Mission Grey Daily Brief - December 20, 2024

Summary of the Global Situation for Businesses and Investors

The world is witnessing a landscape dominated by conflicts and wars, exacerbated by the rise of economic and trade protectionism and the prevalence of double standards. Russia and North Korea continue to engage in military action in Ukraine, while Israel and Yemen are trading attacks in the war on Gaza. Georgia is experiencing unprecedented government violence in response to mass protests, and Egypt, Türkiye, and Iran are addressing regional issues at the D-8 summit in Cairo. Meanwhile, India has successfully resisted China's salami-slicing strategy, and Turkey and Qatar are emerging as brokers and kingmakers in Syria, filling the void left by the collapse of Iranian influence.

Russia's Military Action in Ukraine

Russia's military action in Ukraine continues to escalate, with President Vladimir Putin expressing readiness to compromise with President-elect Donald Trump on ending the war and no conditions for beginning talks with Kyiv. However, Putin maintains that Russia is advancing toward its main goals in Ukraine and rules out making any major territorial concessions. Ukrainian President Volodymyr Zelenskyy pushes European countries to provide guarantees to protect Ukraine after the war concludes, emphasising the need for support from the United States under Trump.

The conflict has resulted in casualties on both sides, with Russian missile attacks killing and wounding civilians in Ukraine's northeastern Kharkiv region and southeastern city of Kryvyi Rih. Ukraine has also launched missiles at Russia's Rostov region, leading to a fire at an oil refinery.

Israel-Yemen Conflict

The conflict between Israel and Yemen has escalated, with the US imposing new sanctions targeting the Houthis as the Yemeni group continues to trade attacks with Israel amid the war on Gaza. The US Department of the Treasury announced penalties on Thursday on Hashem al-Madani, the governor of the central bank in Houthi-controlled Sanaa, and several Houthi officials and associated companies, accusing them of helping the group acquire “dual-use and weapons components”. The US Treasury described al-Madani as the “primary overseer of funds sent to the Houthis” by the Quds Force of Iran’s Islamic Revolutionary Guard Corps.

Yemen has two competing central banks, one in the Houthi-controlled capital Sanaa that serves areas of the country controlled by the rebel group, and another in Aden for the areas of the country controlled by the internationally recognised government and other anti-Houthi groups. The US sanctions came hours after Israel bombed targets in Yemen, including power stations near Sanaa, killing at least nine people.

Unrest in Georgia

In response to mass protests, the ruling Georgian Dream party has unleashed unprecedented violence against thousands of demonstrators, with more than 400 people detained and many subjected to brutal treatment by police and law enforcement. The developments reflect a broader geopolitical trend as great power competition intensifies and America’s adversaries seek to weaken its alliances and turn traditional Western partners against it.

As the incoming Trump administration prepares to tackle a range of foreign policy priorities, the crisis in Georgia demands significant attention. The risk is that the moment will not be recognized, and the opportunity lost. Having reached the zenith of its global influence after the collapse of the Soviet Union, the US has seen a decline in its standing over the past two decades as China rises and forms an alliance of growing significance with Russia and other disgruntled authoritarian states.

The incoming administration can alter this dynamic by defending its strategic interests and acting decisively to support its partners. Helping Georgia remain in the pro-Western camp could be a relatively easy victory — one that would send a strong message about Washington’s resolve and strengthen its position in the region and beyond.

Turkey and Qatar's Role in Syria

With Iran on the decline, a new axis is rising in the Middle East, and Syria is still key. Turkish President Recep Tayyip Erdoğan and Qatar are emerging as brokers and kingmakers in Syria, filling the void left by the collapse of Iranian influence in the pivotal country. Their sudden emergence raises the prospect of a realignment of the Arab Middle East.

For years, Turkey and Qatar backed what had been written off as the losing side in Syria’s civil war. With the Assad regime’s fall, and as Iran’s influence wanes, they are geopolitical winners. The Mideast’s axis of power is shifting, but it still runs through Syria.

While they have their own ambitious interests to pursue, both see an opportunity to use Syria to revive a common regional agenda: support for popular democratic movements and Islamist political parties. Since the fall of Bashar al-Assad, Turkey and Qatar have been the most active foreign governments in Syria. Turkish intelligence chief İbrahim Kalın was in Damascus Friday; a Qatari government delegation visited the capital Sunday and reopened its embassy Tuesday.

