Serbia’s Jadar mine: the energy transition and environmental concerns

Introduction

Following government plans to reboot the Jadar lithium mine proposed by mining giant Rio Tinto, thousands of protesters rallied in Belgrade over the past month. The mine is set to become the largest lithium mine in Europe, significantly boosting Serbia’s economy, and supplying 90% of Europe’s lithium needs. However, the project has also sparked nationwide protests with concerns over the potential impact of the mine on the local environment. With increasing global demand for critical minerals, the Jadar lithium mine highlights broader tensions around resource extraction and the energy transition. This article analyses the implications of the mine and explores the different stakeholder perspectives that pose risks to its commencement.

Background

With the European Union's (EU) increasing demand for lithium, driven by the transition to electric vehicles (EVs) and energy storage, developing a secure lithium supply chain is growing in importance. Portugal is the only EU state that mines and processes lithium, making the region and its green transition heavily dependent on external sources. In response to this vulnerability, the EU has introduced the Critical Raw Materials Act (CRMA), which aims to reduce reliance on imports by promoting domestic production and refining capabilities. The proposed Jadar lithium mine in Serbia, with estimated reserves amounting to 158 million tons, could play a pivotal role in this strategy, with plans to produce 58,000 tons of lithium annually – enough to support 17% of the continent's EV production, approximately 1.1 million cars. 

If all goes to plan, mining operations could begin in 2028. According to Serbia’s mining and energy minister, the government “aims to incorporate refining processes and downstream production, such as manufacturing lithium carbonate, cathodes, and lithium-ion batteries, potentially extending to electric vehicle production”. Moreover, in June 2021, amid public opposition in the Loznica region, the government emphasised that the project would involve a full-cycle approach to maximise local economic benefits. In March, Prime Minister Ana Brnabić suggested that the country could restrict or prohibit the export of raw lithium to support domestic value chain development. However, so far the specifics of the refining processes remain unclear.

Stakeholder perspectives

EU view

Since Europe currently has virtually no domestic lithium production, the EU views the Jadar lithium mine as a crucial project to bolster its economic security and support its green energy transition. The mine is expected to produce enough lithium to meet 13% of the continent’s projected demand by 2030, reducing its reliance on imports. Germany has already expressed strong support for the project, with Chancellor Scholz emphasising the mine’s importance for Europe's economic resilience.

Serbian view

The Serbian government views the project as a significant opportunity for the country's economy and its industrial development. Its mining and energy minister has emphasized that the project would comply with EU environmental standards while delivering economic benefits, including the creation of around 20,000 jobs across the entire value chain. Furthermore, Serbia’s finance minister projects that the mine could add between €10 billion and €12 billion to Serbia's annual GDP, which was €64 billion in 2022. To maximize these benefits, Serbia plans to follow the example of countries like Zimbabwe and Namibia by imposing restrictions on lithium exports, aiming to establish a complete domestic value chain for EVs. Additionally, Serbia's bid for EU membership adds a strategic dimension to the project, potentially aligning the country more closely with the bloc's energy and economic goals.

Local population view

Massive protests against the Jadar project have erupted across Serbia since June, following a court decision that cleared the way for the government to approve the mine. Many Serbians are troubled by the lack of transparency that evolved in the granting of mining rights to a foreign company. Moreover, opponents are sceptical of Rio Tinto's involvement, citing the company’s controversial history in developing countries, such as its operations in Papua New Guinea, where environmental damage contributed to a nine-year civil war. In this light, locals fear that the mine could jeopardise vital food and water sources in the Jadar Valley. For example, environmental problems caused by tailings, mine wastewater, noise, air pollution, and light pollution could endanger the lives of numerous communities and harm their agricultural land, livestock, and assets. Concerns have also been heightened by reports that exploratory wells drilled by Rio Tinto brought water to the surface that killed surrounding crops and polluted the river.

Rio Tinto view

Rio Tinto asserts that the Jadar mine is “the most studied lithium project in Europe,” having invested over $600 million in research and development to ensure its safety. As part of its efforts to gain public support, the company has conducted 150 information sessions for the local community, while Serbia's mining ministry has established a call centre to address concerns about the project. To further reassure the public, Rio Tinto has also expressed a willingness to allow independent experts to conduct an environmental review, aiming to alleviate doubts about the mine's potential impact on the ecosystem.

Conclusion

Despite the public opposition, the Jadar lithium mine appears likely to proceed, backed by strong support from the Serbian government and the EU, both eager to meet the onshoring requirements outlined in the CRMA. However, as this article has highlighted, the project faces considerable risks, including environmental challenges and persistent social and political opposition. The recent closure of the Cobre copper mine in Panama, following widespread protests over environmental damage and disputes over a new tax deal, serves as a stark reminder of the potential pitfalls. The Jadar project will need to navigate these complexities carefully to avoid similar outcomes and ensure a balanced approach to economic development and environmental preservation.

Drilling Dreams, Sinking Realities

Introduction

Climate change is increasingly recognised as the most significant long-term downside risk to almost all investment sectors. This urgency is underscored by the approaching 2024 U.S. Presidential election, where energy policy is a key issue, particularly in the context of the Republican Party’s push to revive the fossil fuel industry. With global temperatures in 2023 reaching unprecedented highs and surpassing even the most dire projections, the severity of climate-related disasters has escalated. These developments make it clear that mitigating climate change is not just an environmental imperative but also a critical economic and geopolitical challenge. The outcome of the U.S. election could have profound implications for global energy policies, especially as the Republican nominee, Donald Trump, advocates for an aggressive expansion of fossil fuel production.

Increasing Severity of Climate Disasters

2023 has been a stark reminder of the accelerating impacts of climate change. Record-breaking global temperatures, partly driven by an El Niño intensified by climate change, have led to widespread heatwaves, wildfires, and other extreme weather events. These developments have surpassed the projections of most climate models, highlighting the increasing unpredictability and severity of climate-related disasters, and the real-world implications of inaction on climate policy. The nonlinear trajectory of ecosystem collapse is one that has far-reaching implications, affecting everything from agriculture and infrastructure to public health and economic stability.

Graph 1.0 (Global Temperature Trends)

As the graph above shows, 2023 surpassed every previous temperature record by-far; almost showing an off-the-charts uptick in increasing temperatures. This must be seen in the context of the political economy of the green energy transition, involving stakeholders like big-oil to employ significant effort to subdue, delay, and slow down momentum of green energy through extensive lobbying in an effort to stay relevant in a world where renewable energy has become cheaper than conventional oil and gas as shown in the graph below.

Graph 2.0 (Energy cost by source)

COP and Delayed Multilateral Action

The international community has attempted to make some progress toward addressing climate change, with the United Nations’ Conference of the Parties (COP) serving as a central platform for multilateral action. COP 28 in Dubai marked a significant moment, signalling what many hoped would be the beginning of the end for fossil fuels. However, the subsequent COP 29, hosted in Baku, Azerbaijan—also a petro-state—seems to have reduced the pace and effectiveness of global climate action, and put the world off-track to limit global warming to 1.5C. The influence of fossil fuel interests and lobbying has continued to slow progress, delaying the implementation of much-needed measures to reduce emissions on a global scale, which by the number of lobbyists in COP 26 for instance, outnumbered national delegations to the convention.

Graph 3.0 (number of lobbyists in COP 26)

The 2024 U.S. Presidential Elections

The 2024 U.S. Presidential election represents a pivotal moment for the country’s energy policy, particularly in the context of climate change. Donald Trump’s acceptance speech at the Republican National Convention on July 19th highlighted his intent to revive America’s fossil fuel industry. Declaring, “We will drill, baby, drill!” Trump pledged to ramp up domestic fossil fuel production to unprecedented levels, with the aim of making the United States "energy dominant" on the global stage. His commitment to this vision was evident in his efforts to court oil industry leaders, promising to roll back President Joe Biden’s environmental regulations in exchange for financial support for his re-election campaign.

Trump’s team argues that unleashing vast untapped oil reserves in regions like Alaska and the Gulf of Mexico could significantly boost production if environmental regulations were eased. However, experts contend that such plans might not significantly alter the U.S. energy landscape, whether fossil or renewable. Despite the oil industry’s grievances under Biden, the sector has seen substantial growth, with oil and gas production reaching record levels. Biden’s administration has issued more drilling permits in its first three years than Trump did during his entire term, and the profits of major oil companies have soared due to the 2020s global commodities boom.

Federal Policy and Oil Production

The impact of federal policy on oil production is often tempered by broader market dynamics and investor behaviour. The oil industry, particularly after the financial strains of the shale boom, now prioritises capital discipline, driven more by market conditions and Wall Street’s influence than by the White House’s policies. Even if Trump were to win the presidency, the overall trajectory of oil production is likely to continue being shaped by global supply-demand balances and the strategic decisions of organisations like OPEC.

Interestingly, Trump’s promise to repeal Biden’s Inflation Reduction Act (IRA)—which includes substantial subsidies for green energy—may face significant obstacles. The IRA’s benefits are largely concentrated in Republican districts, and industries traditionally aligned with fossil fuels are beginning to recognise the advantages of low-carbon technologies. For example, companies benefiting from the IRA’s subsidies for hydrogen and carbon capture are prepared to defend these incentives against any potential repeal.

Conclusion

The urgency of addressing climate change is often underestimated due to a common misunderstanding of the non-linear feedback loops involved in ecosystem collapse. Many tend to view emissions as a simple, transactional force with nature, failing to grasp the exponential and potentially catastrophic consequences of inaction. This underestimation leads to a dangerous complacency, undervaluing the need for urgent and robust policy action. 

The U.S. holds significant sway over global climate outcomes mainly because of two reasons: (1) It is the second largest emitter; and (2) it is one of the only countries in the world for climate policy to be a partisan issue, making it particularly susceptible to hampering global emissions targets.

With much of the Global South still dependent on coal, oil, and gas, a unilateral decision by the U.S. to aggressively increase fossil fuel consumption could single-handedly push the planet toward an irreversible climate disaster. The stakes are incredibly high, especially as the political economy of the green transition faces opposition from entrenched fossil fuel interests. These forces work to delay and obstruct the shift to renewable energy, despite the clear and present need to accelerate this transition to prevent ecological collapse.

Having already surpassed 1.5C warming; the world is headed towards 4.1-4.8C warming without climate action policies; 2.5-2.9C warming with current policies; and 2.1C warming with current pledges and targets. In this context, if the U.S. were to aggressively change course and begin burning more, instead of less as Trump suggests—it may severely hamper the ability of the global ecosystem to recover and restore, potentially breaching already critical tipping points.

Graph 4.0 (projected warming in different scenarios)

Therefore, it becomes more important than ever for climate-conscious energy policy, to recognise that ecological collapse is a non-linear and irreversible outcome of breaching environmental tipping points, and to underscore the need to prevent misinformation on climate change spreading as a result of forces acting against renewable energy in the political economy of the green transition.

The good news, however, may be that while Republicans may advocate for a new oil boom, the realities of global markets and investor behaviour suggest a different outcome. Wall Street, driven by a cost-benefit analysis that increasingly favours renewable energy, may not align with the interests of a pro-fossil fuel administration. Although the White House can influence energy policy, it is ultimately market forces that will dictate the future of America's energy landscape. This shift towards green energy, driven by economic viability and technological advancements, underscores the need for accelerated action to mitigate climate risks and ensure a sustainable future.

Nickel and Dime: The Philippines' Approach to Attracting Western Capital

Introduction

Aware of the integral role of critical minerals in clean energy systems and other modern technologies, the Philippines has begun courting Western investment to develop its domestic critical mineral industry. The country has vast reserves of untapped natural resources, including nickel, a critical component of electric vehicle (EV) batteries. According to the International Energy Agency, global demand for nickel is expected to increase by approximately 65% by the end of the decade. The Philippines stands to financially benefit from the expected surge of demand for nickel in the coming years, but must first build the requisite infrastructure (e.g., mines, refining plants, processing facilities, transport hubs, etc.) to realise the economic potential of this mineral resource.

To attract increased foreign investment, the Philippines is positioning itself as an alternative to China in the global nickel supply chain. This stance draws from the rationale that the United States (U.S.) and other Western countries will want to diversify their critical mineral supply chains away from China given contemporary security concerns with China and its dominance over nickel supplies and processing capabilities. Such a strategy has both geopolitical and economic implications, especially as it relates to strategic trading and investment blocs that reflect the U.S.-China power competition. By aligning with Western interests, the Philippines aims to bolster its economic growth while contributing to a more balanced global supply chain for critical minerals.

Nickel Industry in the Philippines

The Philippines is currently the world’s second-largest supplier of nickel, accounting for 11% of global production. The country’s nickel exports are expected to increase over the next couple of years to meet growing global demand, particularly in the EV sector. However, this outlook depends on how the country navigates other political and economic factors, including (1) volatility in market prices; (2) trade relations and international partnerships; (3) ability to attract foreign investment; (4) the implementation of government policies that promote industry development; and (5) environmental, social, and governance considerations. The Philippines Government has seemingly decided that, at its current stage, the best way to develop the country’s nickel production capacity is by focusing on boosting foreign investment in the domestic nickel industry.

Investment Strategy

Indonesia is the largest global supplier of nickel, producing over 40% of the world’s nickel in 2023. Approximately 90% of Indonesia’s nickel industry is controlled by Chinese companies, giving China a dominant market position over nickel. The market concentration of this critical mineral has caused unease and consternation amongst Western nations that fear China may leverage this control over the global nickel supply chain to their disadvantage. The Philippines, which itself has experienced escalating tensions with China over territorial claims in the South China Sea, has leveraged this fear, attempting to use it to spur greater foreign investment in their own nickel industry. Through this investment, the Philippine government hopes to develop the domestic nickel sector, especially as it relates to downstream processing, where most of the value-added occurs. The investment strategy comes amid a broader effort to augment economic ties and foster greater alignment with the U.S. and its allies, although the country is still open to Chinese investment. Government officials in Manila have shared that the U.S., Australia, Britain, Canada, and European Union have all expressed interest in directing investment to the Philippines’ nickel sector.

To date, there have been a few initiatives to advance the Philippines’ nickel industry. In late 2023, government officials from the Philippines and the U.S. signed a Memorandum of Understanding that provided $5 million to set up a technical assistance programme to develop the Philippines’ critical mineral sector. The leaders of the U.S., Japan, and the Philippines also held an economic security summit in April 2024 that featured discussions on strengthening critical mineral supply chains. Similarly, there have been preliminary talks about a trilateral arrangement in which the Philippines would supply raw nickel, the U.S. would provide financing, and a third country (e.g., Australia) would offer the technology necessary to process and refine the nickel. However, thus far, these discussions have yielded little in the way of concrete financing or investment initiatives that would provide notable benefit to the industry.

Geopolitical and Geoeconomic Implications

While the U.S. and its allies support a diversification of the global nickel supply chain, their ability to shift the paradigm will likely prove to be a difficult undertaking. Strengthening the Philippines’ nickel mining, processing, and refining capacity up to a level in which it will be able to recapture significant market share from Indonesia and China will require a huge amount of economic and political resources. This is something most countries will shy away from incurring in an important election year. For example, the U.S. has communicated its reluctance to sign a critical minerals agreement amidst the 2024 U.S. presidential race. Further, countries will not want to antagonise China and risk retaliation, given that many economies currently rely on China for the production and processing of critical minerals and their downstream technologies.

As a result of major Chinese investment and technological innovation, Indonesia’s production of nickel has notably increased in recent years. This flood of new nickel supplies has put downward pressure on global nickel prices and crowded out competition from entering the market. With slumping prices, it may be a challenge to attract sufficient foreign financing without a policy framework or safeguards that could inspire greater investor confidence. A potential remedy could be regulatory policies and tax incentives that favour non-Chinese companies. Nevertheless, the economic development associated with increased nickel production is integral to the Philippines economy, so the country does not want to alienate Chinese investors if they prove to be the best path forward.

Concluding Remarks

The Philippines’ strategic efforts to develop its nickel industry through Western investment illustrate the dynamics of economic ambition and geopolitical considerations. By positioning itself as a viable alternative to the China-dominated Indonesian nickel industry, the Philippines aims to leverage global security concerns to increase investment in its domestic nickel sector. However, the realisation of this ambition will hinge on overcoming significant political and economic challenges, such as fluctuating prices and dynamic geopolitical tensions. As the country navigates these hurdles, the outcome of its initiatives will significantly impact its role in the global critical minerals supply chain, shaping future economic and strategic alignments.

Mexico’s Election Impact on Energy Policy

Background

On 2nd June 2024, Claudia Sheinbaum made history by being elected as Mexico’s first female president. With a strong academic background, Sheinbaum is a physicist holding a doctorate in energy engineering and was part of the Nobel Peace Prize winning UN panel on climate change. Sheinbaum’s economic agenda aims to capitalise on the opportunities presented by American nearshoring efforts, contingent on a stable and expanding energy supply. 

Mexico is one of the largest oil suppliers in the world, having produced 1.6 million barrels daily in 2022. The country is also ranked 13th in the global crude oil output. Whilst Sheinbaum has promised to accelerate Mexico’s clean energy transition and aims to generate 50% of its energy from renewables by 2030, most spectators are divided. Some hope her scientific background will lead to a greater emphasis on clean energy, while others fear she might follow the policies of her predecessor, Andrés Manuel López Obrador, who invested heavily in bolstering fossil fuel-reliant state energy companies, PEMEX (Petróleos Mexicanos) and CFE (Comisión Federal de Electricidad). 

Regardless of her position on energy transition, Sheinbaum faces the challenge of restoring investor confidence, which was shaken during López Obrador’s administration. Without this achievement, the new leader cannot guarantee Mexico’s energy stability and it could jeopardise the country’s commitment under the US - Mexico - Canada Agreement (USMCA) and the Paris Agreement.

Mexico’s gas supply, traditionally dominated by PEMEX, faced disruptions due to declining production and pipeline congestions. An energy reform in 2013 allowed private firms to enter the gas market to boost market competition and supply reliability. However, under López Obrador, the private sector participation was viewed as a threat, and efforts were allocated to prioritise PEMEX’s production. Currently, the company is the most indebted oil corporation in the world, with its stocks having a -5.74% 3-year return, compared to +11.48% from other companies in the same period and sector. 

Considerations for Sheinbaum’s Energy Strategy

Sheinbaum has a decision to make regarding the energy future of Mexico. There is a confluence of energy-related factors that Sheinbaum will need to consider early in her administration, such as increasing domestic energy demands, pressure from environmental groups and international climate regimes, a deepened reliance on energy imports from abroad, and foreign companies’ dissatisfaction with the state’s current control of the energy sector.

Sheinbaum has long supported the state-centric energy policies of the previous administration, including legislative amendments that rolled back the 2013 constitutional reforms that helped liberalise the Mexican energy sector. Nevertheless, while Sheinbaum continues to defend the energy policies of the previous López Obrador administration, she is more pragmatic than her predecessor, which may provide a path for potential policy change to deal with the various energy issues facing her administration.

One area where Sheinbaum differs from López Obrador is the role of renewable energy sources in Mexico’s energy mix. Sheinbaum has a robust environmental pedigree and has published extensively on the clean energy transition. During her time as mayor of Mexico City, she implemented clean energy infrastructure and electrified transportation modalities. Furthermore, according to her campaign platform, she is committed to progressing Mexico’s clean energy transition and decarbonising the economy. However, climate progress under the Sheinbaum administration is likely to be tempered by fossil fuel supporters. Mexico still strongly depends on the oil and gas industry for its energy needs, accounting for over 80% of its energy mix in 2022. Understanding the necessity of oil and gas for the domestic economy, Sheinbaum has championed domestic oil production and supports the central role of PEMEX in the energy sector.

