Mission Grey Daily Brief - November 24, 2024
Summary of the Global Situation for Businesses and Investors
The war in Ukraine is entering a "decisive phase", with Vladimir Putin's launch of a new ballistic missile showing that the threat of global conflict is "serious and real", according to Poland's prime minister. Satellite images show that North Korea has allegedly imported over a million barrels of oil from Russia this year, flouting United Nations sanctions. Russia is prepared to launch a series of cyber attacks on Britain and other NATO members as it seeks to weaken support for Ukraine. Donald Trump's return to power in the United States has raised concerns about the future of democracy and the impact of his policies on the global economy. Russia has accused the US of using Taiwan to stir up a crisis in Asia, while China's dystopian tech influence is growing in Vietnam.
The War in Ukraine
The war in Ukraine has entered a decisive phase, with Vladimir Putin's launch of a new ballistic missile showing that the threat of global conflict is "serious and real", according to Poland's prime minister. Putin has escalated the conflict by using a new ballistic missile with a range of "several thousand kilometres" against the city of Dnipro in Ukraine. Putin has threatened to strike Western countries that provide military aid to Ukraine, including the UK and the US. Putin has also revised Russia's nuclear doctrine, declaring that a conventional attack on Russia by any nation supported by a nuclear power will be considered a joint attack on his country. Russian units fighting in Ukraine, which were previously considered "elite", are now becoming "increasingly obsolete" as a result of Russia's strategy of throwing waves of troops into battle, turning the frontline into a "meat grinder".
North Korea's Oil Imports from Russia
Satellite images show that North Korea has allegedly imported over a million barrels of oil from Russia this year, flouting United Nations sanctions. The research suggests that North Korean oil tankers have visited Russia's Vostochny port over 40 times since March, in defiance of international restrictions. These findings are supported by satellite images, Automatic Identification System data, and maritime patrol imagery. The United Nations Security Council caps North Korea's annual refined petroleum imports at 500,000 barrels under sanctions imposed due to its nuclear weapons and missile programmes. However, Pyongyang has continued to exceed this quota through illicit channels, as documented by multiple international watchdogs. Attempts to curb North Korea's activities include a joint task force launched by the US and South Korea earlier this year, aimed at preventing the nation from acquiring illicit oil. However, the effectiveness of these initiatives has been questioned, particularly as UN resolutions have caused divisions among key members.
Russia's Cyber Attacks on the UK and NATO Members
Russia is prepared to launch a series of cyber attacks on Britain and other NATO members as it seeks to weaken support for Ukraine. Russia won't think twice about targeting British businesses in pursuit of its malign goals, and it is happy to exploit any gap in cyber or physical defences. The threat is real, and Russia is exceptionally aggressive and reckless in the cyber realm. There are gangs of "unofficial hacktivists" and mercenaries not directly under the Kremlin's control, but who are allowed to act with impunity so long as they're not working against Putin's interests. The Cabinet Office minister is expected to set out details of how the UK will seek to boost its protections against emerging cyber threats, as well as how the country is stepping up work with NATO allies. He and senior national security officials will also meet business leaders next week to discuss how they can protect themselves.
China's Dystopian Tech Influence in Vietnam
China's dystopian tech influence is growing in Vietnam, with Hanoi's policies regarding social media increasingly following Beijing's lead. Vietnam has positioned itself in recent years as an attractive destination for big tech companies looking to move away from China. However, Hanoi's new digital regulations risk threatening business at an especially precarious time. The country was seen as a major winner from former US president Donald Trump's trade war with China in his first term. However, success during Trump 2.0 is far from certain: The president-elect has threatened much wider tariffs of up to 60 percent on goods from China and 20 percent from everywhere else. That could deal a devastating blow to Vietnam's growth, and it could find itself caught in the crosshairs of greater scrutiny on goods originating from China that pass through its borders. The tariffs could cut Vietnam's economic growth by up to 4 percentage points, Oversea-Chinese Banking Corp economists have warned, back to levels at the height of the COVID-19 pandemic.
Further Reading:
As Ukraine Fires U.S. Missiles, Putin Sends a Chilling Message - The New York Times
China’s dystopian tech influence grows in Vietnam - 台北時報
Op-ed: Donald Trump: the United States’ president, the world’s headache - The Huntington News
Putin threatens UK with new ballistic missile as Ukraine war escalates - The Independent
Russia prepared to launch cyber attacks on UK, minister to warn - The Independent
Russia says US using Taiwan to stir crisis in Asia By Reuters - Investing.com
Russia-Ukraine war sees another 'dangerous cycle' as threats escalate - Sky News
Satellite images show North Korea broke sanctions to get Russian oil - The Independent
World war threat is serious and real, warns Poland - The Independent
Themes around the World:
Impact of Proposed Tariffs
The incoming Trump administration's proposed tariffs of 25% on goods from Mexico and Canada, and 10% on Chinese imports, could significantly raise costs for U.S. businesses and consumers. This protectionist approach may disrupt supply chains and provoke retaliatory measures from trading partners, potentially igniting a trade war that could stifle economic growth.
