printemps. Opportunités: marchés défense, cybersécurité, drones; contraintes: conformité export, priorités industrielles, tensions sur capacités et main-d’œuvre.

FX reserves and rupee stability

External buffers improved, with liquid reserves around $21.3bn and SBP reserves near $16.1bn after IMF inflows. Nevertheless, debt repayments and current-account pressures can quickly tighten import financing, raise hedging costs, and disrupt supplier payments and inventory planning.

Data protection enforcement and cyber risk

CNIL’s €5m fine over the France Travail breach (36.8m affected) highlights tougher enforcement expectations. Companies face increased scrutiny on IAM, MFA, vendor access, and breach response, impacting cloud architecture, outsourcing models, and regulatory exposure.

Financial liquidity chasing commodities

Ample liquidity amid weak real-economy returns is spilling into metals and gold trading, amplifying price volatility. With M2 growth (8.5% y/y) outpacing nominal GDP (3.9%), firms face unpredictable input costs, hedging needs, and potential administrative tightening if bubbles are suspected.

Capital markets and divestment pressure

Public debate and legal threats around investing in Israeli bonds illustrate rising ESG, fiduciary and litigation risks for investors. Corporates may face shareholder resolutions, banking de-risking or higher funding costs, requiring transparent use-of-proceeds, enhanced disclosures and stakeholder engagement.

Electricity market reform uncertainty

Eskom restructuring and the Electricity Regulation Amendment rollout are pivotal for stable power and competitive pricing. Debate over a truly independent transmission entity risks delaying grid expansion; 14,000km of new lines need about R440bn, affecting project timelines and energy-intensive operations.

Energy planning and power constraints

Vietnam is revising national energy planning to support 10%+ growth targets, projecting 120–130 million toe demand by 2030 and rapid renewables expansion. Businesses face execution risk in grids, LNG logistics, and permitting; power reliability remains a key site-selection factor.

Transport resilience and logistics redesign

Repeated rail disruptions around Tokyo and new rail-freight offerings highlight infrastructure aging and the need for resilient distribution. JR outages affected hundreds of thousands of commuters, while Nippon Express and JR are expanding Shinkansen cargo and fixed-schedule rail services to improve reliability and cut emissions.

USMCA review and tariff risk

The 2026 USMCA/CUSMA joint review is approaching amid fresh U.S. tariff threats (up to 100% on Canadian goods) and active duties on steel, aluminum, autos and lumber. Uncertainty raises cross-border pricing, rules-of-origin, and investment risk for integrated supply chains.

Baht strength, FX intervention bias

Foreign inflows after the election are strengthening the baht, while the Bank of Thailand signals willingness to manage excessive volatility and scrutinize gold-linked flows. A stronger currency squeezes exporters’ margins and complicates regional supply-chain cost planning and hedging strategies.

Labour shortages, managed immigration

Severe labour scarcity is pushing wider use of foreign-worker schemes, but with tighter caps and complex visa categories. Proposed limits (e.g., 1.23 million through FY2028) could constrain logistics, construction and services, lifting wages and automation investment while complicating staffing for multinationals.

Semiconductor concentration and reshoring

Taiwan remains central to advanced chips, while partners push partial reshoring. Taipei rejects relocating “40%” of the chip supply chain, keeping leading‑edge R&D on-island. Firms should plan for dual footprints, IP controls, and higher capex amid ecosystem limits.

Semiconductor tariffs and controls

A tightening blend of Section 232 chip tariffs, case-by-case export licensing, and enforcement actions (e.g., a $252m Applied Materials settlement) is reshaping cross-border tech trade, raising compliance costs, and accelerating supply-chain diversification away from China.

Supply chain resilience and port logistics risk

Australia’s trade-dependent sectors remain sensitive to shipping availability, port capacity and industrial relations disruptions. Any bottlenecks can raise landed costs and inventory buffers, particularly for LNG, minerals and agribusiness. Firms are prioritising diversification, nearshoring and stronger contingency planning.

Energy transition meets grid constraints

Renewables are growing rapidly, yet Brazil curtailed roughly 20% of wind/solar output in 2025 with estimated losses around BRL 6.5bn, reflecting grid bottlenecks. Investors must factor transmission availability, curtailment clauses and regulatory responses into projects and PPAs.

Energy security via long LNG

Japan is locking in long-duration LNG supply, including a 27-year JERA–QatarEnergy deal for ~3 Mtpa from 2028 and potential Japanese equity in Qatar’s North Field South. This supports power reliability for data centers/semiconductors but reduces fuel flexibility via destination clauses.