Source: IEA (2024)

As Mexican energy sovereignty will likely continue to be a focus for Sheinbaum’s administration, issues related to weak foreign direct investment in the Mexican energy industry are likely to persist. Under the current policy framework, private industry does not have an incentive to invest in exploration and production activities in Mexico. Lax private investment coupled with recent financial struggles at PEMEX may result in insufficient investment in Mexico’s energy infrastructure and increased reliance on energy imports. Therefore, to address the increased domestic energy demands, Sheinbaum may alter the government's prevailing energy strategy to ensure sustainable and robust energy supplies by providing private companies more control/access to the energy sector.

There are also broader trade implications regarding Sheinbaum’s potential approach to Mexico’s energy strategy, particularly how it impacts the country’s relationship with the US. The US Trade Representative communicated to its Mexican counterpart that the legislative amendments passed under the López Obrador administration violated investment provisions stipulated by the USMCA, leading the US to open dispute settlement consultations to address the issue. If a negotiated agreement is not reached, the US could invoke trade sanctions targeting Mexico in response. Failure to reaffirm Mexico’s commitment to the trade agreement could also lead to neglect of economic opportunities stemming from American nearshoring efforts.

The outcome of the 2024 U.S. presidential election will undoubtedly further impact Mexico’s energy sector, especially as it relates to trade and investment. Sheinbaum’s industrial policy plans and interest in promoting a green economy align with Biden’s focus on the clean energy transition and nearshoring efforts. Conversely, a Trump White House may provide a more hostile and coercive environment for Sheinbaum to operate within.

Outlook

Given the current instability affecting the early stage of Claudia Sheinbaum’s administration, companies and investors need to adapt their current strategy to seize the right set of circumstances for their business. 

Despite the undefined agenda for energy public policies and the ongoing debate between energy transition and oil investment, Sheinbaum will need to prioritise a stable domestic energy supply. Therefore, companies that want to be aligned with the government's agenda should invest in projects focused on new technologies that bolster domestic production or increase resilience.

Foreign companies may have concerns about the continuation of policies aligned with López Obrador’s approach, especially given the limited or even absent participation of private investment in Mexican oil companies in recent years. To mitigate this risk, companies can engage and promote public-private partnerships, which can foster joint ventures. However, joint ventures can present risk in the case of the nationalisation of foreign companies, but this is unlikely to occur under Sheinbaum’s presidency. Investors should focus on sectors that are likely to receive government support, such as technologies that enhance energy independence or generate a constant supply.

It is important to mention that there will be clearer indications if Sheinbaum will prioritise climate commitments or follow the steps of her predecessor in due course. Additionally, the outcome of the US elections is likely to significantly impact the country’s energy policy framework.

Australian Mining in Crisis: Nickel’s Price Plunge

On February 16th, Australia added nickel to its Critical Minerals List to protect its mining industry from strong competition from low-cost Indonesian nickel. Indonesia’s nickel industry is expected to continue growing, backed by pursuant investments from China. Australia’s inclusion of nickel makes the mineral eligible for a 3.9 billion-dollar fund to support the minerals industries linked to the energy transition through grants and loans with low-interest rates. This inclusion is a response to the persistent downward trend of nickel prices that began at the end of 2022, caused by an increase in the supply of cheaper nickel produced in Indonesia. Nickel is used to manufacture batteries for electrical vehicles (EVs) and stainless steel. However, the low-profit margin of nickel exploitation, in combination with increased competition from Indonesia, is jeopardising the Australian mining industry and pushing investors away from Australian mines.

Chinese Investment Into Indonesian Nickel And Its Impacts On Australia

One of the biggest reasons for the global decline in nickel prices, which decreased by 45% in the past year, is Chinese investment in Indonesia. In 2020, Indonesia–which holds 42% of the global nickel reserves–reinstated a ban on unprocessed nickel exports to encourage onshore investment in its processing industry. Large multinational companies, such as Ford and Hyundai, invested in ore processing and manufacturing in the archipelago to access its nickel reserves. Indonesian lateritic nickel ore is attractive as it is closer to the surface than the sulphide ore found in Australia or Canada, making the required infrastructure to exploit it significantly cheaper. The sector received massive Chinese investments in various forms, such as refineries, smelters, and metallurgic schools, to develop the industry that had not previously evolved due to the lack of business know-how and financial investments. In 2022, Chinese investments accounted for 94.1% of the total foreign direct investments in the Indonesian reserves, as seen in the “Nickel Rush” chart below. The investments increased quickly after the ban on unprocessed Indonesian nickel in 2014, which was later eased. These investments boosted the production efficiency of Indonesian refined and semi-refined nickel, representing 55% of the world's total nickel supply in 2023 and potentially increasing its market share to 75% by 2030. 

The chart can be found here.

The investment inflows towards Indonesian nickel also helped its laterite nickel ore to become more competitive compared to foreign ones. Primary nickel production is divided into two grades: (1) low-grade or Class II, which is used to manufacture stainless steel and found mainly in Indonesia, and (2) high-grade or Class I, which is used in batteries and can be found in Canada and Australia. While Indonesia has an abundant reserve of low-grade nickel, investments in the industry enabled its producers to apply sophisticated methods to upgrade its nickel to a higher grade. With the improved quality, this type of nickel can be used for batteries, after applying high temperature and pressure methods called high-pressure acid leaching (HPAL), allowing the Indonesian nickel to compete with other countries.

Global Challenges Impacting Nickel Demand

From the demand side, China, Europe, and the United States–Australia’s largest nickel importers—are simultaneously experiencing reduced demand for various reasons. The stainless steel market, which accounts for 75% of nickel use, was sluggish in 2023 due to a slow economic recovery in Europe and the US, which are still recovering from pre-COVID levels. Demand is set to increase by 8% in 2024, but the oversupply mutes its effects. As Sino-American tensions grow, China, the biggest EV market, faces deep and complex economic challenges, including a lack of trust from investors and buyers. Europe, the second biggest EV consumer, has seen the end of tax breaks and other government incentives to buy EVs. Moreover, the US’ high-interest rates prevent consumers from taking out loans, including for EV purchases. The combination of these factors is plummeting the aggregate demand for EVs, thus further pushing down nickel prices, an important mineral for EV batteries. 

Consequently, Australian nickel mines are becoming uncompetitive at the current price range, with many even shutting down as nickel prices are expected to continue decreasing throughout 2024. The unit cost per ton of Australian nickel is 28% higher than in Indonesia. Also, while nickel prices decreased globally, its Australian production cost has increased by 49% since 2019, driven by rising wages. The London Metal Exchange (LME) listed nickel closed at US$16.356 per metric ton on February 16, a downward trend since its peak of around US$33,000 per metric ton in December 2022, as seen in the chart below. Companies such as IGO, First Quantum, and Wyloo Metals, some of the most prominent actors in Australian nickel mining, have pulled back investments or suspended part of their businesses.

Chart made by the author with data from Investing.com

These recent developments threaten the jobs of many Australian workers. BHP, the largest Australian mining company, recently announced it may take an impairment charge of around US$3.5 billion. The company plans to shut down its Nickel West division, which employs nearly 3,000 people. In total, the Australian nickel industry supported 10,000 jobs in 2023.

The situation is not exclusive to Australia. Eramet, a French mining company, lost 85% in revenue in 2023 in its New Caledonia nickel plant without any prospect of having government aid to increase its competitiveness. Macquarie, an asset management firm, estimates that 7% of the total nickel production has been removed due to closures. Even so, Australia will likely be the most affected. The country has 18% of global nickel reserves, but it is no longer competitive and is left contemplating the potential of its uncompetitive reserves. 

The Debate Over 'Dirty' vs 'Clean' Nickel

There may be a solution to Australia’s nickel problem beyond access to the Australian Critical Mineral Facility Fund. Australian nickel producers are subjected to more strict sustainable standards than Indonesia, increasing costs. The refining of Australian nickel produces six times fewer emissions than other countries, including Indonesia. For these reasons, Madeleine King, the Australian Resources minister, urged the LME to split the listing of nickel into two categories: “dirty” coal-produced nickel and “clean” green nickel. Mining businessmen also demand this separation to motivate buyers to pay a premium for Australian and other nickel supplies with a smaller carbon footprint to level the competition against Indonesian nickel with this premium. This type of split in mineral contracts already exists, such as for aluminium and copper.

LME officials also declare that classifying minerals according to ESG criteria is a tough challenge given the lack of a universal ESG standard. Currently, carbon emissions per ton of the nickel listed in the LME vary greatly, from 6 to 100 tons of carbon dioxide per ton of nickel produced, and the lack of a standard makes it difficult to estimate the absolute emissions that would classify a nickel as “clean”. Currently, the LME classifies low-carbon nickel as producing less than 20 tons of carbon dioxide per ton, and it is working on a more precise definition with nickel specialists.

Reshaping the Australian nickel industry

It is unlikely that the LME will list green nickel separately from “dirty” nickel soon, given the liquidity threats this incurs. The broker wants to solidify buyers' confidence after the 2022 nickel episode before making changes that can jeopardise liquidity. LME officials stated in mid-March of this year that they have no plans to do so as the market size of a green nickel is not large enough to split it. On the other hand, Metalhub, a digital broker, recently started to split its nickel listing with the support of the LME. MetalHub allows the producers to have an ESG certificate tailored to their emissions per ton, which is more flexible than the LME ESG standards. The demand for the “clean” nickel in the digital broker would determine an index price used to derive the premium for this product type and delimit the liquidity of this trade contract. The digital broker plans to release the contract data when the volume traded increases.

It will be challenging to see nickel prices at levels that would make Australia's nickel mining industry competitive again. Indonesia is not hiding the fact that it wants to influence market prices with its nickel supply. According to Septian Hario Seto, an Indonesian deputy overseeing mining, the current price allows Indonesian nickel producers to sustain their activities. Also, low nickel prices will lower the costs of its emerging battery industry, completing the strategy to build an Indonesian upstream industry of batteries. 

The access to Australia’s Critical Minerals Facility fund, in combination with the Inflation Reduction Act (IRA) from the US, brings the expectation of an increase in investment towards the nickel industry. The Australian fund will be crucial to leverage projects to reduce costs by increasing productivity and infrastructure efficiency related to high costs such as energy, water, high-skilled labour, and transport. Also, the US’ IRA is set to increase the demand for Australian nickel, as it obliges US industries to purchase 40% of its critical minerals needs from either domestic producers or countries with which the US has a free trade agreement–wherein Australia is one of them. The two, combined with ever-evolving environmental regulations leading to a greater demand for EVs, can bring the required financial boost for Australia’s upstream nickel production. However, it will be more difficult for its nickel downstream industry given internal inflation and external competition not only from Indonesia but from all the countries building plans to rebuild their national processing industries. 

When it comes to nickel buyers, assuming standard market incentives, they will pay more if they see an advantage in buying a cleaner metal, such as government subsidies or a bigger profit margin on selling a greener EV. Summing up, Australia chose to include nickel in its Critical Minerals List, assuming a big part of the responsibility to protect the industry. The government is one of the stakeholders with the financial ability and the incentive to avoid adverse socioeconomic developments. Minister King is also working with counterparts to advocate for robust standards in production to be reflected in a price premium. These counterparts–namely the US, the EU, and Canada–have the same interest in building an alternative supply chain to the Chinese one. The combination of factors such as the Critical Mineral Facility Fund, the IRA, and a possible stable price premium will give much-needed relief to persisting uncompetitive problems faced by Australian nickel producers. This seems to be the beginning of a pathway towards enhanced competitiveness for Australian nickel miners and, possibly, more sustainable nickel standards.

Even so, more funds might be insufficient to make the Australian nickel miners more competitive. Indonesia has a competitive advantage with a low production price that incurs high costs to its citizens. Coal mines are being constructed to fuel energy-intensive activities to upgrade the Indonesian nickel, making the country reach record levels of coal consumption and carbon emissions. Rivers are contaminated with heavy metals from the mines and refineries, exposing inadequate waste disposals. Addressing these environmental and social costs will level up Indonesian nickel prices, indirectly benefiting Australia and promising relief for the communities burdened by these impacts. 

The LNG Freeze Limbo: How the US Export Pause is Reshaping Global Gas Dynamics

The Biden administration recently suspended granting permits for new liquified natural gas (LNG) imports, which will likely have major impacts on global energy security, especially for the European Union (EU). The move comes amidst growing protests against the Biden administration over its lacklustre plan to make a swift transition to green energy ecosystems. As per the White House, the decision aims to address domestic health concerns, such as increasing pollution near export facilities. However, the timing of the decision raises serious concerns, especially as the US’ European allies grapple with energy shortages since the Russian invasion of Ukraine 2 years ago. 

The EU has been greatly dependent on LNG exports from the US in dealing with energy shortages following its decision to stop Russian exports. For instance, in the first half of 2023, the US exported more liquefied natural gas than any other country – 11.6 billion cubic feet a day. That same year, 60 per cent of US LNG exports were delivered to Europe and 46 per cent of European imports came from the US. This abrupt decision by President Biden, prioritising domestic concerns over international energy security and stability, is a long term challenge for US allies in Europe, as well as in Asia. 

Despite the EU having fairly dealt with the energy shortages, a potentially long, harsh winter season later this year could further complicate the entire scenario, given the strong correlation between weather and gas prices. Winter conditions are, thus, likely to increase LNG demands, thereby increasing gas prices. Hence, shutting down gas exports to Europe is likely to accelerate geopolitical risks. This would imply diverting economic supply by the EU for Ukraine to deal with the impending energy crisis. 

Many of the developing economies in Asia have traditionally been heavy consumers of coal and fossil fuels, primarily due to a lack of infrastructural capabilities to harness renewable sources of energy. Early LNG developments, especially in South East Asia were spurred on by the 1973 oil shock, which brought the need to diversify away from Middle Eastern oil for power generation. Consisting of many developing economies, countries in Asia wanted to rely on a stable and efficient partner to develop their energy ecosystems running on a fair share of LNG exports. Being the largest exporter of LNG in the world, the US was seen as “the reliable partner.” Hence, the recent announcement by the White House has been taken seriously in Asia, given that it might hinder the progress of capacity expansion projects in the region. 

Moreover, one of the US’ strategic allies in the region, Japan, could be hit extremely hard by the recent development, given that it is the world’s second-largest purchaser of LNG, with a huge proportion of the imports coming from the United States. Several Japanese companies, especially JERA, have been foundation buyers of LNG export projects and this announcement is likely to hinder their business prospects in the present and the future. Moreover, the future implications of the pause are even more disastrous for the other allies of the US, especially smaller countries like the Philippines, which is currently undergoing energy shocks.  The Philippines relies heavily on the electricity and natural gas acquired from the Malampaya gas field. This reserve is expected to run dry in 2027, causing an energy crisis. The nation must now choose between transitioning to renewable energy or continue to rely heavily on the exploration of conventional energy sources which would make them drift further apart from their commitments towards cutting down carbon emissions. The leadership in Manila initially looked to the United States to provide initial relief over its impending energy crisis by importing LNG reserves from the US. However, the latest White House decision will very well make the Philippines’ political leadership exhibit signs of perplexity and look for other alternatives as the Southeast Asian nation continues to grapple with an ongoing energy crisis which is likely to turn worse in the upcoming years. 

While the decision might highlight the US’ decision to deal with environmental concerns and climate change issues, the abruptness of the decision is likely to raise serious doubts among the allies over Washington’s reliability to help them cope with the ongoing energy crisis, made worse by a sluggish global economy in the aftermath of the COVID-19 pandemic. The move is likely to lead its partners to export LNG from other countries, which have a higher profile of emitting carbon emissions than the US. 

This may also prompt countries to rely heavily on the use of coal and fossil fuels, thereby reversing the trend of actively exploring cleaner energy alternatives. With the global community facing an incoming climate emergency, substantial hope was placed on developed, industrialised countries of the north to create a strong base for the developing economies of the global south to make a transition towards cleaner energy ecosystems.

The US, with one of the largest reserves and the largest exporter of LNG, was seen as the “responsible leader” to effect this transition and, at the same time, stand shoulder to shoulder with struggling economies to deal with the contemporary energy shortage predicament. With ongoing geopolitical crises, the perception of the “pause” being indicative of breaking commitments to international partners and allies, cannot be undermined, in a year that is likely to decide the fate, political will, and the “ability to lead home and abroad amidst challenges” of the incumbent US president.

Featured image by Maciej Margas: PGNiG archive, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=90448259

M23: How a local armed rebel group in the DRC is altering the global mining sector

In recent weeks, North Kivu, a province in the eastern part of the Democratic Republic of Congo (DRC), has seen over 135,000 displacements in what has become the latest upsurge in a resurging conflict between the Congolese army and armed rebel groups. The indiscriminate bombing in the region puts an extra strain on the already-lacking humanitarian infrastructure in North Kivu, which thus far harbours approximately 2.5 million forcibly displaced people.

The March 23 Movement, or M23, is an armed rebel group that is threatening to take the strategic town of Sake, which is located a mere 27 kilometres west of North Kivu’s capital, Goma, a city of around two million people. In 2023, M23 became the most active non-state large actor in the DRC. Further advances will exacerbate regional humanitarian needs and could push millions more into displacement. 

The role of minerals  

Eastern Congo is a region that has been plagued with armed violence and mass killings for decades. Over 120 armed groups scramble for access to land, resources, and power. Central to the region, as well as the M23 conflict, is the DRC’s mining industry, which holds untapped deposits of raw minerals–estimated to be worth upwards of US$24 trillion. The recent increase in armed conflict in the region is likely to worsen the production output of the DRC’s mining sector, which accounts for 30 per cent of the country’s GDP and about 98 per cent of the country’s total exports.

The area wherein the wider Kivu Conflicts have unfolded in the last decade overlaps almost entirely with some of the DRC’s most valuable mineral deposits, as armed groups actively exploit these resources for further gain. 

The artisanal and small-scale mining (ASM) sector produces about 90 per cent of the DRC’s mineral output. As the ASM sector typically lacks the size and security needed to efficiently deter influence from regional rebel groups, the mining sector as a whole falls victim to instability as a result of the M23 upsurge. Armed conflict and intervention by armed groups impacts 52 per cent of the mining sites in Eastern Congo, which manifests in the form of illegal taxation and extortion. As such, further acquisitions by M23 in Eastern Congo may put the DRC’s mineral sector under further strain.

The United Nations troop withdrawal

The escalation of the M23 conflict coincides with the United Nations’ plan to pull the entirety of their 13,500 peacekeeping troops out of the region by the end of the year upon the request of the recently re-elected government. With UN troops withdrawn, a military power vacuum is likely to form, thereby worsening insecurity and further damaging the DRC’s mining sector. However, regional armed groups are not the only actors that can clog this gap. 

Regional international involvement

A further problem for the DRC’s mining sector is that the country’s political centre, Kinshasa, is located more than 1,600 km away from North Kivu, while Uganda and Rwanda share a border with the province. 

Figure: Air travel distance between Goma and Kinshasa, Kigali and Kampala (image has been altered from the original)

The distance limits the government’s on-the-ground understanding of regional developments, including the extent of the involvement of armed groups in the ASM sector, thereby restricting the Congolese military’s effectiveness in countering regional rebellions. 