Consumer Price Inflation Risks
Experts warn that Trump's proposed tariffs could lead to significant price increases on consumer goods, reducing purchasing power. Industries reliant on imports, such as electronics and footwear, may face steep price hikes, impacting consumer spending and overall economic growth.
China's Push for Self-Sufficiency
In response to U.S. sanctions, China is doubling down on its efforts to achieve technological self-sufficiency, particularly in the semiconductor sector. This strategic pivot may lead to increased domestic investment and innovation, but also risks further isolating China from global technology markets.
Rising Borrowing Costs
French government borrowing costs have surged, reaching levels comparable to Greece due to political chaos and fiscal uncertainty. This situation raises the risk premium for investors, complicating financing for businesses and potentially leading to a slowdown in economic growth and investment.
Energy Supply Concerns
France's energy supply is under scrutiny as the country navigates rising energy prices and geopolitical tensions. The shift towards renewable energy and reliance on imports could disrupt supply chains and increase operational costs for businesses.
Declining Industrial Competitiveness
France's manufacturing sector is experiencing a downturn, with a PMI below 50 indicating contraction. This decline, exacerbated by political instability and rising production costs, threatens France's competitiveness against global players, particularly China, impacting supply chains and investment decisions.
Geopolitical Tensions with Russia
Germany's military preparations for potential conflict with Russia, including the Operation Germany Plan, highlight the increasing geopolitical risks. This situation necessitates businesses to develop contingency plans, impacting supply chains and operational strategies amid rising threats of cyberattacks and espionage.
India-Kazakhstan Mineral Cooperation
India's partnership with Kazakhstan in critical minerals aims to enhance domestic supply chains and reduce reliance on imports. The joint venture for titanium processing reflects a strategic shift towards securing essential resources, aligning with India's broader goals of self-sufficiency and sustainable economic growth.
Future of Gas Transit via Ukraine
Gazprom's plans to cease gas transit through Ukraine after 2024 could significantly alter energy supply routes in Europe. This shift may lead to increased energy prices and necessitate strategic adjustments for businesses reliant on stable energy supplies.
Climate Investments and Energy Transition
German companies have increased investments in climate protection and energy transition, but the difficult economic situation limits their scope. There are concerns about cost-effectiveness, financial resources, and lengthy approval procedures. However, most companies agree that reliable climate and energy transition strategies are financially rewarding in the long run.
US-Japan Relations
The US-Japan relationship is a key bilateral tie for both nations, with shared concerns over China's economic and security threats. Donald Trump's return to the White House may impact Japan's trade and security policies, including potential tariff increases and decoupling from China. Japan's Prime Minister, Shigeru Ishiba, aims to strengthen economic and security ties with other nations.
Armenia's Gold Trade and Sanctions
Armenian companies are reportedly facilitating the circumvention of Western sanctions on Russian gold, re-exporting billions worth to the UAE. This trade has raised concerns about Armenia's role as a conduit for sanctioned goods, impacting its international relations and economic stability.
Political Instability and Economic Impact
The collapse of Germany's ruling coalition has led to political uncertainty, which is likely to hinder economic recovery efforts. This instability could affect investor confidence and delay critical policy decisions, further exacerbating the economic challenges facing the country.
Political Instability and Investment Hesitance
Political instability in France, following snap elections, has led to a significant decline in foreign investment attractiveness. Executives express concerns over legislative uncertainties and potential economic reforms, resulting in postponed investment projects. This hesitance could adversely affect economic growth and reindustrialization efforts, as foreign-owned companies contribute significantly to GDP and employment.
Shifting International Partnerships
France is facing shifting international partnerships, particularly in Africa. Niger, a former French colony, has pivoted towards Russia for uranium production and natural resource investment, marking a turning point in Niger's resource management strategy. This follows the breakdown of relations between the two countries, with France refusing to recognize Niger's military junta government. Other countries in the Sahel region, such as Mali, have also moved away from historical ties with France, further impacting France's influence in the region.
Regulatory Changes for Financial Resilience
The introduction of the Critical Third Parties Regime aims to enhance operational resilience in the UK financial sector. By extending regulatory oversight to critical service providers, this initiative seeks to mitigate systemic risks, influencing how financial institutions manage third-party relationships and impacting overall market stability.
U.S.-India Trade Collaboration
The U.S. and India are exploring opportunities for collaboration in cargo clearance to enhance trade efficiency. By adopting best practices from each other, both nations aim to strengthen supply chains, reduce dependence on China, and ensure the secure flow of goods, which is vital for economic stability.
Supply Chain Resilience in Defense
The UK military is conducting simulations to assess supply chain resilience amid potential conflicts. Collaborating with defense contractors, this initiative aims to identify vulnerabilities in logistics and ensure rapid delivery of critical supplies. The outcomes will inform strategies to enhance operational readiness, impacting defense procurement and industry partnerships.
Foreign Direct Investment Regulation
The implementation of the Foreign Direct Investments Act introduces a screening process for foreign investments in Sweden. This regulatory framework aims to protect national security but may increase the complexity and duration of investment approvals, affecting foreign investor sentiment.