At a gathering in Doha last week with the foreign ministers of Iran and Russia, the main outside backers of the crumbled Assad regime, the Turkish and Qatari foreign ministers worked behind the scenes to ensure a bloodless transition of power. In Doha and later in a meeting in Aqaba, Jordan, it was Turkey and Qatar that Arab states, the United States, the European Union, and the United Nations relied on to reach out to the interim Syrian government.

They were well positioned. Only weeks before, as Arab states were moving to normalize ties with Syria and calls were growing in Washington to lift sanctions on the Assad regime, Turkey and Qatar were the last two countries supporting the Syrian opposition. Qatar was the only nation that recognized the opposition as the legitimate Syrian government.

Themes around the World:

Impact of Wildfires and Climate-Related Disasters

Increasing frequency and severity of wildfires in Canada and allied countries have prompted discussions on emergency response coordination, including equipment interoperability and satellite monitoring. Climate-related disasters threaten infrastructure, supply chains, and operational continuity, compelling businesses to integrate resilience and sustainability into strategic planning.

Real Estate Market Dynamics

Regional tensions drive complex shifts in Egypt’s real estate sector, with rising demand as property is viewed as a safe haven amid crises. However, escalating construction costs due to energy price hikes and supply chain disruptions threaten project execution and pricing strategies, impacting investment decisions and sector stability.

UK-China Relations and Economic Engagement

The UK government acknowledges China as a complex but essential economic partner, balancing concerns over espionage and interference with the need for trade and investment ties. This pragmatic approach influences regulatory frameworks, foreign investment policies, and strategic economic planning amid global geopolitical competition.

Security Risks to Foreign Officials and Assets

US intelligence warnings about potential Iranian targeting of US officials and cyber threats underscore heightened security risks amid escalating hostilities. Such risks increase the complexity and cost of doing business involving Iran and US interests, impacting multinational corporations, diplomatic missions, and global supply chains.

NATO Commitments and Defense Spending

Germany's commitment to increase defense spending to approximately 3.5% of GDP and expand active-duty personnel by 50,000-60,000 soldiers reflects heightened security priorities amid NATO's evolving posture. This affects defense industry investments, supply chain demands, and Germany's strategic role in European security architecture.

Taiwanese Investment in Japanese Electronics

Taiwanese electronics suppliers, including major firms like Yageo, are increasing direct investment in Japan, targeting growth in automotive supply chains and advanced technologies. This trend strengthens Japan's electronics sector, fosters cross-border industrial collaboration, and enhances Japan's position in global tech supply chains amid regional competition.

Supply Chain Risk and Global Sourcing Shifts

The Proxima Global Sourcing Risk Index highlights increased supply chain vulnerabilities, with Mexico identified as the highest risk due to governance, climate exposure, and geopolitical factors. U.S. companies are compelled to reassess sourcing strategies to mitigate risks from tariffs, labor costs, and geopolitical instability, impacting manufacturing and logistics operations.

Digital Media and Affiliate Marketing Growth

Norwegian media outlet VG’s success in affiliate marketing, generating over $10 million annually, illustrates evolving digital revenue models relevant to German media and advertising sectors. The shift towards diversified digital income streams, including performance-based marketing, signals opportunities and competitive pressures for German media companies adapting to digital transformation.

Cross-Border Corruption and Money Laundering

A large-scale corruption and money laundering ring involving Thai and Cambodian labor officials exploits foreign workers through extortion and illicit fees, potentially exceeding ฿6 billion. This undermines labor market integrity, increases operational risks for businesses relying on migrant labor, and highlights governance challenges affecting bilateral relations and economic cooperation.

Japan-China Trade Relations and Export Bans

Japan is actively urging China to lift bans on exports to 10 Japanese prefectures, which have disrupted bilateral trade flows. These restrictions affect key industrial inputs and components, complicating supply chains and manufacturing operations. The resolution of these trade barriers is critical for restoring smooth trade, investment confidence, and supply chain resilience between the two economic giants.

Geopolitical Tensions and Military Support

Ongoing geopolitical tensions, including Russia’s calls for halting arms supplies to Ukraine and Western military aid to Kiev, continue to shape the security environment. Increased NATO defense spending and military-industrial cooperation in Europe affect regional stability, risk assessments, and business operations, especially in sectors linked to defense, energy, and international trade.