In 2022, UN experts found ‘solid evidence’ that indicates that Rwanda is backing M23 fighters by aiding them with funding, training, and equipment provisions. Despite denials from both Kigali and M23 in explicit collaboration, Rwanda admitted to having military installments in eastern Congo. Rwanda claims that the installments act as a means to defend themselves from the Democratic Forces for the Liberation of Rwanda (FDLR)–an armed rebel group that Kigali asserts includes members who were complicit in the Rwandan genocide. The FDLR serves as a major threat to Kigali’s security, as its main stated aim is to overthrow the Rwandan government. 

As such, M23, on the other hand, provides Rwanda with the opportunity to assert influence in the region and limit FDLR’s regional influence. Tensions between Rwanda and the DRC have, therefore, heightened, especially with the added fact that the Congolese army has provided FDLR with direct support to help the armed group fight against M23 rebels. As such, the DRC has been accused of utilising the FDLR as a proxy to counter Rwandan financial interests in the Congolese mining sector. 

Another major point of contention between the states involves the smuggling of minerals. The DRC’s finance minister, Nicolas Kazadi, claimed Rwanda exported approximately $1bn in gold, as well as tin, tungsten, and tantalum (3T). The US Treasury has previously estimated that over 90 per cent of DRC’s gold is smuggled to neighbouring countries such as Uganda and Rwanda to undergo refinery processes before being exported, mainly to the UAE. Rwanda has repeatedly denied the allegations. 

Furthermore, the tumultuous environment caused by the conflict might foster even weaker checks-and-balance systems, which will exacerbate corruption and mineral trafficking, which is already a serious issue regionally. 

In previous surges of Congolese armed rebel violence, global demand for Congolese minerals plummeted, as companies sought to avoid problematic ‘conflict minerals’. In 2011, sales of tin ore from North Kivu decreased by 90 per cent in one month. Similar trends can be anticipated if the M23 rebellion gains strength, which may create a global market vacuum for other state’s exports to fill. 

China 

In recent years, China gained an economic stronghold of the DRC’s mining sector, as a vast majority of previously US-owned mines were sold off to China during the Obama and Trump administrations. It is estimated that Chinese companies control between 40 to 50 per cent of the DRC’s cobalt production alone. In an interest to protect its economic stakes, China sold nine CH-4 attack drones to the DRC back in February 2023, which the Congolese army utilised to curb the M23 expansion. Furthermore, Uganda has purchased Chinese arms, which it uses to carry out military operations inside of the DRC to counter the attacks of the Allied Democratic Forces (ADF), a Ugandan rebel group, which is based in the DRC. In return for military support, the DRC has granted China compensation via further access to its mining sector, which is helping bolster China’s mass production of electronics and technology within the green sector.

The US

Meanwhile, the US has put forth restrictions on imports of ‘conflict minerals’, which are minerals mined in conflict-ridden regions in DRC for the profit of armed groups. Although the US attempts to maintain certain levels of mineral trade with the DRC, the US’s influence in the country will likely continue to phase out and be overtaken by Beijing. The growing influence of M23 paves the path for further future collaboration between China and the DRC, both militarily and economically within the mining sector. 

The UAE 

The UAE, which is a major destination for smuggled minerals through Rwanda and Uganda, has since sought to end the illicit movement of Congolese precious metals via a joint venture that aims to export ‘fair gold’ directly from Congo to the UAE. In December of 2022, the UAE and DRC signed a 25-year contract over export rights for artisanally mined ores. The policy benefits both the DRC and the UAE as the UAE positions itself as a reliable partner in Kinshasa’s eyes, which paves the path for further business collaboration. In 2023, the UAE sealed a $1.9bn deal with a state-owned Congolese mining company in Congo that seeks to develop at least four mines in eastern DRC. The move can be interpreted as part of the UAE’s greater goal to increase its influence within the African mining sector. 

Global Shifts

China and the UAE’s increasing involvement in the DRC can be seen as part of a greater diversification trend within the mining sector. Both states are particularly interested in securing a stronghold on the African mining sector, which can provide a steady and relatively cheap supply of precious metals needed to bolster the UAE’s and China’s renewables and vehicle production sectors. The scramble for control over minerals in Congo is part of the larger trend squeezing Western investment out of the African mining sector. 

Furthermore, the UAE’s increasing influence in the DRC is representative of a larger trend of the Middle East gaining more traction as a rival to Chinese investment in Africa. Certain African leaders have even expressed interest in the Gulf states becoming the “New China” regionally, as Africa seeks alternatives to Western aid and Chinese loans. 

Although Middle Eastern investment is far from overtaking China’s dominance of the global mining sector, an interest from Africa in diversifying their mining investor pools can go a long way in changing the investor share continentally. Furthermore, if the Middle East is to bolster its stance as a mining investor, Africa serves as a strategic starting point as China’s influence in the African mining sector is at times overstated. In 2018, China is estimated to have controlled less than 7 per cent of the value of total African mine production. Regardless, China’s strong grip on the global mining sector might be increasingly challenged through investor diversification in the African mining sector. The DRC is an informant of such a potential trend. 

The further spread of the M23 rebellion, though likely to damage the Congolese mining business, might also foster stronger relations with countries such as the UAE which seek to minimise ‘conflict mineral’ imports. As such, the spread of the M23 rebellion–which acts as a breeding ground for smuggling, might catalyse new and stronger trade relations with the Middle East. This could be indicative of a trend of “de-Chinafication” in the region, or at least greater inter-regional competition for investment into the African mining sector.

A Strait Betwixt Two

As the Yemeni Houthi group's assault on maritime vessels continues to escalate, the risk to key commodity supply chains raises global concern. As analysed in this series' previous article (available here), conflict escalation impacts the region's security, impacting key trade routes and global trade patterns. The Suez Canal is a key trade route whose stability and security could impact and shift trade dynamics. As the search for alternative trade routes ensues, the Strait of Hormuz makes use of a power vacuum to expand its influence. 

Suez Canal

The Suez Canal is a 193-kilometre waterway that connects the Red Sea to the Mediterranean Sea. Approximately 12% of global trade passes through the Canal, granting it vast economic, strategic, and geopolitical influence on a global scale. This canal shortens maritime trade routes between Asia and Europe by approximately 6,000 km by removing the need to export around the Cape of Good Hope and serves as a vital passage for oil shipments from the Persian Gulf to the West. Approximately 5.5 million barrels of oil a day pass through the Canal, making it a ‘competitor’ of the Strait of Hormuz.

Global trade via the Suez Canal is likely to decrease as a result of the rising tensions near the Bab el-Mandeb Strait. Due to their geographic predispositions, the Bab el-Mandeb Strait and the Suez Canal are interdependent; bottlenecks in either trade choke point will have a knock-on effect on the other. Bottlenecks caused by Houthi aggression against ships in the strait are likely to redirect maritime traffic from the Suez Canal to alternative passageways. From November to December 2023, the volume of shipping containers that passed through the Canal decreased from 500,000 to 200,000 per day, respectively, representing a reduction of 60%.

Suez Canal Trade Volume Differences (metric tonnes)

Source: IMF Portwatch. Disruption Monitor

The overall trade volume in the Suez Canal has decreased drastically. Between October 7th, 2023, and February 25th, 2024, the channel’s trade volume decreased from 5,265,473 metric tonnes to 2,018,974 metric tonnes. As the weaponization of supply chains becomes part of regional economic power plays, there is a global interest in decreasing the vulnerability of vital choke points via trade route diversification. The lack of transport routes connecting Europe and Asia has hampered these interests, making choke points increasingly susceptible to exploitation. 

Oil Trade Volumes in Millions of Barrels per Day in Vital Global Chokepoints

Source: Reuters 

Quantitative Analysis

Many cargoes have been rerouted through the Cape of Good Hope to avoid the Red Sea region since the beginning of the Houthi conflict. Several European automakers announced reductions in operations due to delays in auto parts produced in Asia, demonstrating the high exposure of sectors dependent on imports from China. 

In the first two weeks of 2024, cargo traffic decreased by 30% and tanker oil carriers by 19%. In contrast, transit around the Cape of Good Hope increased by 66% with cargoes and 65% by tankers in the same period. According to the analysis of JP Morgan economists, rerouting will increase transit times by 30% and reduce shipping capacities by 9%.

Depiction of Trade Route Diversion

Source: Al Jazeera

More fuel is used in the rerouted freight, an additional cost that increases the risk of cargo seizure and results in elevated shipping rates. The most affected routes were from Asia towards Europe, with 40% of their bilateral trade traversing the Red Sea. The freight rates of the north of Europe until the Far East, utilising the large ports of China and Singapore, have increased by 235% since mid-December; freights to the Mediterranean countries increased by 243%. Freights of products from China to the US spiked 140% two months into the conflict, from November 2023 to January 25, 2024. The OECD estimates that if the doubling of freight persists for a year, global inflation might rise to 0.4%.

The upward trend in freight rates can be seen in the graphic pictured below, depicting the “Shanghai Containerised Freight Index” (SCFI). The index represents the cost increase in times of crisis, such as at the beginning of the pandemic, when there were shipping and productive constraints, and more recently, with the Houthi rebel attacks. Most shipments through the Red Sea are container goods, accounting for 30% of the total global trade. Companies such as IKEA, Amazon, and Walmart use this route to deliver their Asian-made goods. As large corporations fear logistic and supply chain risk, more crucial trade volumes could be rerouted.

Shanghai Containerized Freight Index

Source: United Nations Conference on Trade and Development

Energy Commodity Impact

Of the commodities that traverse the Red Sea, oil and gas appear to be the most vulnerable. Before the attacks, 12% of the oil trade transited through the Red Sea, with a daily average of 8.2 million barrels. Most of this crude oil comes from the Middle East, destined for European markets, or from Russia, which sends 80% of its total oil exports to Chinese and Indian markets. The amount of oil from the Middle East remained robust in January. Saudi oil is being shipped from Muajjiz (already in the Red Sea) in order to avoid attack-hotspots in the strait of Bab al-Mandeb.

Iraq has been more cautious, contouring the Cape of Good Hope and increasing delays on its cargo. Iraq's oil imports to the region reached 500 thousand barrels per day (kbd) in February, 55% less than the previous year's daily average. Conversely, Iraq's oil imports increased in Asia, signalling a potential reshuffling of transport destinations. Trade with India reached a new high since April 2022 of 1.15 million barrels per day (mbd) in January 2024, a 26% increase from the daily average imports from Iraq's crude. 

Brent Crude and WTI Crude Fluctuations

Source: Technopedia

Refined products were also impacted. Usually, 3.5 MBd were shipped via the Suez Canal in 2023, or around 14% of the total global flow. Nearly 15% of the global trade in Naphta passes through the Red Sea, amounting to 450 kbd. One of these cargoes was attacked, the Martin Luanda, laden with Russian naphtha, causing a 130 kbd reduction in January compared with the same month in 2023. Traffic to and from Europe is being diverted in light of the conflict. Jet fuel cargoes sent from India and the Middle East to Europe, amounting to 480 kbd, are avoiding the affected region, circling the Cape of Good Hope. 

Due to these extra miles and higher speeds to counteract the delays, bunker fuel sales saw record highs in Singapore and the Middle East. The vessel must use more fuel, and bunker fuel demand increased by 12.1% in a year-over-year comparison in Singapore.

In 2023, eight percent, or 31.7 billion cubic metres (bcm), of the LNG trade traversed the Red Sea. The US and Qatar exports are the most prominent in the Red Sea. After sanctioning Russia's oil because of the Ukrainian War, Europe started to rely more on LNG shipments from the Middle East, mainly from Qatar. The country shipped 15 metric tonnes of LNG via the Red Sea to Europe, representing a share of 19% of the Qatari LNG exports. Vessels travelling to and from Qatar will have to circle the Cape of Good Hope, adding 10–11 days to travel times and negatively impacting cargo transit. 

US LNG export capacity has increased in the past few years, sending shipments to Asia via the Red Sea. The Panama Canal receives many LNG cargoes from the US via the Pacific, yet its traffic limitations cause US cargo to be routed through the Atlantic and the Red Sea. The figure “Trade Shipping Routes” below displays the dimensions of the shifts that US LNG cargoes must take in the absence of passage via the Panama Canal.

Trade Shipping Routes

Source: McKinsey & Company

Until January 15, at least 30 LNG tankers were rerouted to pass through the Cape of Good Hope instead. Russia's LNG shipments to Asia are currently avoiding the Red Sea, and Qatar did not send any new shipments in the last fortnight of January after the Western strikes at Houthi targets.

Risk Assessment

A share of 12% of oil tankers, ships designed to carry oil, and 8% of liquified gas pass through this route towards the Mediterranean. Inventories in Europe are still high, but if the crisis persists for several months, energy prices could be aggravated. As evidenced by the sanctions against Russia, cargo reshuffling is possible. Qatar can send its cargoes to Asia, and those from the US can go to European markets, allowing suppliers to effectively avoid the Red Sea.

Around 12% of the seaborn grains traversed the Red Sea, representing monthly grain shipments of 7 megatonnes. The most considerable bulk are wheat and grain exports from the US, Europe, and the Black Sea. Around 4.5 million metric tonnes of grain shipments from December to February avoided the area, with a notable decrease of 40% in wheat exports. The attacks affected Robusta coffee cargoes as well. Cargoes from Vietnam, Indonesia, and India towards Europe were intercepted, impacting shipping prices and incentivizing trade with alternative nations. 

Daily arrivals of bulk dry vessels, including iron ore and grain from Asia, were down by 45% on January 28, 2024, and container goods were down by 91%. However, further significant disruptions to agricultural exports are not expected. Most of the exports from the US, a large bulk, were passing through the Suez Canal to avoid the congestion of the Panama Canal due to the droughts that limited the capacity of circulation. These cargoes are now traversing the Cape route.

Around 320 million metric tonnes of bulk sail through Suez, or 7% of the world bulk trade. No significant impacts are predicted for iron ore or coal, which represented 42 and 99 megatonnes of volume, respectively, shipped through the Red Sea in 2023. Most of the dry bulks that traverse the impacted region can be purchased from other suppliers, precluding significant supply disruptions. 

As of March 1st, reports show that only grain shipments and Iranian vessels were passing through the Red Sea. There were no oil or LNG shipments with non-Iranian links in the Red Sea. These developments illustrate the significant trade shifts caused by the Red Sea crisis. As of today, a looming threat lies in the Houthis’ promises of large-scale attacks during Ramadan. The lack of intelligence on the Houthi’s military capacity and power makes it difficult to ascertain the extent of future conflicts, generating further uncertainty in commercial trade.

The Strait of Hormuz

The Strait of Hormuz is a channel that connects the Persian Gulf to the Gulf of Oman, providing Iran, Oman, and the UAE with access to maritime traffic and trade. The strait is estimated to carry about one-fifth of the global oil at a daily trade volume of 20.5 million barrels, proving to be of vital strategic importance for Middle Eastern oil supply the world’s largest oil transit chokepoint. The strait is a prominent trade corridor for a myriad of oil-exporting nations, namely the OPEC members Saudi Arabia, Iran, the UAE, Kuwait, and Iraq. These nations export most of their crude oil via the passage, with total volumes reaching 21 mb of crude oil daily, or 21% of total petroleum liquid products. Additionally, Qatar, the largest global exporter of LNG, exports most of its LNG via the Strait.

Geographic Location of Strait of Hormuz

Source: Marketwatch

Although the strait is technically regulated by the 1982 United Nations Convention on the Law of the Sea, Iran has not ratified the agreement. Through its geostrategic placement, Iran can trigger oil price responses through its influence on trade transit, establishing the country’s regional and global influence.

Strait of Hormuz Oil Volumes

Source: Reuters

Experts are particularly worried that the turbulence is likely to spread to the Strait of Hormuz now that Iran backs the Houthis in Yemen and might want to support their cause by doubling down regionally. However, this is something that would cause a lot of backlash in the form of a further tightening of economic sanctions against Tehran, which might deter further provocations. 

Despite Iran’s previous threats to block the Strait entirely, these have never gone into effect. Diversifying trade routes to avoid supply shocks and bottlenecks is of interest to regional oil-exporters dependent on the route for maritime trade access. Such diversification attempts have already been undertaken, as seen by the UAE and Saudi Arabia's attempts to bypass the Strait of Hormuz through the construction of alternative oil pipelines. The loss of trade volume from these two producers, holding the world's second and fifth largest oil reserves, respectively, severely hindered the corridor’s prominence.

The attacks on the Red Sea might cause damage to the oil and LNG cargo from countries in the Persian Gulf, increasing costs for oil and gas exporters. However, cargoes could find alternative destinations. The vast Asian markets, which face a shortage of energy products due to a loss of trade through the Red Sea, could be a potential suitor. Finding new LPG (liquefied petroleum gas) contracts could be beneficial for Iran, and its recently enhanced production capacity could supply various markets.  

Geopolitics and Prospects for a Route Shift

Although the Strait of Hormuz stands to capture diverted trade flows from the Suez Canal, its global influence is still limited by Iran’s geopolitical ties. As exemplified by the Iran-US conflict, Iran’s conflicts can severely impact traffic through the Strait, significantly impacting the stability of the route and prospects for future growth. 

Although security and stability are of paramount importance to trade, efforts to provide these traits could be counterproductive. On March 12th, China and Russia conducted maritime drills and exercises in the Gulf of Oman with naval and aviation vessels. According to Russia's Ministry of Defence, this five-day exercise sought to enhance the security of maritime economic activities using maritime vessels with anti-ship missiles and advanced defence systems. Over 20 vessels were displayed in this joint naval drill, attempting to lure trade through the promise of stability and security.

Whether meant as a display of power or a promise of security, the pronounced presence of Russian and Chinese forces could aggravate geopolitical tensions and increase the potential for conflict in the region, driving global trade prospects down. With precedents of trade conflict, such as the IRGC’s seizure of an American oil cargo in the Persian Gulf on January 22nd, various countries might be sceptical of rerouting commodity trade through the Strait.

Tensions are also aggravated by Iran’s alleged assistance in the Houthi attacks. The US has supposedly communicated indirectly with Iran to urge them to intervene in the region. China and Russia’s interest in improving the Strait’s trade prospects would benefit from a de-escalation of the Houthi conflict, as shown by China’s insistence on Iran’s cooperation in the Houthi conflict. As the conflict stands, the Strait’s prospect as an alternative trade route is dependent not only on Iran’s reputation and presence in global conflicts but also on the route’s patrons and proponents.

Conclusion

The extent to which the Strait of Hormuz could benefit from trade diversion depends not only on its ability to pose itself as a viable trade route but also on the duration of the Houthi conflict. In order to capture trade volumes and increase international trade through the route, Iran would have to ameliorate its geopolitical ties and provide stability to compete with rising prospective trade route alternatives. Although the conflict in the Suez has yet to show promising signs of de-escalation, securing the Suez would likely cause previous trade volumes to resume and restore its hegemony in commodity trade. It remains to be seen whether the conflict will endure long enough to allow other trade routes to be established as alternatives and permanently shift power balances in global trade.