UK's Green Energy Ambitions
The Labour government aims for the UK to achieve zero-carbon electricity by 2030, promoting investments in renewable energy. This ambitious plan includes significant funding for clean energy projects, potentially reshaping the energy supply chain and attracting international investments, while also addressing energy security concerns.
Infrastructure Development Initiatives
The European Investment Bank's funding for infrastructure projects, including roads, is crucial for improving logistics and transport for the sports sector. Enhanced infrastructure can facilitate better access to international markets for sports goods and events.
Potential Port Strikes Impact
Anticipated strikes at U.S. ports could exacerbate supply chain disruptions in early 2025, coinciding with new tariffs. This uncertainty may compel shippers to adjust inventory strategies, impacting logistics and trade flows.
Supply Chain Disruptions and Nearshoring
Shifts in global supply chains, particularly in textiles, are affecting Germany's manufacturing landscape. Companies are increasingly nearshoring to mitigate risks, impacting traditional supply routes. This trend could reshape investment strategies and operational frameworks, as businesses adapt to new sourcing dynamics in response to geopolitical tensions.
Inflationary Trends in Japan
Japan is transitioning to a higher-inflation environment after decades of stagnation. This shift presents both challenges and opportunities for businesses, as rising prices may stimulate domestic consumption but also strain supply chains. The Bank of Japan's potential rate hikes could further influence investment strategies and economic growth.
AI and Data Center Investments
The surge in demand for AI infrastructure is driving significant investments in Japan's data center industry. Companies like Fujikura are capitalizing on this trend, which is expected to require substantial energy resources, prompting a renewed focus on nuclear energy as a stable power source.
Economic Decline and Industrial Crisis
Germany faces a significant economic downturn, marked by a contraction in GDP and a decline in industrial production. Major companies like Volkswagen and Thyssenkrupp are announcing layoffs and factory closures, reflecting a broader industrial malaise. This situation poses risks for international trade and investment, as Germany's export-driven economy struggles against rising energy costs and competition.
Impact of Proposed Tariffs
President-elect Trump's proposed tariffs of 25% on imports from Mexico and Canada, and 10% on Chinese goods, could significantly disrupt supply chains, raise consumer prices, and potentially ignite a trade war. This policy shift threatens to escalate tensions with key trading partners and could lead to retaliatory measures, impacting U.S. businesses and consumers alike.
Japan's Crypto Regulatory Landscape
Japan's Financial Services Agency is tightening regulations on unregistered cryptocurrency exchanges to protect investors. This regulatory shift aims to foster a secure environment for crypto growth, impacting investment strategies in the burgeoning digital asset market and aligning with global trends in financial technology.
Cyber Warfare
Hamas-affiliated threat actors have expanded their cyber operations beyond espionage to disruptive attacks exclusively targeting Israeli entities. The group, known as WIRTE, has leveraged geopolitical tensions to craft deceptive attacks, showcasing a versatile toolkit. This highlights the escalating cyber dimension of the conflict, with potential implications for Israel's critical infrastructure and digital security.
China's Critical Minerals Strategy
China's dominance in critical mineral refining is crucial for global supply chains, especially for green technologies. However, geopolitical tensions and supply vulnerabilities are prompting countries to diversify away from China, potentially disrupting established supply chains and impacting industries reliant on these minerals.
Crypto Regulation Uncertainty
Germany is struggling to implement the EU's Markets in Crypto-Assets Regulation (MiCAR) due to political instability. This regulatory gap hampers the growth of the crypto sector, potentially driving innovation and investment to other EU nations, which could undermine Germany's position in the digital finance landscape.
Emerging Drone Industry Growth
The UK drone industry is poised for growth, driven by applications in various sectors such as construction and healthcare. However, regulatory complexities and privacy concerns pose challenges. As companies innovate and integrate drones into operations, this sector's expansion could enhance efficiency and create new business opportunities, impacting logistics and service delivery.
Impact of Proposed Tariffs
President-elect Trump's proposed tariffs of 25% on imports from Mexico and Canada, and an additional 10% on Chinese goods, could significantly increase costs for U.S. businesses and consumers. This could lead to inflationary pressures, disrupt supply chains, and provoke retaliatory measures from trading partners, potentially igniting a trade war.
Middle-Class Economic Challenges
India's middle class faces significant economic pressures due to rising household debt, inflation, and job losses from automation. This demographic's consumption patterns are critical for economic growth, and their decline could lead to reduced demand for goods and services, impacting overall business operations and investment strategies.
Excess Inventory Challenges
U.S. retailers face rising costs due to excess inventory, with average holding days increasing by 12% since 2021. Companies must balance inventory levels against customer expectations for product availability, while leveraging AI and machine learning for better demand forecasting to mitigate financial impacts.
Supply Chain Disruptions
The ongoing conflict and military actions are causing significant disruptions in supply chains, particularly in defense and energy sectors. Businesses must navigate these challenges to maintain operations and mitigate risks associated with sourcing and logistics.