Eurasian Economic Union Investment Dynamics

Russia has become the primary investor within the Eurasian Economic Union (EAEU), channeling capital into member states like Kazakhstan and Uzbekistan amid Western sanctions. While Russia faces reduced foreign direct investment inflows due to sanctions and currency controls, its investments in EAEU countries expand economic ties and create alternative trade and supply chain routes, reinforcing regional economic integration.

Middle East Conflicts Impact on Regional Stability

Ongoing conflicts in the Middle East, particularly between Israel and Iran, have significant implications for South Africa’s foreign policy and regional security. South Africa’s calls for peace and its role in international forums like the G20 underscore the potential for geopolitical spillover effects influencing investor confidence and global economic stability.

Climate Risks as Systemic Economic Threat

The Bank of Russia identifies physical and transition climate risks as systemic threats to the Russian economy and financial sector. Without proactive measures, one-third of companies may face financial instability by the mid-2030s. However, climate change also presents opportunities, such as increased demand for critical minerals and nuclear energy development, influencing investment strategies and economic modernization.

Trade Deals Targeting China Transshipments

New trade agreements, notably with Vietnam, impose tariffs on goods transshipped from China to curb circumvention of U.S. tariffs. This approach pressures supply chains in Southeast Asia, aiming to reduce China's economic influence but risks retaliation and complicates regional trade dynamics, affecting multinational corporations and global manufacturing networks.

Political Instability and Governance Concerns

Internal political tensions within the Government of National Unity and elite-driven politics erode democratic legitimacy and policy continuity. Corruption and selective accountability undermine governance, affecting investor trust and the predictability of regulatory environments. Political instability may delay reforms critical to economic growth and complicate international partnerships.

Trade Strategy and Protectionism Response

The UK has unveiled its first comprehensive Trade Strategy since the early 1990s, aiming to boost exports, expand UK Export Finance to £80bn, and protect domestic firms from global protectionism, notably US tariffs. The strategy includes new trade defence tools against unfair practices like dumping, with a focus on sectors such as steel, and seeks to enhance regulatory cooperation and digital trade interoperability.

Middle East Geopolitical Conflict

The escalating Israel-Iran conflict, including U.S. strikes on Iranian nuclear sites, has heightened geopolitical risks impacting global oil markets, supply chains, and investor sentiment. The potential closure of the Strait of Hormuz threatens 20% of global oil supply, risking oil price spikes above $100/barrel, disrupting trade flows, and increasing market volatility with broad implications for international trade and investment.

Iran-Israel Military Conflict

The ongoing military aggression between Iran and Israel, including missile strikes and attacks on nuclear and military sites, has escalated regional tensions. This conflict disrupts regional stability, threatens supply chains, and increases geopolitical risks, impacting international trade and investment strategies due to heightened security concerns and potential retaliatory actions.

Tourism Sector Vulnerabilities

Tourism, a key economic driver, is under pressure from political unrest, border tensions, and declining Chinese visitor numbers (down 32.7%). Investor jitters and negative sentiment risk slowing recovery, with fragile consumer confidence and potential disruptions from coup rumors and cabinet reshuffles further threatening the sector’s growth and foreign exchange earnings.

Eurasian Economic Union Integration

The Eurasian Economic Union (EAEU) has doubled mutual trade to $97 billion, with 93% of payments in national currencies, reflecting deepening regional economic integration. Russia emphasizes strengthening the EAEU's global influence and reducing reliance on Western financial systems, which affects trade partnerships, currency risk management, and regional supply chain strategies.

Homelessness and Social Vulnerability

A rising homelessness crisis, with over 7% of the homeless population being children, reflects deep social challenges. This exacerbates poverty and inequality, potentially increasing social unrest and reducing workforce productivity, which can deter investment and complicate business operations in South Africa.

National Crisis Preparedness

Indonesian lawmakers urge the government to develop comprehensive crisis scenarios addressing geopolitical shocks from the Middle East conflict. Emphasis is on fiscal-monetary coordination, energy reserve strengthening, social safety nets, and long-term resilience in economic, energy, and food security sectors to mitigate inflation, currency depreciation, and supply chain disruptions.

Northern Border Drug Trafficking Crisis

Thailand faces an escalating methamphetamine influx from Myanmar’s Wa State, the epicenter of Southeast Asia’s drug production. Despite significant busts, the drug supply remains robust, fueling social decay and crime. The crisis pressures Thai security forces and threatens regional stability, complicating economic development and cross-border trade in northern provinces.