The U.S. LNG Pause: Implications for the Global Fertiliser and Food Markets

Peter Fawley

The U.S. LNG Pause

On January 26, the Biden administration announced a temporary pause on approvals of new liquified natural gas (LNG) export projects. The pause applies to proposed or future projects that have not yet received authorisation from the United States (U.S.) Department of Energy (DOE) to export LNG to countries that do not have a free trade agreement (FTA) with the United States. This is significant as many of the largest importers of U.S. LNG–including members of the European Union, the United Kingdom, Japan, and China–do not have FTAs with the United States. Without the DOE authorisation, an LNG project will not be allowed to export to these countries. The policy will not affect existing export projects or those currently under construction. The Department of Energy has not offered any indication for how long the pause will be in effect.

This pause will have political and economic implications across the globe, and is expected to apply further pressure to the LNG market, fertiliser prices, and agricultural production. The following analysis will first delve into the rationale for the pause, the expected impact it will have on global LNG supplies, and the associated risks this poses for the fertiliser and food markets. It will then examine the impact of this policy change on India’s agricultural sector, given that the country is heavily reliant on LNG imports to manufacture fertilisers for agricultural production. The article will conclude with brief remarks about the pause.

Reasons for the Pause

According to the Biden administration, the current review framework is outdated and does not properly account for the contemporary LNG market. The White House’s announcement cited issues related to the consideration of energy costs and environmental impacts. The pause will allow DOE to update the underlying analysis and review process for LNG export authorisations to ensure that they more adequately account for current considerations and are aligned with the public interest. 

There are also likely political motivations at play, given the upcoming election in the United States. Both climate considerations and domestic energy prices are expected to garner significant attention during the lead up to the 2024 U.S. presidential election. The Biden administration has been under increasing pressure from environmental activists, the political left, and domestic industry regarding the U.S. LNG industry’s impact on climate goals and domestic energy prices. In fact, over 60 U.S policymakers recently sent a letter to DOE urging its leadership to reexamine how it factors in public interests when authorising new licences for LNG export projects. 

These groups have argued that the stark increase in recent U.S. LNG exports is incompatible with U.S. climate commitments and policy objectives, as the LNG value chain has a sizeable emissions footprint. Moreover, there is a concern about the standard it sets for future policy. An implicit and uncontested acceptance of LNG could signal that the U.S is wholly committed to continued use of fossil fuels as an energy source, leading to more industry investments in fossil fuels at the expense of renewable energy technologies. In an unusual political alliance, large U.S. industrial manufacturers are lobbying alongside environmentalists to curb LNG exports. These consumers, who are dependent on natural gas for their manufacturing processes, worry that additional LNG export projects will raise domestic natural gas prices. Therefore, the pause may then be interpreted as an acknowledgement of these concerns and an attempt to reassure supporters that the Biden administration is committed to furthering its climate goals and securing lower domestic energy prices.

Impact on LNG Supplies

Since the pause only pertains to prospective projects, there will be no impact on current U.S. LNG export capacity. However, the pause may constrain supply and reduce forecasted global output as the new policy indefinitely halts progress on proposed LNG projects that are currently awaiting DOE authorisation. In the long-term, this announcement has the potential to tighten the LNG market, potentially resulting in increased natural gas prices and other commercial ramifications. Because the U.S. is currently the world’s largest LNG exporter, a drop in expected future U.S. supplies may force LNG importers to seek to diversify their supply. Some LNG buyers will likely redirect their attention to other, more certain sources of LNG, such as Qatar or Australia. Additionally, industry may be more keen to invest in projects in countries that have less regulatory ambiguity related to LNG projects.

Risk for the Global Fertiliser and Food Markets

Natural gas is key to the production of nitrogen-based fertilisers, which are the most common fertilisers on the market. With regard to the use of natural gas in fertiliser production, most of it (approximately 80 per cent) is employed as a raw material feedstock, while the remaining amount is used to power the synthesis process. Farmers and industry prefer natural gas as a feedstock as it enables the efficient production of effective fertilisers at the least cost.

The U.S. pause on new LNG projects is an unsettling signal to already fragile natural gas markets given the existence of relatively tight current supplies and a forecasted shortfall in future supply levels. This announcement will exacerbate vulnerabilities and put increased pressure on global supplies, potentially leading to greater volatility and price escalation. Additionally, increased global demand for natural gas will further strain the LNG market. Therefore, global fertiliser prices may increase given that natural gas is an integral input in fertiliser production. Natural gas supply uncertainty stemming from the U.S. announcement may not only impact market prices for fertiliser, but could also increase government subsidies needed to support the agricultural industry to protect farmers from price volatility. Due to the increased subsidy outlay, government expenditure on other publicly-funded programs could plausibly be reduced.

The last time there was a significant shock to the natural gas market, fertiliser shortages and greater food insecurity ensued. Following the 2022 Russian invasion of Ukraine, there was a stark increase in natural gas prices, which led to a rise in the cost of fertiliser production. This prompted many firms to curtail output, causing fertiliser prices to soar to multi-year highs. Higher fertiliser costs will theoretically induce farmers to switch from nitrogen-dependent crops (e.g., corn and wheat) to less fertiliser-intensive crops or decrease their overall usage of fertilisers, both of which may jeopardise overall agricultural yield. Given that fertiliser usage and agricultural output are positively correlated, surging fertiliser costs in 2022 translated into higher food prices across the world. While inflationary pressures have subsided in recent time, global food markets remain vulnerable to fertiliser prices and associated supply shocks. This is especially true for countries that are largely dependent on their agricultural industry for both economic output and domestic consumption. Food insecurity and global food supplies may also be further constrained by unrelated impacts on crop yields, such as extreme weather and droughts.

Case Study: India

The future LNG supply shortfall and its impact on fertiliser and food markets may be felt most acutely by India. The country is considered an agrarian economy, as many of its citizens – particularly the rural populations – depend on domestic agricultural production for income and food supplies. Fertiliser use is rampant in India and the country’s agricultural industry relies heavily on nitrogen-based fertilisers for agricultural production. With a steadily rising population and a finite amount of arable land, expanded fertiliser usage will be necessary to increase crop production per acre. As a majority of India’s fertiliser is synthesised from imported LNG, the expected increased demand for fertiliser will necessitate more LNG imports.

LNG imports to India are projected to significantly rise in 2024, with analysts forecasting a year-on-year growth of approximately 10 per cent. Over the long-term, the U.S. Energy Information Administration predicts that overall natural gas imports to India will grow from 3.6 billion cubic feet per day (Bcf/d) in 2022 to 13.7 Bcf/d in 2050, a 4.9 per cent average annual increase. The agricultural industry is a substantial contributor to this growth. This trend is only expected to continue, as India has announced that it plans to phase out urea (a nitrogenous fertiliser) imports by 2025 in order to further develop its domestic fertiliser industry. To ensure adequate supplies for domestic urea production, India is expected to increase its natural gas demand and associated reliance on LNG imports. A recent agreement between Deepak Fertilisers, a large Indian fertiliser firm, and multinational energy company Equinor exemplifies this. The agreement secures supplies of LNG (0.65 million tons annually) for 15 years, starting in 2026. 

Concluding Remarks

The U.S. pause on new LNG export facilities will have ramifications for the global natural gas market and supply chain. While current export capacity will not be jeopardised, the policy change will delay future projects and may put investment plans into question. The pause will also have implications for downstream markets in which natural gas is an important input, such as the fertiliser market. There are a couple of questions that now loom over the LNG industry: (1) what will be the duration of the pause; and (2) to what extent will the pause affect LNG markets? 

While the U.S. Department of Energy has given no firm timeline for the pause, analysts estimate – based on previous updates – that the DOE review will likely last through at least the end of 2024. The expectation is that the longer the pause remains in effect, the more uncertainty it will create, especially as it relates to private industry investment decisions and confidence in U.S. LNG in the long-term. In addition to the fertiliser and food markets, transportation, electricity generation, chemical, ceramic, textile, and metallurgical industries may all be affected by the pause. One potentially positive consequence is that because LNG is often thought of as a transitional fuel (between coal and renewable energies), a large enough impact on LNG supplies could accelerate the energy transition directly from coal to renewable sources of energy, providing a boost to the clean energy technologies market. However, the pause may also create tensions with trading partners as it could be interpreted as an export control or a discriminatory trade practice, both of which stand in violation of the principles of the multilateral rules-based trading system. This may expose the U.S. to potential challenges and disputes at the World Trade Organization. Although it may be some time before we are provided concrete answers to these questions, the results of the 2024 U.S. presidential election will provide some insight into what LNG policies in the U.S. will look like going forward.

The Impact of a Potential Conflict Between Venezuela and Guyana on the Global Oil Market

Introduction 

In the global oil market, Venezuela has played an important role as one of the world's biggest oil producers because of its strategic endeavors within OPEC. However, sanctions and an economic downturn have caused a decrease in Venezuela's oil production, hindering the country's oil producing status in recent years. In contrast, due to recent oil discoveries and production, neighboring Guyana has become a new player in the global oil market. With newly discovered oil deposits, Guyana is positioned to increase its energy influence, while Venezuela struggles with decreasing production and geopolitical turbulence, creating new tensions between the two countries. 

Furthermore, in December 2023, tensions began between Venezuela and Guyana over a long-standing territorial dispute. The border territory around the Essequibo River, which spans 160,000 square kilometers (62,000 square miles), is the center of a dispute between Venezuela and Guyana and is claimed by both countries. The border around this thinly populated area was first drawn in 1899, when Guyana was ruled by the British. Following major oil discoveries off the coast of Guyana in 2015, Venezuela reaffirmed its claim to the territory. With President Nicolas Maduro promising exploration efforts in the disputed region, Caracas recently secured backing for reclaiming the Essequibo through a referendum vote. For this reason, a potential conflict between Venezuela and Guyana over the Essequibo territorial dispute could cause disruptions to regional oil transportation routes and supply chains, which could lead to price volatility in the oil market.

Venezuela's Significance in The Global Oil Market

Venezuela has been a significant player in the global oil market since Shell geologists discovered oil in the country in 1922, leading to a sharp increase in output by the late 1920s and making Venezuela the world's second-largest oil producer behind the United States. Venezuela has the world's highest proven oil reserves at 304 billion barrels, slightly more than Saudi Arabia's 298 billion barrels, according to the 2022 BP Statistical Review of World Energy. The country holds historical influence in the global oil market as a founding member of OPEC, joining the group in 1960 with Saudi Arabia, Iran, Iraq, Kuwait, and other countries in an effort to control oil prices and strengthen state authority over the sector. That same year, Venezuela increased the income tax on oil businesses to 65% and established the Venezuelan Petroleum Corporation (PDVSA), a state-owned oil company. However, in recent years, the oil industry in Venezuela has appeared completely different than that of the twentieth century.

Oil production in Venezuela from 2008 to 2022 (In million barrels per day)

Source: https://www.statista.com/statistics/265185/oil-production-in-venezuela-in-barrels-per-day/ 

Venezuela's status as a key contributor to the world's oil supply has declined in recent years due to sanctions enforced by several nations against Venezuelan-produced oil, notably by the United States in 2019. Furthermore, the heavy composition of Venezuela's crude oil creates difficulties for the refining and production operations. In defiance of US sanctions, Venezuela was able to maintain and continue oil trade alliances with China, Cuba, Iran, Russia, and Turkey. Nonetheless, as described in the graph below, Venezuela’s crude oil production fell significantly from 2,804,000 barrels per day in 2012 to 716,000 barrels per day in 2022, decreasing its rank in global production among the rest of OPEC countries. 

Crude oil production of the OPEC in 2012 and 2022, by member state (in 1,000 barrels per day)

Source: https://www.statista.com/statistics/271821/daily-oil-production-output-of-opec-countries/ 

In November 2022, the US lifted sanctions on Venezuela's oil and gas industry and allowed Chevron to resume limited operations in an effort to mitigate rising global energy costs as a result of the Russo-Ukrainian war. Chevron increased production through joint ventures with PDVSA, shipping crude oil to the US, which has increased the likelihood of a production rebound for Venezuela after years of decline. Because of this, Venezuela could once again become a major force in the energy sector given its abundance of oil resources; however, throughout Venezuela’s oil production decline, its neighboring country, Guyana, has remarkably shifted its position as a global oil producer. 

Guyana's Emergence in The Global Oil Market

With a population of 791,000, Guyana has been one the poorest countries in South America, with approximately 41% of its population living below the poverty line in 2017, and more than 40% of its people surviving on less than $5.50 a day. Little did this country realise that its economic course would change after May 2015 when ExxonMobil first discovered significant oil deposits off the country’s coast in an area called the Liza field in the Stabroek Block. This discovery changed the dynamics of the global energy landscape by adding the largest amount of new oil to the reserves since the 1970s.

Source: https://www.gisreportsonline.com/r/guyana-oil/#toc-pos-factsfigures 

The discovery of an estimated 11 billion barrels of oil reserves saw the start of commercial drilling in 2019, significantly increasing the economic landscape for Guyana. Even during the global economic downturn caused by the Covid-19 pandemic, Guyana's GDP grew by an astounding 49% in 2020, making it one of the fastest-growing economies in the world. Guyana became the seventh-largest crude oil producer in Latin America in 2022, producing 276,000 barrels per day, a significant rise from the average of 74,000 barrels per day in 2021. Because of its rising oil output, Guyana’s GDP grew by an astonishing 62.3% in 2022. Having already received $1.6 billion in oil revenues by May 2023, Guyana’s government utilised the funds for infrastructure projects and stable economic development projects. If present economic patterns continue, Guyana may rank among the world's top producers of oil per person by 2030.
Current oil producers in Guyana, Exxon, Hess Corp., and China's CNOOC, produced 400,000 barrels per day from two vessels by August 2023, generating $2.8 billion in revenues for Guyana, and employing 4,400 Guyanese. Exxon plans to expand up to ten offshore projects with partners Hess Corp and CNOOC. ExxonMobil projects that by 2026, its oil production in Guyana will increase to 750,000 barrels per day. By 2027, their projects are expected to make Guyana the third-largest producer in Latin America after only Brazil and Mexico. According to the International Energy Agency, by 2028, Guyana will produce 1.2 million barrels per day, with four additional oil fields expected to be operational that same year.

Production of crude oil in Guyana from 2019 to 2022 (in 1,000 barrels per day)

Source: https://www.statista.com/statistics/1260886/crude-oil-production-guyana/ 

Due to Guyana’s increasing oil production, spot markets have emerged and interest in Guyanese crude oil is expanding throughout Europe. Guyana was able to secure a larger share of the European oil market in 2023, after finding a window of opportunity as a result of sanctions on Russian oil following its invasion of Ukraine. Refinitiv Eikon data indicates that during the first half of 2023, Guyana's oil exports to Europe amounted to over 215,000 barrels per day, or 63% of the nation's total exports of 338,254 bpd. This is an increase over 2022, when roughly 50% of Guyana's shipments were sent to Europe. However, increasing tensions between Venezuela and Guyana, both important oil-producing nations with significant shipping infrastructure, could disrupt oil shipping routes in the event of conflict between the two countries.

Potential Disruption to Oil Shipping Lanes

Ports are essential for the distribution of oil throughout the world and have increased in the vicinity of oil rich countries. Approximately 2.9 billion tons of oil and natural gas products, or around 62% of the world's petroleum production, were transported by sea in 2015. Such is the case for both Venezuela and Guyana. The Jose Terminal, situated in northeastern Venezuela, is the most significant oil export terminal for the country, producing 920,000 barrels of crude oil a day on average in 2019. The map below shows the major ports in Venezuela and Guyana, as well as other ports in the region. For Venezuela, these ports include, from west to east: Maracaibo, Bajo Grande, Puerto Miranda, Amuay, Punta Cardon, El Palito, Puerto Cabello, La Guaira, Jose Terminal, Puerto La Cruz, El Guamache, and Palua–which is located more inland. For Guyana (from west to east) these ports include: Georgetown, Linden, which is located inland, and New Amsterdam. It is important to note Trinidad and Tobago’s location along the maritime trade route that passes through Venezuela and Guyana, which holds seven important sea ports. Because of the location of various important ports in the region, and the oil routes that pass through them, a potential conflict between Venezuela and Guyana could disrupt these shipping routes in the Caribbean, as well as nearby maritime ports. 

Location of Major Ports in Venezuela and Guyana and Others in the Region

Source: https://portwatch.imf.org/ 

For context, similar situations came as a result of attacks by Houthi rebel groups on Israeli-owned or -bound shipments, as well as Russia’s invasion of Ukraine. According to freight analytics company Vortexa, nine million barrels of oil were moved via the Suez Canal every day in the first half of 2023. The recent attacks on container ships in the Red Sea by Iran-backed Houthi groups from Yemen led freight companies to reroute their cargo around the Cape of Good Hope to avoid accessing the Suez Canal. This caused a significant disruption to global supply chains. It is estimated that the additional fuel expenses to reroute ships around the southern tip of Africa was $1 million for each round voyage between Asia and Northern Europe. Likewise, during Russia’s invasion of Ukraine, several issues, including the suspension of port operations in Ukraine, damage to critical infrastructure, trade restrictions, and rising fuel prices caused substantial disruptions to regional logistics in the Black Sea region. Ships and containers were forced to find alternate routes as ports closed and carriers stopped offering shipping services to Russia and Ukraine. 

Maritime Shipping Routes in the Region

Source: https://portwatch.imf.org/ 

Similarly, shipping routes in the region could be interrupted due to a possible conflict between Venezuela and Guyana. Military operations may cause disruptions at the major trade sea ports in Venezuela and Guyana, as well as target Guyana’s shipping lanes for naval blockades aimed at container ships. Freight companies may be forced to reroute cargo, impacting regional supply chains, raising transit times, and increasing costs. The conflict may also replicate the logistical difficulties that followed Russia's invasion of Ukraine, such as the halting of port operations or even oil production operations. Such a scenario could also create volatility in the oil market.

Potential Market Volatility 

Geopolitical tensions can demonstrably impact oil market prices, especially when they involve major oil-producing countries. An increase in tensions and hostility between Venezuela and Guyana could cause oil price volatility. Several studies have analysed the impact that geopolitical risks have on oil market dynamics. Observing two studies, one study stated that “geopolitical risks can increase speculation through investor attention” and the other saying geopolitical risk can “lead to oil market fluctuations”. In the past, according to the European Bank’s ECB Economic Bulletin from August, 2023, there has been a mixed effect of geopolitical events on oil prices. For example, following Russia's invasion of Ukraine, oil prices increased by around 30% in just two weeks, while prices increased by about 4% following the October 7, 2023 attacks by Hamas in Israel. The ECB also states that oil prices are primarily impacted by geopolitical instability through 1) the increased economic uncertainty brought on by high tensions and interruptions in commerce, and 2) financial markets might account for potential dangers to the oil supply in the future. Risks to the oil supply could raise prices if they impact large oil producers or strategically critical distribution nations. The table below indicates a VAR model from the ECB Economic Bulletin, revealing that geopolitical tensions involving Venezuela could drive up the price of oil by roughly 1.4%. Thus, according to the studies and model, escalating tensions between Venezuela and Guyana could increase oil market volatility. The potential disruptions to shipping lanes and oil production could lead to increased speculation and oil market fluctuations. 

Estimated responses of oil prices to country-specific and global geopolitical shocks (percentages)

Source: European Central Bank

Conclusion

A potential conflict between Venezuela and Guyana could have implications for the global oil market. The importance of maintaining stability in the region is highlighted by the fact that Venezuela has always been a significant oil-producing country, and that Guyana is now becoming a new major player in the oil market. Market volatility is a concern due to the possible disruption of oil supply and shipping lanes associated with potential conflict between the two nations. For now, oil market observers can rest easy knowing that both the presidents of Guyana and Venezuela met in mid-December, promising not to use force or threats. However, their dispute over the Essequibo region remains unresolved.

The Houthi Campaign in the Red Sea and Gulf of Aden - An Update

Key Findings

• There are currently no indications that either the US or Iran’s “Axis of Resistance” have an appetite for wider conflict in the Middle East

• The 13-week old Houthi campaign against international shipping in the Red Sea and Gulf of Aden shows no signs of abating

• The Houthis are probably capable of conducting more damaging strikes than have been reported hitherto, but are acting with restraint for the moment

• If even a measured attack against a commercial or military vessel were to cause significant casualties, this could lead to an escalation

• The forthcoming holy month of Ramadan is not likely to precipitate an increase in Houthi attacks

Background - The Story So Far

Since 19th November 2023, at least 38 mainly commercial vessels transiting the Gulf of Aden and the Bab-al-Mandeb Strait have been targeted by the Yemeni Houthi group. Ostensibly undertaken in solidarity with HAMAS as the group continues to fight the Israel Defence Forces (IDF) in the Gaza Strip, 13 (34%) of the ships attacked have sustained some damage from either drone or anti-ship missile strikes. Additionally, two other commercial ships have been targeted to the southeast, in the Indian Ocean, in attacks that were almost certainly a part of the same campaign. Notwithstanding, no casualties have been reported and nearly all of the vessels have been able to proceed to port subsequently. There have also been six probable attempts to hijack vessels in the Red Sea, but gunmen have succeeded in boarding only two of the ships targeted. 

Source: The Washington Institute for Near East Policy

In response, since 11th January 2024, the US and UK have conducted at least three waves of joint airstrikes against targets in Yemen to degrade Houthi capability. Washington has also ordered its aircraft to conduct an unknown number of unilateral missions against similar sites. Exactly how much punishment Houthi targets have taken is impossible to assess, but their intent is undented as their attacks continue at a rate of between two and three per week.

Why Haven’t the Houthi Attacks Been More Effective?

The true military capability of the Houthis is something of a moot point. However, the recent attacks in the Red Sea and Gulf of Aden are indicative of a group well-supplied with drones and a variety of anti-ship missiles of mainly Iranian and former Soviet Bloc providence. The majority have likely been supplied directly by Iran or purloined during the Yemeni civil war. Media reporting also indicates that the Houthis have developed something of a homegrown industry for manufacturing their own weaponry - or at least copying that supplied by Tehran. As recently as 11th January this year, a team of US Navy SEALs attached to the 5th Fleet intercepted a dhow en route from Somalia to Yemen and found "Iranian-made ballistic missile and cruise missiles components". 

History shows that even military vessels can be put out of action by relatively cheap, unmanned drones. On the night of 31st January 2024, the Russian Tarantul-class missile boat, the Ivanovets, was sunk after being hit by five Ukrainian Magura V5 drones in the Black Sea. Each Magura costs around $273,000 as compared to $70 million for the Ivanovets, which was capable of carrying four anti-ship missiles. This is not a bad return on a small investment for a country with a navy consisting mainly of small patrol vessels. Moreover, in late 2023, the UK government estimated that Russia had lost up to 20% of its Black Sea fleet tonnage to such Ukrainian attacks.

Looking further back, in October 2000, two al-Qaeda suicide bombers crashed a small, fibreglass Zodiac speedboat packed with explosives into the side of the USS Cole, a $1 billion American Arleigh Burke guided-missile destroyer of the same class as the USS Carney, which is currently operating in the Red Sea. At the time, she was refuelling in Aden, Yemen, and 17 of her sailors were killed and 37 others injured. This attack took place long before remote-controlled drones and the success of such an operation now would not have to depend on suicide bombers willing to steer a device onto its target. Indeed, a worrying development came on 11th February, when US Central Command reported that one of its vessels had destroyed “two remotely controlled explosive-laden boats”. Also known as Unmanned Surface Vehicles (USV), they were somewhere near the Yemeni port of Hodeidah at the time. In another first  one week later, the US military also claimed to have destroyed a Houthi unmanned underwater vessel (UUV) somewhere near the coast of Yemen.

The most serious Houthi attack to date was the 18th February missile strike on the Rubymar, in the Bab al-Mandeb Strait. At the time of writing, unconfirmed reporting suggested that the crew may have had to abandon ship, although none were injured. Although given their bulk, large commercial vessels are quite difficult to sink, their size, low speed and lack of drone or missile countermeasures makes them relatively easy targets. Since the start of the Houthi campaign in the Red Sea, the international press has widely reported that US, UK and French military vessels have shot down missiles or drones on a number of occasions, almost certainly preventing more serious damage. However, with the Ukrainians proving that even military vessels can be sunk with drones, this does beg the question of why the Houthi attacks in the Red Sea  have not caused more damage or casualties.

Source: The BBC

First of all, the Ukrainians may simply be better equipped and have the advantage of intelligence support from their NATO allies, making their task easier than that of the Houthis. Additionally, there have been some signs that the recent US and UK airstrikes are impeding Houthi freedom of movement in the Red Sea. On 6th February, a British-owned ship named the Morning Tide was hit by a probable drone which, according to unconfirmed reporting, may have been launched from a nearby vessel rather than from on land. If this was the case, it might suggest that the air attacks are limiting Houthi freedom to launch projectiles from coastal areas. Indeed, three days before the Morning Tide attack, the US military reported that it had identified six anti-ship missiles ready for firing and destroyed them prior to launch. 

However, even if this is taken into account, the amount of reported damage from the Houthi attacks to date does seem low. As described earlier, 15 vessels have been hit by their extensive anti-ship arsenal, making it probable that the lack of damage or casualties is a question of intent rather than capability. If given totally free rein, the Houthis probably could cause more damage. One only has to look at their extremely professional hijacking of the Galaxy Leader on 19th November 2023. Although all the talk across the Middle East is currently that of “escalation” between Israeli, the US and their allies and Tehran’s “Axis of Resistance”, there does not appear to be any desire for widening conflict.

A further positive indication of this came on 18th February but passed almost unnoticed as the international media focused on the death of the Russian opposition leader, Alexi Navalny. It was reported that Brigadier General Esmail Qaani, the commander of the Iranian Revolutionary Guards Corps (IRGC) Quds Force, had met the leaders of several unnamed militant groups affiliated with Tehran at Baghdad International Airport (BIAP) in late January and instructed them to cease operations against US targets in Iraq. At the time of writing, his diktat seems to have been respected as there had been no such strikes reported since 4th February.

Tower 22

On 28th January, three American servicemen and women were killed when what was almost certainly a drone fired by Kataib Hezbollah - one of Iran’s Iraq proxy militias - struck an isolated base known as “Tower 22”, in northeastern Jordan. They were the first reported US casualties in the region since the HAMAS attack on 7th October. President Biden promised retaliation and this duly came on 2nd February 2024, when 85 targets across Syria and Iraq were hit by aircraft and missiles in a thirty minute window. 

Notwithstanding, the gap of nearly one week between the Tower 22 strike and the evening of 2nd February is a little curious. With the entire Dwight D. Eisenhower Carrier Strike Group at his disposal in the region - not to mention the US Fifth Fleet based not far to the north in Bahrain - Biden could probably have struck much earlier if he had chosen to. In addition, the President advertised his intention to attack several days before any aircraft took off, leading to the suspicion that he wanted to minimise casualties, giving Tehran more of a slap on the wrist than a major blow which could have increased the temperature across the region substantially. It is probably no coincidence that a spokesman for Harakat al-Nujaba, one of Iran’s Iraq proxies, subsequently claimed that the US targets in the country were “devoid of fighters and military personnel at the time of the attack”. 

This apparent tit-for-tat modus operandi can be compared to the ongoing situation on the Israel-Lebanon border. Since the 7th October HAMAS attack, the IDF and Hezbollah - Iran’s most powerful franchise in the Levant - have been engaged in daily, set-piece melees involving missile and rocket fire. The casualties reported - 146 on the Lebanese side of the frontier - have been comparatively low so far.

What Lies Ahead?

At this time, there are no signs that any of the main actors in the Middle East are looking for an escalation of violence. However, the Houthis could, almost certainly, conduct more effective attacks if they chose to, or were ordered to by Tehran. Even though they may bristle with sensors, the USS Cole attack showed that Western combat vessels are not infallible, even to small boats. Moreover, they only carry a finite number of weapons with which to counter the drone and missile threat from the Yemen coastline. Swarming much larger ships with multiple smaller vessels is an established Iranian modus operandi in the Persian Gulf and this could be quite easily transferred to drone operations, potentially overwhelming radars or onboard defence systems. Notwithstanding, there is no obvious intent to conduct any such operation at the moment.

Before the lethal drone attack against Tower 22 on 28th January this year, there had been some 160 strikes against US military assets in Syria and Iraq since the start of the HAMAS-Israel conflict in October 2023, none of them causing any major casualties or damage. Although it might be tempting to regard the three deaths at Tower 22 as an Iranian “escalation”, it is probable that this attack was no different in intent from any of the other previous 160; for whatever reason, the single drone just happened to get through US defences and strike home. Indeed, there has been some suggestion that it may have been mistaken by air defences for an inbound friendly aircraft, giving it unimpeded passage to its target.

A comparable threat does exist in the Red Sea and Gulf of Aden. The more missiles and drones launched by the Houthis, the greater the chance that one or two might just penetrate defences and cause much greater destruction and casualties to a commercial or even military vessel. The current situation in the Middle East is one of measured response by Washington and its allies on the one side and the “Axis of Resistance” on the other. However, there is a danger of unintended escalation attendant upon an attack such as that which occurred at Tower 22.

As a final word, Islam’s Holy Month of Ramadan is now fairly imminent, this year falling between 10th March and 9th April. Historically, the international media has tended to equate this period with an uptick in Islamic terrorist violence, but the evidence for this is largely anecdotal. During the Iraq insurgency following the US-led invasion of 2003, increases in mass casualty attacks during Ramadan and on other key dates in the Islamic calendar were a result of these attracting large numbers of people onto city streets to mark Iftar - the breaking of the Ramadan fast every evening - or to conduct pilgrimages. The strikes were not planned to specifically mark important dates. As things stand, there is no suggestion that Ramadan will have any significant impact on the Houthi campaign against international shipping.

Potential scenarios for Israel - Palestine conflict and effect on commodities

On October 7, Israel was attacked by Hamas. The event, which was classified as Israel’s 9/11 by Ian Bremmer, led to at least 1,300 fatalities and 210 abductions. Israel has launched a strong military response, and as of the 20th day since the original attack the situation remains unresolved. Both sides are experiencing ongoing hostilities and Netanyahu, Israel’s president, stated that the country is preparing for a ground invasion of the Gaza Strip, which will result in further civilian casualties. 

Various groups are threatening to involve themselves in the conflict. Hezbollah, for instance, has issued warnings indicating the possibility of launching a significant military operation from Lebanon to northern Israel if the latter enters the Gaza Strip. It also has been discussing what a ‘real victory’ would look like with its alliance partners Hamas and Islamic Jihad. Israeli forces, on the other hand, bombed Syria shortly after air raids sounded in the Golan Heights, a disputed territory that has been annexed by Israel since 1967. This offensive targeted the Aleppo airport and sources claimed its goal was to stop potential Iranian attacks being launched from Syria. Additionally, Iran has faced accusations of funding the attack, which raises concerns about its involvement. 

Consequences for commodities 

The ongoing conflict has emerged as a significant geopolitical factor on global oil markets. However, there have not been immediate impacts on physical flows yet. During the weekend of 7th to 9th October there was an increase in Brent crude prices of about 4% , which later fell 0.2% after Hamas released two American hostages. Prices fell even further after Israel appeared to hold off on its widely expected ground invasion of Gaza. These dynamics show that the risk premium in the oil price takes into account the severity of the conflict and the likelihood for escalation. 

Yet, Israel’s limited oil production capacity means that, if the conflict remains localised, it is unlikely to have a significant impact on global oil supply. Traditional energy commodities (and their prices), that can be viewed as a substitute to oil, have not been impacted so far either. Natural gas, for example, is both a substitute to oil and also largely produced by Israel with its southern offshore Tamar field. Despite European gas prices reaching their highest price since February on Friday 13th, markets do not appear to be pricing in the possibility of an escalation extending beyond Israel and Gaza. If that was the case, even higher prices would be recorded.

The most significant impacts on oil markets are more likely to occur if other nations actively engage in the conflict. After the explosion of a hospital in Gaza on 17th of October, Iran called for an oil embargo against Israel in retaliation for the deadly attacks. The Gulf Cooperation Council (GCC) countries have expressed their unwillingness to support Iran, stating that “oil cannot be used as a weapon”, which helped markets to not consider any embargos for the moment. Moreover, the impact of this action would be limited, since Israel could source its oil from a wide array of other countries.

Another point worth mentioning, it is estimated that 98% of Israel’s imports and exports are made by sea, making the national ports a crucial part of the country’s infrastructure. These ports are currently under a significant risk of potential damage, which has heightened shipping insurance premiums and affected the costs of importing into and exporting from Israel.

Possible scenarios and implications

1. If the conflict remains confined to the Israel - Palestine region

While there could be short-term volatility in oil prices during the most intense attacks and as potential escalation threats rise, neither of these regions are significant oil producers. Therefore, recent rises are not expected to have a  lasting impact on oil prices, which should soon stabilise between $93 and $100 per barrel. However, it is important to mention that this price range was already predicted before the current war between Israel and Palestine took place.

2. War involving Hezbollah

Some recent attacks have taken place between Israel and Hezbollah, however, if the latter joins the conflict, the impact on oil markets could be more substantial. This could lead to potential global economic consequences due to risk-off sentiment in the financial markets, leading to oil prices rising by $8 per barrel, approximately.  Another group that can act on the conflict are the Houthis, an Iran-backed group in Yemen which allegedly launched missiles against Israel on October 19th, that were intercepted by the United States. While Yemen primarily exports cereal commodities, its involvement can further escalate geopolitical tension and instability in the region. 

3. Iran enters the conflict formally 

The most significant impact on the oil market would arise if Iran officially joins the conflict, potentially causing a $64 per barrel increase to a price of $152.38 for Brent crude. Iran controls the Strait of Hormuz, a passage crucial for connecting the Persian Gulf with the Indian Ocean. Thus, if the Strait is blocked, important countries for oil production such as Iraq, the United Arab Emirates, and Kuwait would be landlocked. Consequently, Iran would see its gas revenues rise due to higher prices. This situation also creates challenges for gas importing countries, especially for the EU’s energy security that has already seen a cut of supply from Russia.  

As a consequence of Iran’s increased involvement shipping expenses would likely increase, also associated with war-risk premiums on shipping insurance. Those refer to additional costs that are also included in shipping prices to cover for vessels and cargo that are operating in areas of geopolitical risk. In the Ukrainian and Russian conflict for example, the war risk premium was firstly around 1% and has further escalated to 1.25%. While the overall value may not be significant, it can still present an additional challenge in the trading of energy related commodities. 
Moreover, Iran is still exporting a significant amount through loopholes. If Iran decides to formally join the conflict, there probably would be stricter enforcement of sanctions by the United States which would tighten global oil supplies. Higher oil prices would also cause external geopolitical impacts. In the US, elevated oil prices could be a factor against the election of Joe Biden, who has invested significant political capital on the Middle East’s diplomacy with an attempt to normalise Saudi Arabia and Israel relations. For Russia, on the other hand, higher oil prices are vital to increase the country’s revenue and continue its war against Ukraine. 

The most extreme scenario would entail Israel conducting a strike on Iran’s nuclear facilities, potentially causing oil prices to surge well beyond $150 per barrel. Therefore, heightened efforts to remove U.S. sanctions on Venezuelan oil would help relieve the strain on global oil prices. Increased access to Latin America's oil resources could act as a shock absorber against price increases and supply disruptions. In the US, more specifically, it would offer a more favourable outlook to Joe Biden's administration.  

We’ve Got a Fungal Problem: A Looming Threat to Global Wheat Production and Food Security

Wheat is one of the most important staple crops in the world, providing food and income for billions of people. However, wheat production is facing a serious challenge from fusarium blight, a fungal disease that infects wheat ears and reduces grain quality and yield. It also produces mycotoxins, which are harmful to human and animal health. The fungus is influenced by weather conditions, especially temperature and rainfall, and is expected to worsen under climate change scenarios. This spotlight examines the current and projected impacts of fusarium blight on wheat production, prices, and security, and discusses the political implications.

Current Impacts of Fusarium Blight

Fusarium blight is a widespread and devastating disease of wheat, affecting all major wheat-producing regions in the world. The fungus lowers yields and reduces the quality of wheat grains by lowering their test weight, protein content, and germination rate. It also contaminates wheat grains with mycotoxins, such as deoxynivalenol (DON) and zearalenone (ZEA), which can cause acute and chronic health problems in humans and animals, such as vomiting, diarrhoea, reproductive disorders, immune suppression, and cancer. This presence of mycotoxins in wheat affects its marketability and trade, as many countries have set maximum allowable levels for mycotoxins in food and feed.

Fusarium blight outbreaks are highly variable and depend on several factors, such as the susceptibility of wheat cultivars, the timing and duration of flowering, and the weather conditions during flowering and post-flowering. Warm, wet, humid conditions during flowering favour infection by fusarium species, causing ear blights and seed-borne infection. Further rainfall and humid conditions allow secondary infections to occur, allowing further fungal growth and mycotoxin production. Therefore, fusarium blight epidemics are often associated with wet seasons or regions with high rainfall or irrigation.

In terms of specific numbers, the FHB epidemic has been reported to lead to a 10–70% of production loss during epidemic years. For example, in China, a 5–10% yield loss is common due to FHB, but it can reach up to 100% in epidemic years, affecting around 7 million hectares of wheat fields.

These factors can create a supply shortage, which in turn can drive up the price of wheat in the commodity market. However, the exact impact on wheat prices can vary depending on a range of factors, including the severity of the outbreak, the region’s reliance on wheat production, and the global wheat market conditions at the time of the outbreak.

Winter Wheat

Commodity wheat, sometimes referred to as winter or common wheat , accounts for the vast majority of production worldwide as it contains higher protein than other varieties, this allows for a wider range of uses and a higher number of possible products produced from the wheat itself. Winter wheat is planted in the autumn and harvested in the following summer. It is grown in temperate regions of the world, such as Europe, North America, China, and India. Winter wheat also provides soil cover and erosion control during the winter months.

Blight is much more common in winter wheat than in spring wheat because winter wheat has a longer exposure to the risk factors that favour fusarium infection. These risk factors include warm and humid weather during flowering, and susceptible varieties. Winter wheat also tends to flower earlier than spring wheat, which coincides with the peak period of fusarium spore production and dispersal.

Projected Impacts of Fusarium Blight under Climate Change

Climate change is expected to increase the frequency and intensity of extreme weather events, such as heat waves, droughts, floods, storms, and hail. These events can directly affect wheat production by damaging crops or reducing yields. However, climate change can also indirectly affect wheat production by altering the distribution and severity of plant diseases, such as fusarium blight.

The extent to which fusarium blight may affect the prices of winter wheat depends on several factors, such as the magnitude and frequency of fusarium epidemics, the availability and cost of fungicides and resistant varieties, the demand and supply of wheat in the global market, and the regulations and standards for mycotoxin contamination. Fusarium blight can reduce the quantity and quality of winter wheat, which may lower its market value and increase its production costs. Fusarium blight may also pose a threat to food safety and security, as mycotoxins can cause adverse health effects in humans and animals. Therefore, fusarium blight can have negative impacts on the income and welfare of farmers, consumers, processors, traders, and regulators.