Australian Stock Market Volatility

Tensions in the Middle East have led to nervous investor sentiment, causing declines in the ASX 200 and fluctuations in key sectors like energy, materials, and financials. Market uncertainty impacts investment strategies, capital flows, and corporate valuations, influencing Australia's attractiveness to foreign and domestic investors.

Foreign Investment Approvals and Economic Opportunities

Despite geopolitical tensions, Iran’s Foreign Investment Board approved $1.5 billion in new foreign investments across diverse sectors including renewable energy, mining, pharmaceuticals, and logistics. Total foreign investment sanctioned in early 2025 reached $10 billion, reflecting sustained investor interest. This presents opportunities for international investors but also underscores the need to navigate complex political risks.

Energy Sector Reforms and Electricity Costs

Deputy PM Pirapan leads bold reforms to reduce Thailand’s high electricity costs by revising long-term contracts and boosting state power generation via EGAT and rooftop solar. These reforms aim to enhance energy security and lower operational expenses for households and industries, potentially improving competitiveness despite political party turmoil.

Shekel Appreciation and Currency Dynamics

The Israeli shekel has strengthened significantly against major currencies, driven by improved geopolitical conditions and investor confidence. This appreciation reduces import costs and inflationary pressures but may challenge export competitiveness. Currency stability also influences cross-border trade, investment flows, and multinational corporate strategies operating in Israel.

Humanitarian Impact and Social Stability

The military aggression resulted in significant civilian casualties, including women and children, fueling national unity and resistance. This humanitarian dimension affects social stability and public sentiment, which in turn influences domestic policy and international perceptions. Businesses must consider these socio-political dynamics when evaluating country risk and operational strategies in Iran.

Fuel Price Volatility and Regulatory Oversight

Global oil price volatility driven by Middle East tensions has led to sharp increases in Australian petrol prices. The government, through the Treasurer and ACCC, is monitoring fuel retailers to prevent opportunistic price gouging. This regulatory vigilance aims to protect consumers and maintain market fairness amid uncertain global energy markets, affecting transportation costs and inflation.

China's Military Modernization and Regional Tensions

China's upcoming large-scale military parade and increased military exercises underscore its ambition to build a 'world-class' military by 2049. Heightened assertiveness in territorial disputes and Taiwan-related tensions reflect a more proactive defense posture, raising geopolitical risks that could impact regional stability, foreign investment confidence, and global supply chain security.

Anti-Immigration Movements and Social Tensions

Groups like Operation Dudula, supported by traditional leaders, are intensifying actions against illegal immigration, including raids and denial of healthcare to undocumented migrants. These activities heighten social tensions and raise human rights concerns, potentially affecting labor markets, social stability, and South Africa's international reputation, which could influence foreign investment and regional cooperation.

Energy Independence and Security

Amid geopolitical tensions and volatile fossil fuel markets, the UK is prioritizing energy independence through clean energy investments. The Industrial Strategy links green energy to economic resilience and national security, addressing risks from Middle East conflicts and supply disruptions. This shift influences investment priorities, industrial competitiveness, and long-term energy costs for businesses.

Middle East Conflict Impact

The escalating conflict between Iran and Israel, including US strikes on Iranian nuclear sites, has caused significant volatility in global oil prices, impacting Australia's fuel costs, inflation, and market stability. Potential disruptions to the Strait of Hormuz threaten global energy supply chains, raising risks for Australian trade, investment, and economic growth.

US-South Africa Trade Tariff Negotiations

South Africa is actively negotiating with the US to avoid a 31% tariff on key exports such as autos, steel, and aluminium. The country seeks tariff exemptions or a maximum 10% tariff, offering LNG imports in exchange. These tariffs threaten 35,000 jobs in sectors like citrus, impacting bilateral trade and investment strategies with the US, South Africa's second-largest trading partner.

Frozen Russian International Reserves

Russia's international reserves reached a record $687.7 billion, with over $300 billion frozen in Western banks due to the Ukraine conflict. The freeze has prompted Moscow to accelerate development of regional payment systems and reduce dependence on Western financial institutions. Potential Western moves to confiscate these assets risk escalating geopolitical tensions and further disrupting global financial interactions with Russia.