Several studies have projected the impacts of climate change on fusarium blight using crop models coupled with disease models and climate scenarios. The results vary depending on the location, time horizon, emission scenario, and model assumptions. However, some general trends can be observed:

• Climate change will advance wheat anthesis dates, the stage of the wheat life cycle that allows for full flowering, it is at this stage that wheat is vulnerable to blight and rainfall during this period is predictive of incidents of blight. Due to higher temperatures and shorter growing seasons this may reduce the exposure of wheat to fusarium infection during flowering, as the peak of infection may occur before or after anthesis. However, this may also increase the risk of heat stress and drought stress during grain filling, which can reduce wheat yields and quality.

• Climate change will increase the incidence and severity of fusarium blight in regions where rainfall and humidity are projected to increase, especially during flowering. This may enhance the infection by fusarium species and the production of mycotoxins in wheat grains. However, this may also reduce the risk of water stress and increase the water use efficiency of wheat crops.

• Climate change will decrease the incidence and severity of fusarium blight in regions where rainfall and humidity are projected to decrease, especially during flowering. This may reduce the infection by fusarium species and the production of mycotoxins in wheat grains. However, this may also increase the risk of water stress and reduce the water use efficiency of wheat crops.

Implications for Wheat Prices and Security

The impacts of fusarium blight on wheat production, quality, and trade have significant implications for wheat prices and security. Wheat prices are determined by the interaction of supply and demand factors in global markets. Supply factors include production, stocks, trade policies, weather shocks, and diseases. Demand factors include consumption, income, population growth, preferences, and biofuel policies. Wheat security refers to the availability, accessibility, utilisation, and stability of wheat for food and feed purposes.

Fusarium blight can affect both supply and demand factors of wheat prices and security. On the supply side, fusarium blight can reduce wheat production by lowering yields and quality. This can create a supply shortage in domestic or international markets, leading to higher prices. Fusarium blight can also affect wheat trade by reducing exports or increasing imports. This can create a trade imbalance or a trade disruption in regional or global markets, leading to price volatility. Fusarium blight can also affect wheat stocks by reducing storage or increasing disposal. This can create a stock depletion or a stock accumulation in national or global markets, leading to price instability.

On the demand side, fusarium blight can reduce wheat consumption by lowering preferences or increasing health risks, even as states maintain high standards, the share of global wheat that meets those standards will decrease thereby decreasing supply and decreasing the amount of high quality wheat products available to consumers. This can create a demand decline in domestic or international markets, leading to lower prices. 

On the supply side, fusarium blight can also affect wheat income by reducing profits or increasing costs. This can create an income loss or an income transfer in producer or consumer groups, leading to price inequality. Fusarium blight can also affect wheat population by reducing growth or increasing mortality. This can create a wheat population decrease or a population displacement in rural or urban areas, leading to price insecurity.

Wider Consequences and Political Risk

The wider consequences of fusarium blight in winter wheat are related to its potential effects on food security, public health, trade, and environment. Fusarium blight can reduce the availability and accessibility of wheat as a staple food for millions of people around the world. Fusarium blight can also compromise the nutritional quality and safety of wheat products due to mycotoxin contamination. Fusarium blight can affect the trade relations between countries that produce or import winter wheat, as different countries may have different standards and regulations for mycotoxin levels. Fusarium blight can also have environmental implications, as it may increase the use of fungicides that can have negative effects on biodiversity and water quality.

The political risk of fusarium blight in winter wheat can be explained as the possibility of conflicts or disputes arising from the different interests and perspectives of various stakeholders involved in the production, consumption, and trade of wheat. For example, fusarium blight can create tensions between wheat exporters and importers, as the former may face lower demand and higher costs due to quality issues, while the latter may face higher prices and lower supply due to scarcity issues. Fusarium blight can also create challenges for policymakers and regulators, as they have to balance the needs and expectations of different groups, such as farmers, consumers, processors, traders, and environmentalists. Fusarium blight can also affect the stability and security of regions or countries that depend heavily on wheat as a food source, as it can cause food shortages, malnutrition, and health problems. Fusarium blight can also trigger social unrest or violence, as people may protest or riot against the authorities or other groups for their perceived failures or injustices related to wheat production or distribution.

Conclusion

In conclusion, fusarium blight emerges as a looming threat to global wheat production and security, with its multifaceted impacts on yield, grain quality, human and animal health, and international trade. The intertwined relationship between fusarium blight and climate change exacerbates the challenge, requiring comprehensive and adaptive strategies. Beyond its immediate economic consequences, the disease's far-reaching effects on food security, public health, trade relations, and environmental sustainability underscore the urgency for collaborative international efforts. Addressing fusarium blight demands not only innovative agricultural practices, resistant crop varieties, and stringent regulatory standards but also necessitates a holistic approach, involving policymakers, researchers, farmers, and consumers to ensure the resilience of global wheat production systems in the face of this pressing threat.

Rice Bowls and Revitalization: Navigating China's Complex Food Security Landscape

Introduction

CCP Chairman Xi Jinping has proclaimed that the “Chinese people should hold their rice bowls firmly in their own hands, with grains mainly produced by themselves”. Yet this directly conflicts with his other stated goal of “rural revitalisation”, the effort to identify high value crops and agricultural industries for the purpose of raising farmer’s incomes and to alleviate rural poverty. Such tensions denote the contrast between two old visions of the state's duty to Chinese citizens, with both outlooks sharing little in common with the other.

This is reflective of the dual problems China faces over the coming decades: how to continue on the path of uplifting the rural poor from poverty, whilst simultaneously restricting their choice of crops to core staples in the interest of national food security.

This spotlight presents the problems facing China’s domestic food supply and increasing foreign dependence while discussing the complications caused by goals of both economic uplift of citizens and the long term protection of the nation’s dwindling farmland. Additionally, this spotlight analyses historic trends in Chinese food production and demand and their subsequent effect on global food prices, before reviewing the possible Taiwan-related motivations of the Chinese state. 

This spotlight concludes that the proclaimed “guozhidazhe”, meaning a national priority or a main affair of the state, can be considered both as a push for food security while at the same time demonstrating a deliberate decision to prioritise the food security of the urban middle classes over the rural poor, this tradeoff itself having political and social consequences.

Rural Policy Background

The Deng Xiaoping market reforms of the 1980s seem to fade further and further into the rear view mirror as China trundles along towards true self-sufficiency. That’s when collective farms, a staple of most early communist regimes, were split and farmers were permitted to sell any crop they wished at market price.

Current Chairman, Xi Jingping, takes the opposite view, that Chinese farmers must forget the days when premium sellers such as flowers and fruit were harvested on China’s dwindling and already small stocks of arable land. Instead, farmers must focus on harvesting the staples that keep a nation going, a factory’s workers churning, and the nation’s stockpiles ever expanding. As such, China has been building up huge stockpiles in basic foodstuffs such as wheat, rice, and corn (around a year’s national supply of each). This has raised the global price of grain, with China now hoarding over half the world’s supply.

China is not blessed with good conditions for agricultural production. China has long been troubled by famine, with the emperors of antiquity usually looking to fill bellies as the first step to win hearts and minds. Today, China attempts to feed a fifth of humanity with less than 10% of the world’s farmland and only 7% of the world’s fresh water. Despite this, it manages to produce around a quarter of the world’s grain and ranks first across the globe for the production of cereals, fruit, vegetables, meat, poultry, eggs, and fishery products.

China's food security strategy today faces several challenges and trade-offs. One of them is the dilemma between increasing farmer's incomes and promoting the production of basic foodstuffs over cash crops. Cash crops are crops that are grown for sale rather than for domestic consumption, such as cotton, tobacco, tea, and fruits. Cash crops can provide higher returns for farmers and stimulate rural development, but they also compete with food crops for land, water, and other resources. This is causing confusion and resentment on the ground, where generations of shifting national priorities have been felt in the pockets of China’s rural population.

Another challenge is the dependence of China's food security on the stability of the global food market and the geopolitical situation. China is the world's largest importer of agricultural products, including soybeans, corn, wheat, rice, and dairy products. Between 2000 and 2020, the country’s food self-sufficiency ratio decreased from 93.6 percent to 65.8 percent. This is predominantly due to changing diet patterns with imports of edible oils, sugar, meat, and processed foods increasing. 

This has been spurred on by the increasingly large Chinese urban middle class. More concerned with food safety than their parents, and dismayed from Chinese brands by decades of little to no strict food safety regulations in the country, these people turn increasingly to internationally imported goods. Additionally, there have been many contaminated and unsafe food scandals in China this side of the millennium, for example a large proportion of parents are still loyal to foreign baby formula as the result of six babies dying and hundreds of thousands being poisoned as a result of contaminated domestically produced formula in 2008.

China is also the largest producer of meat on the planet as stated earlier. This has been achieved by diverting many of the basic foodstuffs to livestock instead of to humans. China consumes around 175 million tonnes of corn in animal feed each year and imports approximately 100 million tonnes of soybeans to also use in animal feed. The growing urban middle class has increased demand for animal products domestically, such that corn used for animal feeds tripled from around 20% in the 1960s to 64% by 1994. This has contributed to state concerns over food security, with more of the staples going to livestock than ever before and the population's nutritional intake increasing in complexity. The reliance on imported food to meet those needs presents China with a problem,  not just in terms of quantity for those at the bottom, but also in terms of quality and variety for those in the newly established middle class. China, therefore, is aiming to increase staple harvests not just to meet the needs of the population in terms of calories but also in terms of happiness and nutrition in an evermore complex and dangerous world the CCP perceives in the face of climate and geopolitical threats.

Additionally, it is difficult for food producers to make any meaningful profit farming staples, due to the price controls instituted from the top down. Therefore, another of Xi’s policy staples seems set for the chopping block. Xi has identified the uplifting of the rural poor as a priority for the CCP by allowing them to grow crops of high market value and invest in profitable agricultural industries to achieve rural revitalisation.

China has further diversified its uses for corn into the production of High Fructose Corn Syrup (HFCS). Reforms in the mid-2010s led to a mass sell-off of the nation’s then corn reserves and allowed for HFCS output to increase and for idle capacity to be reignited. HFCS sells for around a third of the price of natural sugar in China and garners a fifth of the domestic sweetener market. Chinese HFCS has also been exported abroad and disrupted the sugar industries of a number of southeast Asian states, with already declining sugar consumption causing concern in the Philippines where sugar cane harvests regularly outstrip demand and where around half of Chinese HFCS ends up. As the CCP pushes for more corn to be grown domestically and therefore be bought within strict price controls, the HFCS industry may further disrupt the growth in sugar demand awaited by many burgeoning economies in the region, particularly India, Indonesia, and Vietnam where imports of Chinese HFCS rank just behind the Philippines. 

The Filipino government enacted trade restrictions on Chinese HFCS to protect domestic sugar production, further export of HFCS will increase tensions, place economic pressure on a key Filipino national industry, and inflame tensions in the region.

However, many question what happened to the “Grain to Green” goal set in the 1990s of planting forests to counter soil erosion and limit desertification. China’s food dependence is predicted to continue increasing, as a result of arable land loss. China in 2019 only possessed 95% of the arable land it held in 2013, this has been attributed to overuse of fertilisers, neglect of land, and climate change. Extreme weather, environmental degradation, water scarcity, and pollution all look to be ready to make the problem worse in the coming years and decades. Researchers from both China and the US judged that climate change and the loss of parts of the ozone layer were responsible for a 10% drop in average crop yields from 1981 to 2010.

The implications for global commodities

A fifth of humanity drastically changing the quantities and types of food they eat has unsurprisingly had major effects on the global price of food in the past. The food price hike of 2007-2008 pushed approximately 400 million people into poverty worldwide and was partly blamed by many on China and India’s rising demand for foreign agriculture leading to increased consumer competition on international markets and therefore higher prices.

However, if China stays on course to increase the amount of food produced domestically, at least in the short to medium term, based on the lack of attention paid to the slowly dwindling supply of arable land, then demand internationally for agricultural commodities like wheat, rice, and corn is bound to fall, possibly leading to a reduction in prices for these basic products and the foodstuffs they produce in combination with other materials and ingredients. Some of the poorest and most import-dependent countries on Earth should expect less competition at the table from now on as China prioritises the stomachs of its people over its farmers’ wallets. 

Why Change So Much So Quickly?

China’s buildup of stockpiles on top of increasing domestic food production has many analysts worried. With tensions over Taiwan at a high, it raises the possibility that China’s move to increase food security is an attempt to prepare for future US-led sanctions and blockades as a consequence of invading what it considers to be a rebel province. 

Alternatively, the justifications of the policy make sense in the opposite terms, not that conflict is planned but that shocks to the global food system, such as the collapse of the Ukraine Russia grain deal of which China was a major beneficiary, are only expected to increase as a result of conflicts in the region, or on the other side of the world. 

It can be easily understood that the push for national food security is one caused by external factors alone, but the initiative’s counteraction against ideals of rural revitalisation demonstrate a definite domestic consequence and a readjustment of the urban/rural political and economic relationship in China. Even as improved physical and digital infrastructure draw the educated and successful back to small towns and villages, there has been very little progress towards bridging the urban/rural divide. In 1995, urban workers made three times their rural counterparts, today the ratio is roughly the same even in the face of government efforts to close the gap. 

The realignment taking place, for farmers to grow low income but highly needed crops to keep both basic food prices low and maintain a steady supply of cheap other foodstuffs such as meat and sweetener, illuminates China’s prioritisation of the urban middle classes with more complex dietary expectations over the farmers and rural poor reaching to claim their share of the Chinese dream.

Conclusion

China's dual objectives of ensuring food security and promoting rural revitalisation underscore a complex challenge. Balancing the imperative for self-sufficiency with the need to uplift rural communities reveals tensions between historical legacies, socioeconomic aspirations, and global realities. The intricate interplay between these goals not only impacts China's domestic landscape but also resonates internationally through changing trade dynamics and geopolitical considerations. The nation's journey to navigate these complexities will define its agricultural trajectory, with far-reaching implications for both its citizens and the global community.

Image credit: Colin W via Wikimedia Commons

The King’s Gambit: The Opportunities and Risks of Israeli Approval of Gaza’s Offshore Gas Extraction

On 18 June 2023, Israel’s prime minister, Benjamin Netanyahu, announced that his country had given the green light to the Palestinian Authority’s (PA) development of a natural gas field off the coast of the Gaza Strip. Given the strained relations and recurring rounds of violent escalation between Israel and militants in Gaza, such a move is not straightforward and must be explained with reference to the political, economic and security interests of the parties involved.

Israel’s interests

To the outside observer, a concession to the Palestinians by an Israeli government broadly seen as the country’s most right-wing ever may be surprising. Yet it is an enduring fact that Israel’s most bold overtures to its neighbours have been carried out by the right wing. It was Menachem Begin’s Likud government that exchanged the Sinai Peninsula for a peace treaty with Egypt in 1979. Karine Elharrar, Israel’s Energy Minister under Israel’s previous, more centrist government related that she had been approached with the Gaza gas proposition toward the end of 2021 but ruled it out as unfeasible as her government was already under fire from the then-Netanyahu-led opposition for its pursuit of a maritime gas deal with Lebanon. The reason Israeli public opinion considers giveaways by the right more palatable is the impression that they have been vigorously negotiated over and, if made, must be squarely in the national interest. The logic here follows from the Israeli-Lebanese precedent: give your enemy something to lose, and they will think twice before risking all-out conflict.

The Israeli right has long opted for ‘managing’ the Israeli-Palestinian conflict over solving it. A recent, pressing challenge to this strategy has been the gradual disintegration of the PA, the governmental body created by the 1993 Oslo Accords and charged with governing the Palestinian Territories. It lost control of Gaza to Hamas after the latter’s violent takeover of the strip in 2007 and its legitimacy among the West Bank’s population has been undermined by accusations of corruption, mismanagement, and collaboration with Israel. Israel hopes the deal will shore up the PA, an important security partner in preventing and punishing local terrorist attacks, by bringing much-needed funds and restoring its image as a responsible, effective authority.

Nevertheless, Israeli leaders do not harbour any illusions about the fact that some of the revenue generated by the gas sales is bound to end up in the hands of Hamas, a militant group designated by it, the US, the EU, and many others as a terrorist organisation. This is widely seen as the reason for the stalling of the initiative since it was first proposed in 1999. Recently, however, experts have suggested that Israel intended the concession as a quid-pro-quo for Hamas’s acquiescence over its military campaign against the Palestinian Islamic Jihad (PIJ) in May 2023. Such an approach attempts to gain Hamas’s cooperation through a carrot-and-stick strategy.

Gaza’s interests

On Gaza’s side, the foremost imperative is economic. Years of economic blockade by Israel and Egypt, alongside local mismanagement have turned Gaza into what certain human rights organisations have called an ‘open-air prison’. Its 2.3 million inhabitants experience power cuts for up to 12 hours a day, a result of an over-dependence on a small local oil-fuelled power plant and insufficient Israeli electricity. Meanwhile, the Gaza Marine field is thought to hold almost 30 billion cubic metres (1 trillion cubic feet) of natural gas. If tapped, this source would be more than enough to cover the area’s estimated 500-megawatt daily requirement, with the remainder piped into liquefaction units in Egypt and sold on global markets, yielding billions of dollars in revenues.

If such a plan materialises, both the PA and Hamas will seek to claim credit. The PA will attempt to win back its support in Gaza and the West Bank as a government that secured economic development and raised living standards through internationally negotiated agreements. Hamas, for its part, would build on its credentials not only as a force of resistance to Israel but as a provider of economic and social benefits in the strip, potentially facilitating its formal consolidation in the West Bank too.

Risks

Progress on an Egyptian-mediated agreement on gas by Israel and the PA faces three principal risks.

First, and most obviously, the breakout of a new round of violence between Israel and Hamas, possibly, but not necessarily, as part of a broader regional escalation (e.g. involving clashes across the Israeli-Lebanese border) will likely cause Israel to take the deal off the table. Israel’s leadership must convince itself, and its supporters, that it is not arming its enemies.

Second, Israel is counting on Egypt to act as a guarantor and third-party stakeholder in securing Hamas’ continued cooperation and underwriting its good behaviour. Yet while Egypt has proved an indispensable mediator in this regard over the last decade, it is unclear how much sway it holds over the militant organisation in comparison to Iran, its chief ally and financial backer. Given the Israeli-Iranian geopolitical archrivalry, it is not straightforward to assume that Hamas is either willing or able to peacefully coexist with Israel for long.

Third, and finally, the recent political turmoil in Israel as a result of the judicial reforms introduced by Netanyahu’s coalition might complicate his efforts to justify the move to his supporters. If the coalition eventually backs down from the reforms demanded by its hard-line elements and supporter base, the addition of a formal concession to the Palestinians may become even harder to stomach, especially after Netanyahu himself had opposed Israel’s previous deal with Lebanon as a ‘surrender to terror’.

The next step

Full-scale extraction of natural gas from the Gaza Marine field will require the PA to obtain a final agreement designating the status of the field in which Israel will relinquish any remaining claims to the reservoir. Israel’s apparent green light for the project could bolster the economic prospects for the strip, and may succeed in furthering regional stability, as its proponents hope. If successful, the project and its Israeli-Lebanese predecessor of last year may illustrate the opportunities for opposing states of leveraging the relative ambiguity and lesser politicisation of maritime boundaries to reach compromises in spite of intransigent public audiences. Nevertheless, the multiplicity of actors involved, with their limited power and often conflicting interests, means the project is fraught with risks that threaten to turn it into another false start in a troubled political relationship.

Image credit: Bureau of Safety and Environmental Enforcement (BSSE)

Niger Coup: What Could've Left the Sahel's Last Bastion so Vulnerable?

Introduction

Niger’s President Mohamed Bazoum has been ousted from power, claims the presidential guard, who appeared on national television late on Wednesday night, mere hours after he was captured in the country’s presidential palace. The coup artists claim to have suspended all political institutions in the country. General Abdourahamane Tiani, the head of Niger’s presidential guard, who previously was rumoured to have been in negotiations with the president after Bazoum planned to demote him from head of the organisation, was initially challenged by the wider armed forces and national guard, who threatened to attack the insurrectionists unless they stepped down; those same armed forces now back the coup against Bazoum to supposedly prevent a bloodbath, even as Bazoum pledged to protect the democratic gains made in the country, in spite of recent events.

The following report provides a summary of the potential contributors to the instability in Niger, including the precarious security situation, growing anti-French and pro-Russian sentiments, dwindling food supply, political mismanagement of the world’s fastest growing population, and a sharp rise in the price of fuel. 

National Overview

Niger is a multicultural yet overwhelmingly Muslim North-West African nation, around double the size of Texas or France, bordering Nigeria to the South, Mali to the West, Algeria and Libya to the North, and Chad to the East, as well as other smaller nations in all directions. It usually resides at the bottom of most indicators of human development and is one of the poorest nations on earth, with a population of around 25 million people. It is a former French colony, with French being the language of administration. France remains one of its primary import and export partners. Moreover, the country still uses the Franc as its currency. 

The Hausa (also majorly present in northern Nigeria) live mainly in the South and centre of the country and are the largest ethnic group at 51% of the population. The Zarma-Songhai make up 21% of the population and primarily reside in the nation’s southwest. 80% of the country’s area is covered by the Sahara Desert. This area, however, only contains 20% of the country’s population, made up primarily of the Tuareg and other ethnic groups, which make up the remainder of Niger’s population. The sheer size of the Sahara makes water scarce, particularly in the north of the country. The South, however, has a  more tropical climate with higher rainfall. It is home to both French and American military bases, with both countries involved in the international effort against Jihadist groups in the Sahel region of North West Africa; a section of this region forms part of Niger’s territory.

Situational Background

Niger is no stranger to coups and coup attempts, with military officers overthrowing presidents in 1974, 1996, 1999, and 2010. Bazoum’s ascent to the presidency, however, was the country’s first ever case of a peaceful transfer of power from one president to another, despite an attempted coup just two days before Bazoum’s inauguration in 2021 as well as accusations of fraud from the second place candidate, Mahamane Ousmane, whose supporters have held mass rallies. Bazoum was the preferred successor of his predecessor, Mahamadou Issoufou, who stepped down voluntarily. Rather than a break with Niger’s tradition of military coups, this suggests an aberration created by the transfer of power from one chairman of the board to another, instead of one governmental apparatus handing over to another. 

Yet, Bazoum’s regime had begun to be viewed within the country as increasingly repressive and not particularly popular. Additionally, his predecessor may have been viewed internationally as an effective democratic leader, but this view is rarely found in Niger itself, with wide scale industrial action taking place under both Bazoum’s and Issoufou’s reigns respectively.

Militants in the Sahel and Lake Chad Basin

Bazoum, seen by many within Niger as a puppet of French authorities, has stated that France’s anti-Jihadist force in the region is a “relative failure, it’s a shared failure, a failure of the entire coalition." He also stated that France’s troop drawdown in the region would have only a limited impact. In fact, on the same day that Bazoum’s election victory was certified by the nation’s constitutional court, armed men on motorbikes attacked a string of villages on the Mali border, leaving 137 dead in the nation’s deadliest violence in recent times.

There are now more fatalities linked to militant islamist groups in the Sahel than in any other region of Africa. In fact, violence in the Sahel increases year on year, while fatalities linked to islamist groups in other parts of Africa have fallen.

In the West, the Islamic State in the Greater Sahara (ISGS) and Jama’at Nusrat al Islam wal Muslimin (JNIM), made up of various Al Qaeda affiliates, with the Macina Liberation Front (FLM) being the one most active in the Sahel, are the largest contributors to fatalities linked to islamist violence in the region. The Africa Center for Strategic Studies attributes these two groups with the majority of violent attacks and islamist militant violence in the Sahel, which now accounts for 60% of such violence across the continent. 

This has led to the displacement of approximately 2.5 million people across the region, although Burkina Faso accounts for the majority of those displaced. Some of the latest data from 2021, the year of Bazmoun’s inauguration, showed a 50% rise in battles between JNIM forces and security forces, while battles with ISGS fell by 45%. 

The main groups operating in Eastern Niger, as part of the Lake Chad Basin, are Boko Haram, the Islamic State in West Africa (ISWA), and Ansaru. These groups are also present in Nigeria, Cameroon, and Chad. The Lake Chad Basin is now the second highest region in Africa for fatalities linked to militant islamist groups. Its trend is overall downward, however, as opposed to the increasing violence in the Sahel. As of 2021, the Basin saw a 32% drop in militant islamist activity and a 21% drop in reported fatalities linked to militant islamist groups. Boko Haram is the group most on the decline, with a drop in linked fatalities of 46%, while ISWA only saw a drop of 3%. This discrepancy is most likely due to the death of Boko Haram’s longtime leader, Abubakur Shekau, in May 2021 and subsequent regrouping.

The relative rise in violence in the Sahel, and the drop in Lake Chad, present new problems for security forces in Niger. In 2012, the vast majority of violence that forces in Niger had to contend with was situated in the east of the nation, in the Lake Chad Basin. Although violence in the Basin has recently been on the decline, the sharp rise in violence in the Sahel, contained in parts of western Niger, leaves the counter-islamist-militant coalition split across the country with only vast desert and a small section of tropical savannah linking the two fronts, making transfers of troops and supplies by land vulnerable and logistically difficult.

Growing Anti-French Sentiment and Increasing Russian Influence Across the Region

There is little information on why the same presidential guard that fought to protect Bazoum’s life in March 2021, has captured him and supplanted Niger’s political institutions. There are serious concerns that the Wagner group is connected. Fans were flamed by Wagner Group Commander Yevgeny Prigozhin’s attendance at a recent Russia-Africa summit in St Petersburg, suggesting Wagner and the Russian state remain partners on the continent. Prigozhin's public statements, characterising the coup as “a battle by the people of Niger against their colonisers”, were especially alarming. The Wagner Group’s goals as a private military company (PMC) are to secure profit while advancing Russian socio-economic and foreign policy interests.

Niger and the wider region of Francophone North-West Africa have come under increasing Russian influence in recent times. This has combined with existing anti-colonial and anti-French sentiment to create a perfect storm of public pressure against the French and the West as a whole. The same week as the coup in Niger, the new Mali constitution, brought in via referendum, demoted French as an official language to the status of a “working” language. This subsequently promoted a number of native languages to official status. 

The French military’s operations in Mali were always only somewhat supported by the population, with one especially gruesome event where a French air strike killed 22 people at a wedding, exemplifying the tension, propensity for callousness, and frequent unforced errors made by the French military. The French government asserted that those killed were Jihadis, while the UN concluded that they were overwhelmingly civilians. Mali has now turned to the Wagner Group for military aid in fighting insurgencies, and expelled its French forces. 

Bazoum, however, has identified France as an easy target for "the populist discourse of certain opinions, especially on social media among African youth” and that “its adversaries want to project an image of France as a neocolonialist power. Some people stick to that cliché, which is not true, but which is very useful for propaganda.” He stated that Wagner had been ineffective in Mali, and that the number of refugees entering Niger from Mali had actually increased since the departure of French forces in the region.

With many of Niger’s neighbours creeping out of western influence, the nation seemed increasingly to be the last bastion of the so-called “coup belt”, a grouping of predominantly Francophone Central and West African countries. 

The French government in particular came to view Niger as a partner of last resort, as its other options dissipated. Ibrahim Yahaya Ibrahim, a senior Sahel analyst at the International Crisis Group speaking to the Financial Times, said Bazoum’s pro-western stance had received a mixed reception at home, where he had taken “quite a hit”. “The same anti-French discourse that has proliferated in Mali and Burkina Faso is also present in Niger”. More specifically, Bazoum had complained of disinformation campaigns by Wagner against his government. Perhaps then it is no surprise that supporters of the Niger coup have been seen waving Russian flags all over the country, seen by many as Niger’s ally against western hegemony and colonialism.

Wagner’s preference for payment in natural resources, most commonly valuable raw minerals, is not news. Niger produces 7% of the world’s Uranium, with most of it ending up in France for use in the nation’s many nuclear power stations, which produce around 70% of French power. Around three quarters of France’s Uranium comes from just four countries: Kazakhstan, Australia, Niger, and Uzbekistan. However, Niger has been diversifying its customer base, with significant shares of the country’s uranium now being sold to companies based in Canada and China, with each nation’s operation in Niger maintaining its own extraction sites.

Therefore, the theory has been circulated that the coup in Niger achieves two goals for Wagner and the Russian government. Firstly, Wagner may now be able to operate in Niger in exchange for uranium, which can then be used in Russia for military and/or civilian purposes, or sold on international markets.

Secondly, Wagner may develop the relationships necessary to divert significant amounts of Uranium away from the French energy market, jeopardising the price of energy in France and bringing an energy-borne cost of living crisis there that countries dependent on Russian gas have been experiencing in the rest of Europe. This aspect of the coup will develop further in the coming weeks and is set for much speculation.

The Ukraine War and Global Fertiliser Supply

Much of Niger’s land is used to produce food. Despite this, the country’s largest import is rice, at a value of $275m. This demonstrates a caloric deficit in the country’s domestic food supply and leaves Niger’s food supply vulnerable to international pressures. For instance, the Russian invasion of Ukraine has left the developing world in the lurch. Russia is the largest agricultural fertiliser producer in the world. As such, the supply of such fertilisers has decreased all across the African continent. This is because most fertilisers are produced using coal or natural gas, the global price of which has led to a sharp increase in the price of fertilisers and subsequently food. As a result, the president of the African Development Bank predicts a 20% drop in food production across the continent. At present, around 44% of Nigerien children are malnourished, and around 18% of the population was predicted to have reached crisis levels of food insecurity between June 2022 and June 2023, this was twice as many as the same 12 month period previously. Niger’s population is also uniquely young, with an average population of around 14, which makes the population particularly exposed to food shortages as such a large proportion of the population are children.

A recent emergency response plan from the Nigerien government was budgeted at $280m; however, it became clear that it included a $200m shortfall. Additionally, the UN Food Programme has slashed food rations by 50% since January 2022 in response to the increasing global scarcity of food. So many children are now entering clinics with malnutrition that clinics across the country no longer have the resources to treat them, with many families not even being able to travel to clinics, being forced to watch their children die at home. 

The Silent Pandemic of Climate Change

The Ukraine war is one reason for the rise in hunger, but another is climate change. Thousands of farmers in Niger are facing the oncoming storm of what has been called the “silent pandemic”. Niger is especially vulnerable to global warming, with temperatures rising there at a rate 1.5 times faster than the rest of the world. Nigerien farmers are being forced to adapt to their new environment as rainfall both becomes more scarce and increasingly erratic, leading to a cycle of droughts that are progressively eroding the 14% of the country’s land that is arable. As a result, the nation has not had a good harvest for around a decade, with 2021 seeing a 39% drop in cereal production. 

Not only can we expect further drops in quantity production but also in quality. Changing conditions in which many grains are grown also have an impact on the quality of that supply and the nutritional benefit of the final product crop. For instance, high levels of atmospheric CO2 lead to a reduction in protein percentage. This, combined with high temperatures limiting the supply of glutenin protein polymers, is likely to have a negative effect on the ability of grain to be turned into dough and thus baked into processed food products such as bread. Additionally, heat stress over 30oC (with temperatures in Niger often reaching 40oC) reduces the rate at which starch accumulates, leading to grains grown in hotter environments containing fewer calories than those grown in more temperate conditions. With the world heating up, the problem of reduced calorie content in grain suggests obvious problems whereby no costs are reduced in production but the final product becomes progressively of less nutritional worth as the planet’s temperature rises.

These factors combine to create what is known as the “lean season”, the period between harvests of about four months. The lean season begins earlier every year, leading many to abandon their villages and settlements in the knowledge that to remain is to ensure starvation, and the only chance they have of survival resides in fleeing either to the cities or relatively aimlessly through the rural areas.

The World’s Fastest Population Growth and the Traitor Narrative

President Bazoum had attempted to make reducing family size a core tenet of his policy programme, with Niger having the world’s highest birth rate. Niger’s population is on track to triple by 2050, from 24 million to 68 million people. For many, this seems to allow Niger to share in the benefits of other populous nations such as China, India, and Nigeria in gaining political clout with the population. However, there are many warnings being made on the link between a high birth rate and rampant poverty.

The attitude most prevalent in Niger, however, is that there is much land but not enough people to fill it. In fact, Garé Amadou, editor in chief of the La Nation newspaper, states that many in the country believe the concerns over population growth are “just something that worries western countries” and that a large proportion of Nigeriens believe that there is a clandestine foreign agenda to contain Africa’s burgeoning population.

Bazoum's public pronouncement of his negative feelings towards rapid population growth has been an act of self-sabotage, especially in combination with specific policy measures. Many in Niger are not comfortable with a president, who has banned his ministers from polygamous marriage and declared the practise “a bad thing” in a country where a third of the population lives in such a marriage. Bazoum has also publicly advocated for the establishment of all girls boarding schools, where children would be educated away from their families by the state. Both of these measures are rooted in the noble goal of keeping women and girls in education for as long as possible. However, many commentators, both within and without Nigerien society, find it hard to comprehend how its president can believe that these measures would ever be popular. 

In fact, these public pronouncements have been read by many within the country as rejections of Nigerien culture and the prescriptions of the Koran. This has created a common view that Bazoum is what in the west would be referred to as “virtue signalling” or “making a contribution to moral discourse that aims to convince others that one is ‘morally respectable”. In this case, the Nigerien population views the “others” that Bazoum is trying to convince of his moral respectability as western observers and authorities. This has contributed to the image of the President as being too pro-western, anti-tradition, and a puppet of the French and American governments.

However, almost all involved in the subject, both nationally and internationally, agree that an average of below three children per woman, is a necessary precondition for rapid economic development. Additionally, the Koran does not advocate for the maximum number of wives and children, but for men to have many children and more than one wife as long as they can be provided for, something that Niger’s economy is not capable of doing so healthily. Additionally, many religious leaders in the country are showing the way on increasing the use of contraception to prevent couples from having children they are unable to afford. 

There has also been a significant cultural transition in maternity wards, with wives now giving birth in the company of their husbands, something quite rare until relatively recently. Furthermore, pregnant women are receiving more attention and care from their partners during pregnancy. However, the director of Issaka Gazoby maternity hospital in the capital Niamey, Mady Nayama, states that “population growth in Africa is frightening” and that the lack of resources available in the country to sustain such a fast growing population leads to intense poverty with “poverty that turns these children into vagabonds.” Niger’s birth rate is still the highest in the world but has been slowly declining for around 20 years. However, Nayama claims that many are still resistant to change and that “our religion tells us that, if God gives a child, he will feed it. But that’s not happening.”

If Bazoum had communicated the link between lowering the birth rate and increasing economic growth to the population, in addition to leaning into the efforts of religious leaders and medical professionals to increase the use of contraception, he may have been aided in steering the political ship away from the erroneous course of mistrust in the nation’s political institutions and making his own voice the herald of unpopular cultural change.

The End of Nigerian Fuel Subsidies and the Collapse of the Black Market

Most coups and coup attempts in Niger come about to secure the revenues of uranium and/or oil exports from the country. Although, it is not yet certain that this is the case here. The motivations of the coup artists remain elusive, with only their public statements to rely on, the candour of which cannot yet be evaluated. What seems more likely is that the very presence of oil and gold in the country has contributed to political instability, in addition to oil price shocks as a result of policy decisions made in neighbouring countries.

Nigeria’s President Bola Tinubu announced during his inauguration speech in May that the Nigerian “fuel subsidy is gone!”, with measures already taking effect in the country. The price of Premium Motor Spirit (PMS) rose rapidly to somewhere between NGN 488 per litre in the capital and NGN 555 per litre in Borno State. 

Niger has also been affected. The major population centres of the south have become dependent on cheap, smuggled, Nigerian-subsidised petrol. Usually arriving at illegal fuel warehouses and being sold on the black market via touts waving petrol canisters by the roadside. The sudden end of subsidies has led to shortages in Niger’s most populated areas and sharp price rises. Previously, a litre of petrol could be bought for around 250 francs (around 45 cents US), but this has risen to around 600 Francs, more expensive than even at regular petrol stations. The rush on those petrol stations is especially severe in the south but is occurring all over the country. According to officials at the nation’s oil ministry, the price of petrol at regular stations has increased tenfold as demand at the pump increases. Consequently, transport costs have increased exponentially. For instance, at markets in the south, the price of a 100 kg sack of maize has risen by 4,000 Francs to 28,000, worsening an already precarious situation around the country’s food supply.

SONIDEP, the Nigerien Company for Oil Products, is coping with the sudden shortfall with reserves from the country’s only oil refinery. However, those reserves will not last forever, and eventually a decision will have to be made on whether to purchase fuel from overseas or begin to operate its sole refinery at maximum output.

The black market also functioned as a primary source of employment for many young men in the south of the country. It is now feared that many of this working-age population will be forced to turn to crime, or worse, to put increasingly expensive food on the table.

Conclusion

This political risk report highlights several key factors contributing to the instability in Niger. The recent ousting of President Bazoum by the presidential guard, leading to the suspension of political institutions, underscores the country's historical vulnerability to coups and power struggles. The precarious security situation, marked by increasing violence from militant Islamist groups in the Sahel and Lake Chad Basin, poses a significant challenge to the nation's stability. Additionally, growing Russian influence left Niger isolated as a bastion of unpopular former colonisers.

Niger's vulnerability to external factors is evident in its food supply situation. Reliance on food imports, particularly rice, coupled with the disruption caused by the Ukraine war and global fertiliser supply issues, exacerbates food insecurity and malnutrition in the country. Climate change is also a critical factor affecting agricultural productivity, contributing to the "silent pandemic" of climate change.

The trajectory of Niger's population growth is a matter of concern, with an anticipated tripling of the population by 2050. The government's attempts to address this issue, such as advocating for smaller family sizes and promoting girls' education, have been met with resistance, leading to perceptions of the president being out of touch with the country's cultural norms and influenced by Western interests.

Furthermore, the recent end of fuel subsidies in Nigeria has had adverse effects on Niger, leading to shortages and price hikes in the country, exacerbating the already challenging economic situation.

Niger faces a complex web of political, security, economic, and social challenges that require careful and strategic management to foster stability and address the underlying causes of instability. Only time will tell if this comes to pass.

The Central European Grain Import Ban Extension: The Stakes and Market Response

Background

Earlier this year, Poland, Bulgaria, Hungary, and Slovakia, sought unilateral grain import bans from Ukraine, citing the threats that cheaper grain prices were hindering the business and livelihoods of their domestic farmers and agricultural producers. These measures raised concerns from other EU member states, who saw these actions as abandoning a war-torn Ukraine in its hour of need. In April, however, Poland and the other EU member states agreed to lift the ban on Ukrainian imports after a deal was reached by the European Commission to “impose temporary curbs” on Ukrainian grain imports. The measures also covered Romania, who shared the same concerns as the other member states, but never took unilateral action. The measures included curbs on wheat, maize, oilseed, and sunflower, while the commission would investigate whether to extend the curbs to other commodities such as eggs and meat. All 5 countries would also receive 100m Euros from the EU to compensate farmers.

Pressure of Extension

On July 19, Poland, along with Bulgaria, Hungary, Slovakia, and Romania, asked the EU to “extend trade curbs on Ukrainian grain amid concerns that Russia’s blockage of Black Sea shipments could put further pressure on their domestic markets.” Poland has been one of the strongest western supporters for Ukraine in its war against Russia, leading calls for solidarity as well as backing the removal of tariffs on Ukrainian foods. However, Poland is facing a highly contested election later this year, where the current right-wing government will depend on the support of farmers, a “cornerstone of its electorate”. There is likely to be strong resistance against an extension among EU member states, as many of these countries have been hit hard from sanctions on Russia and will see this as Poland and the others looking for special treatment. Diplomats from the EU have expressed their dissatisfaction with the extension, while Polish Prime Minister, Mateusz Morawiecki, has warned Brussels that the 5 countries will extend the band themselves if the EU does not comply, stating “we will be tough, determined and we will certainty defend the Polish farmers.” Last week, Russia ended its Black Sea grain deal. This places more pressure on Ukraine to identify other ways to export their grain. Western leaders have expressed that the end of the deal could exacerbate food insecurity in the global south.

What’s at Stake? 

Regarding whether or not the extension will be approved, there are three important points at stake: The upcoming Fall elections in Poland and Slovakia, denunciation from Ukraine and other EU member countries, and the livelihood of farmers in the Central European region. The import bans, along with Russia’s exit from the Black Sea Deal, have put the livelihoods of Ukrainian farmers in jeopardy. As one farmer stated, “We have some reserves so we can survive for a month or so, but if we can’t sell it’s going to be a disaster.” After 17 months of conflict in Ukraine, which has resulted in economic hardship for the country, farmers would feel the brunt of the extension. On the other hand, an end to the extension would cause negative repercussions to the farmers of the 5 countries who continue to push for the extension of the ban. Poland and Slovakia are scheduled to hold parliamentary elections later this year, with both ruling parties of each country greatly needing the support of their rural farmers. Poland’s Law and Justice Party (PiS) is campaigning for a third consecutive term in power, and the party must secure the votes of Polish farmers if they want to secure a win in the parliamentary elections. A failure to extend a ban on grains from Ukraine could cost the PiS the votes needed to secure their desired win. Other EU member states have become increasingly angry at the 5 countries looking to extend the import ban. German agricultural minister, Cem Özdemir, was angered that the 5 countries wanted to extend the import bans, despite getting €100 million in EU money to compensate their domestic farmers, stating “It’s not acceptable that states receive funds from Brussels as a form of mitigation, and then still close their borders''. Ukrainian President, Volodymyr Zelenskyy commented that "Any extension of the restrictions is absolutely unacceptable and outright non-European. Europe has the institutional capacity to act more rationally than to close a border for a particular product.” At a crucial time for European leaders to continue their unified support for Ukraine, there is little room for division and disagreements, an eventuality that would play into Moscow’s hand. 

Current and Likely Market Response

Before the import ban, it was a difficult task for Ukraine to export grain to traditional markets, in Africa and elsewhere, because of the high cost of transportation. As a result, much of the grain from Ukraine has remained in bordering countries, which initially fueled the anger from the 5 EU countries. On top of that, the initial extension of the Black Sea grain deal by Russia and Turkey reduced the demand for land routes that were set up by the EU for transporting grain. Recently, prices have increased because of Russia’s exit from the Black Sea Grain Initiative and from Russian attacks on Ukrainian shipping facilities. As a result, wheat prices soared to a five-month high, and a 2.6% increase in wheat futures trading in Chicago. In recent months, Ukrainian exports of maize, wheat, and barley to the EU have decreased because of the ban.

Source: Euronews

Though global grain supplies and markets have been sufficient, owing to plentiful harvests in Brazil and Australia, the grain export shortages from Ukraine are likely to create volatility in the price of grain. With few options for exporters, agricultural analyst Michael Magdovitz, says that Ukrainian farmers are likely to place some of their harvest into storage. This will decrease their ability to prepare for next year’s harvest, limiting Ukrainian grain production. Analysts also predict that Russia’s withdrawal from the grain deal could benefit the Russian economy, as a major grain exporter, as it is expected to hit a record high harvest this year. This allows Russia to provide free grain to African countries, who were formerly relying on grain exports from Ukraine. 

In 2014, a study authored by Fellman, Helaine and Nekhay, titled Harvest failures, temporary export restrictions and global food security: the example of limited grain exports from Russia, Ukraine and Kazakhstan, revealed that for countries like Ukraine, who export large amounts of grain, “the introduction of export restrictions could potentially result in decreases of domestic consumer prices to a level even below a situation with normal weather conditions.” The same study also discussed the 2008 export restrictions which resulted in Ukrainian wheat prices decreasing to 30% “below the world market price” and showed signs of “slower growth rate of domestic feed and milling wheat prices in the first half of the marketing year 2010/2011.” Though it might be difficult to compare previous export restrictions to the current import ban on Ukrainian grains, an extension of the ban would clearly spell long term trouble for Ukrainian grain farmers.

Zama Zamas or Artisanal Miners? How cheap labour and abandoned gold mines have created a rift between neighbours

Background

South Africa’s rich mineral wealth once brought European invaders to its shores, yet today as the state struggles to keep the lights on, illicit mining has become endemic in the country. Abandoned mines are still full of gold and have been taken over by illegal miners backed by influential business leaders both national and international. These miners (primarily working in Free State Province) are known as Zama Zamas, a Zulu term that loosely translates to "someone who is trying" or “a hustler”. They operate in a criminal underworld that is often violent, dangerous and exploitative. They are often heavily armed and primarily come from South Africa and neighbouring countries such as Lesotho and Zimbabwe. The high unemployment rate in South Africa (currently at 32.9%) leads many to search for any work available legal or otherwise. Youth unemployment stands even higher at 46.5%, with younger workers more attracted to the physically demanding work of the mines.

South Africa holds over 50% of the world’s gold reserves and gold mining makes up around 7% of South Africa’s GDP. There are approximately 6000 abandoned mines in South Africa (remnants from the collapse of the legally recognised mining sector post the gold price crash in 1989). Thus, illegal mining in South Africa is not a new problem and many Zama Zamas were at one point legally recognised miners left without work after the collapse of the legally recognised sector, but reports of Zama Zamas raiding and sexually assaulting members of South African settlements has led to riots in Johannesburg and the burning of the homes of suspected Zama Zamas. But much of the political reaction in South Africa and neighbouring Lesotho, however, has not been in economic terms but social and criminal ones.  In fact, National Police Commissioner, Lieutenant General Fannie Masemola’s description of the conditions by which the police can measure success is in the satisfaction of the community as opposed to the actual prevention of illegal mining. 

Effect on Lesotho Relations

Relations between South Africa and Lesotho have become strained as a result of the Zama Zama problem. Most recently, 31 people were killed by a methane blast at a gold mine that was officially designated as disused, with the South African authorities claiming the victims to be Zama Zamas from Lesotho. Lesotho has provided cheap labour to South African mines for nearly 130 years, but the rising tensions over foreign Zama Zamas in the country has led to new political tensions. The 31 dead from the largest catastrophe at a mine in recent years are not valued enough to have major efforts undertaken to retrieve their bodies, with their illicit status and foreign origin both reasons for the government to prefer to not waste resources on a treacherous and possibly methane filled mine. Many Lesotho nationals both in and out of the small mountain kingdom have lost relatives to mine accidents in South Africa and many have not been able to retrieve the bodies of their relatives. Many of these miners were the breadwinners of their families and the loss of their income leaves families in Lesotho without income or support. When asked by the BBC’s Africa Daily podcast, one Zama Zama from Lesotho said he entered mining as a profession because “hunger drives us to do such things”. The Government of Lesotho has recognised the intense poverty of the country leading to many seeking illegal work in neighbouring South Africa. Around 50% of Lesotho’s population lives in poverty, with unemployment sitting at 18.04% as of 2022.

The South African government has claimed that if the bodies buried in abandoned mines are from Lesotho, then the retrieval of their bodies cannot be South Africa’s responsibility alone. Gwede Mantashe, South Africa’s minister of Mineral Resources and Energy, told a press conference that “If all those bodies are from Lesotho, it means that there is a responsibility… that the Lesotho Government has. So it can not just come to us on the basis of ‘there are bodies underground please take them out.’” He went on to say, “many of them come heavily armed and therefore both governments must have a cooperation in dealing with that crisis as two governments.”

Criminals or Wealth Creators?

However, claims of Zama Zamas being especially violent should be taken with a grain of salt, as Professor Robert Thornton, at the University of Witwatersrand, advocates for use of the term “artisanal miners” to emphasise the entrepreneurial nature of immigrant miners who create vast numbers of jobs and contribute much to the South African local economies. The “non-standard” mining skills of Zama Zamas allows for the exploitation of gold resources major industrialised mines cannot access and directly interact with global gold markets. With better legislation, government support, and improved training they could become part of the social and economic fabric of the country. He claims that most miners are not “stealing gold” but extracting gold that is unreachable by the industrialised mines, additionally he claims that many Zama Zamas originate from South Africa itself and come from many backgrounds, i.e. not just the poorest of the poor. 

South Africa Vs Lesotho, or South African Ethnic Conflict?

David Van Wyk, Chief Researcher of the Bench Marks Foundation (an organisation specialising in the monitoring of multinational corporations in South Africa and the wider region of Southern Africa), claims that in many ways the conflict between Lesotho and South Africa can be alternatively understood as a tribal conflict within South Africa. Many in the Free State, the province most associated with gold mining, speak the same language as those from Lesotho (Sotho) and share a tribal identity as a result. Any Sotho speaker can become a victim of the situation. The colonial history of South Africa contains many land grabs by South African colonial authorities of traditional Lesotho lands leading to the creation of the Free State. Van Wyk thinks it an awkward possibility that Lesotho could quite simply turn around and begin to make land claims of the South African government if tensions continue to rise.

Van Wyk points to the South African government’s tendency to depend on policing on issues such as these, as opposed to regulation and legislation, is leading the situation becoming more and more out of control akin to the current situation in Katanga Province DRC. He suggests “that they be organised into co-operatives and that the co-operatives get registered with the industry and Department of Mineral Resources. We suggested that there be a central buying agency of the gold from the syndicates that are now the main beneficiaries while the hardworking people die in poverty. We speak to the Zama Zamas on a daily basis and they are desperate, they want to be regulated and legislated for.”

Conclusion

The current situation demands cooperation and collaboration between the governments of South Africa and Lesotho. Rather than viewing the issue solely through a lens of blame and responsibility, both governments should work together to find sustainable solutions. By addressing the root causes of poverty and unemployment and providing legitimate opportunities for economic growth, it is possible to transform the Zama Zama issue from a source of conflict into a catalyst for positive change in the region.

Addressing the Zama Zama problem requires a multi-faceted approach, involving comprehensive legislation, cooperation between governments, and a focus on economic development. By acknowledging the potential of these artisanal miners and providing them with opportunities for legal and regulated work, South Africa can harness its mineral wealth to benefit its people and foster stronger relationships with its neighbours.

EU Rejects US Offer: Unravelling the Steel Tariff Dispute

Background

The US-EU trade dispute over steel and aluminium tariffs has been ongoing for several years, and there is no clear resolution in sight. The dispute began in 2018 when then-US President Donald Trump imposed tariffs on steel and aluminium imports from the EU, citing national security concerns. The EU responded with retaliatory tariffs on US goods including bourbon whiskey, Harley-Davidson motorcycles, and motorboats.

The two sides reached an agreement in October 2021 to end the dispute over steel and aluminium tariffs. The deal was a significant breakthrough. However, there are still significant disagreements between the two sides on how to define "sustainable steel" and how to enforce emissions standards.

Source: Economist Intelligence Unit

The US has proposed allowing club members to set their own emissions standards for steel production. This would give countries with lower emissions standards an unfair advantage, as they would be able to produce steel more cheaply. The EU has rejected this proposal, arguing that it would undermine the integrity of the Global Arrangement on Sustainable Steel and Aluminium (GSA).

Developments

Now, the EU and the US are at an impasse in their negotiations to end the tariffs on steel and aluminium. The EU has rejected a proposed US solution, saying that it is not WTO-compliant and discriminates in favour of domestic producers.

The dispute is also multifaceted. The EU has said that the US proposal would allow countries to set their own emissions standards for steel production, which would give them an unfair advantage. The US has said that its proposal is WTO-compliant and that it is necessary to protect American jobs. The two sides have also been unable to agree on how to define "green steel." The EU wants to include steel produced with EAF and DRI technology, while the US wants to include only steel produced with zero-carbon emissions.

The dispute is fuelled by several factors. One is the lack of a CO2 allowance trading system in the United States. The EU has heavily invested in the carbon border adjustment mechanism (CBAM) to protect its domestic steel industry, which is one of the biggest CO2 emitters in the world. However, the US steel industry is a much cleaner producer by international standards and relies more heavily on Electric Arc Furnace (EAF) and Direct Reduced Iron (DRI) technology than the European Union.

Another factor is the EU's apparent lack of interest in reducing its own steel capacity. The US government has a greater interest in fighting overcapacity, but the EU is more concerned with protecting the jobs of its steelworkers. This is especially true in Germany, one of the world's largest steel producers.

Implications

The outcome of the negotiations between the EU and the US on steel and aluminium tariffs will have a significant impact on the global steel market. The tariffs are 25% on steel and 10% on aluminium from Europe, while EU measures target products such as bourbon whiskey and Harley-Davidson motorcycles. If the two sides reach a deal, it could help to reduce tensions and prevent a trade war. However, if they cannot come to an agreement, the tariffs will go back into effect in October, which could disrupt the global steel market and lead to higher prices for consumers. The dispute is also a test of the strength of the WTO. If the two sides cannot reach a deal, it will be a blow to the WTO and could make it more challenging to resolve future trade disputes

However, the chances of an agreement are slim. The US is demanding that the EU reduce its steel capacity, while the EU is refusing to do so. The US is also concerned about the EU's carbon border adjustment mechanism (CBAM), which could give European steelmakers an unfair advantage. The US presidential elections in 2024 are also likely to make an agreement even more difficult. The current US administration is willing to make concessions to reach a deal, but the next administration may not be as willing. This means that the two sides may be unable to reach a deal before the tariffs go back into effect in October.

On July 20, the EU's trade commissioner reiterated his position that the US cannot resolve its steel dispute with Europe through a deal that discriminates against other countries. This underscores the challenge of finding a compromise to end the standoff. Ultimately, the outcome of the negotiations between the EU and the US on steel and aluminium tariffs is uncertain. If the two sides cannot reach a deal, it could have a significant impact on the global steel market and lead to higher prices for consumers.

India’s Rice Export Ban: ​​International Responsibility and the Climate Crisis

On the 20th of July 2023, the Government of India took a significant step to address its domestic food security concerns by imposing a prohibition on the export of non-Basmati white rice, including both semi and wholly-milled varieties. This assertive play comes amidst a pressing need to ensure an adequate food supply within the nation.

Source: Statista

A press release from the Ministry of Consumer Affairs states that it was implemented to “ensure adequate availability” and “allay the rise in prices in the domestic market.” The late arrival of monsoon rains forecasted a potential shortage. Since then, however, there have been heavy showers leading to extreme flooding in key rice-growing areas in North India,  ultimately destroying crop output. This has translated to a 14-15% domestic price rise of rice in the month of March itself. Furthermore, its stock-to-use ratio (a standardised ratio that measures stocks and gives insight into food security) will drop to its lowest point in 5 years. Combined with the high price of tomatoes (increased 340% year-to-date), the harsh reality of food insecurity has started to set in. The export ban is supposedly a strategic endeavour to showcase the current Prime Minister, Mr Modi’s prioritisation of food security before the upcoming union elections in 2024.  This move can be woven into the rise of resource nationalism, examined more closely by Danial Ahmed in a previous report, where he points towards the possible movement to soft commodities. In this context, Reuters has reported that contracts worth an estimated $1 billion could be at risk, indicating the certainty of this shift.

Source: The Hindu

With the already fragile global food market struggling through the repercussions of the ongoing crisis in Ukraine, analysts are concerned about the anticipated impact of this ban. India is the largest rice exporter globally, accounting for a staggering 40% of the rice trade with exports totalling 22.2 million tons. The country’s rice exports also surpass the combined total of the next four largest rice-exporting nations, which will not be able to meet the supply deficit from this ban, exacerbating the existing global food shortage crisis and putting additional pressure on food prices worldwide.

While the ongoing conflict in Ukraine disrupts agricultural production and exports, recently seen with Russia backing out of the UN brokered Black Seas grain deal, the sudden spike in basmati rice demand adds another layer of complexity to the global food insecurity puzzle. Furthermore, China, the largest rice producer in the world, but also the biggest grain importer, has had an abysmal monsoon with its soil moisture levels of the rice growing regions at a very low level, which will lead them to demand more rice for import due to a domestic shortage. This is due to the El Nino Phenomenon, which describes unusually warm waters in the Pacific Ocean impacting wind movement and therefore rainfall and will have more significant effects in the coming months.  The amalgamation of geopolitical tensions and climate-induced agricultural crises poses a grave threat to food availability and affordability worldwide. 

India’s rice ban also unequally targets the most vulnerable with top importers of Indian non-basmati rice including Benin, Bangladesh, Angola, Cameroon, Djibouti, Guinea, Ivory Coast, Kenya, and Nepal: all developing nations with poor historical food security trends. Considering historical evidence of India’s ban on wheat export and the wording of the notification, it might still continue to allow the sale of non-basmati rice to its neighbours. In this case, the market impact may be limited. However, considering the current government’s hardline posture, a hard ban with large implications for dependent countries is a possibility.

Source: The Hindu

That said, developed countries do not have it easy either; the large Indian diaspora (close to 18 million people) is allegedly panic buying Basmati rice as well, further deepening disparities in the global food shortage. In the United States especially, posts on Twitter(X) have shown large crowds and empty rice shelves, with some stores implementing a ‘Only 1 rice bag per family’ policy. This has exponentially increased Basmati rice prices in the US with a 9kg bag of rice selling at $27. The community fears a potential ban on Basmati Rice as well. 

However, Asian Rice Exporting Nations have been able to profit from this supply deficit; Thailand and Vietnam have both experienced a 5% rise in price since the ban. The price of Vietnam’s rice has surpassed its highest level since 2011 and Thailand’s is at a 2-year high. 

In conclusion, India's decision to impose a ban on the export of non-Basmati white rice marks a significant move with far-reaching implications. Driven by the urgency to secure its domestic food security needs, the government's action reflects its commitment to prioritising the well-being of its citizens amidst the challenges posed by climate-induced crises. It truly shows how in today’s world, all politics are climate politics