The Global Economy 666

The Global Economy: THE WORLD IN 2022
Commodities Crisis
The Global Economy: Commodities Crisis
Contents
Introduction................................................................................................................... 3
Rising Food Prices Will Shake the Middle East and North Africa........................................ 5
How the Ukrainian Battlefield Redefines the World...........................................................14
America’s Broken Supply Chains.....................................................................................18
Russia and the First Economic World War.......................................................................20
China Struggles to Balance Zero-COVID and the Economy...............................................26
Can Africa Replace Russian Energy in Europe?................................................................33
Indonesian Exports and Palm Oil Prices..........................................................................40
China’s Role in Sri Lanka’s Economic Crisis.....................................................................42
India Powers Down........................................................................................................49
Arab Food Insecurity and Political Failure.......................................................................51
The Global Economy Rebounds, Stumbles Again.............................................................59
Diesel Supplies and Food...............................................................................................61
Exerting Economic Influence in Latin America.................................................................70
Economies and War.......................................................................................................72
Checking in on the Global Economy................................................................................76
www.geopoliticalfutures.com 2 © 2022 Geopolitical Futures

Two wars are being waged that are dramatically affecting the geopolitical system:
Russia’s invasion of Ukraine, and the U.S.-led economic response to it. In some
ways, the latter will be the more consequential.
The global economy was in a precarious place before the invasion, thanks to the
COVID-19 pandemic. The sanctions against Russia, including the removal of many
Russian hydrocarbons from the global market, and the blocking of traditional trade
routes severely disrupted economic recovery.
Accordingly, there will be – and indeed there already have been – social crises that
will become political crises throughout the world. This will, in turn, necessitate a
worldwide economic restructuring that includes quotas on traded goods, diver-
sification of trade partners, and near-shoring projects and initiatives to increase
self-sufficiency through increased domestic production.
New structures create new definitions of what it means to be vulnerable and se-
cure, and thus creates new sources of conflict. At the heart of all this is economic
warfare.
Enclosed is a compendium of analyses that chronicles our coverage of it. It will

provide an overview of the many dimensions and factors in play in this incredibly
complex battlefield.
Allison Fedirka
Director of Analysis

Analysts contributing to this special report
George Friedman is the founder and chairman of Geopolitical Futures and au-
thor of such best-selling books as The Next 100 Years, Flashpoints: The Emerg-
ing Crisis in Europe, and The Next Decade. His most recent book is The Storm
Before the Calm: America’s Discord, the Coming Crisis of 2020s, and the Triumph
Beyond.
Antonia Colibasanu is Geopolitical Futures’ COO and a senior analyst. She is

the author of Contemporary Geopolitics and Geoeconomics 2.0 - A Method for
Analyzing Global Trends and Contemporary Geopolitics and Geoeconomics. She
is also a lecturer at the Romanian National University of Political Studies and
Public Administration and associate professor for the Carol I National Defense
University in Bucharest, Romania.
Allison Fedirka is the director of analysis at Geopolitical Futures. Ms. Fedirka

has a bachelor’s degree in Spanish and international studies from Washington
University in St. Louis and a master’s degree in international relations and affairs
from the University of Belgrano, Argentina. She is fluent in Spanish and Portu-
guese.
Viktória Herczegh is an analyst at Geopolitical Futures. She is also a Ph.D. can-

didate at the Political Science and International Relations Doctoral School of
Corvinus University of Budapest, Hungary. Ms. Herczegh is a native Hungarian
fluent in English, Spanish, French and Mandarin.
Hilal Khashan is a Senior Analyst at Geopolitical Futures and a Professor of po-

litical science at the American University of Beirut. He is a respected author and
analyst of Middle Eastern affairs and author of six books, including Hizbullah: A
Mission to Nowhere. (Lanham, MD: Lexington Books, 2019.)
Ekaterina Zolotova is an analyst for Geopolitical Futures. Ms. Zolotova has a

specialist degree in international economic relations from Plekhanov Russian
University of Economics. In addition, Ms. Zolotova studied international trade
and international integration processes. She speaks native Russian and is fluent
in English.

Rising Food Prices Will Shake the Middle East

and North Africa
By Allison Fedirka
March 10, 2022
Russia’s invasion of Ukraine came at a time when

global agriculture and food supply chains were
already fragile.

Rising Food Prices Will Shake the Middle East and North Africa
The war in Ukraine is exacerbating pre- U.S. Department of Agriculture’s 2021-

existing problems with global grain sup- 22 global outlook for critical goods like
plies and prices. Although higher prices wheat, corn and select oilseeds project-
will be felt by all, North African and Mid- ed lower supply, higher demand and re-
dle Eastern countries along the Mediter- duced stocks at the end of the year.
ranean will be more directly and severely
affected. Sudden spikes in food prices Higher fertilizer prices since the second
are directly linked to increased social half of last year were also starting to
unrest and conflict. Further, instability in bite. Russia’s decision at the end of the
this region could put fertilizer supplies year to prohibit the export of nitrogen
at risk, which would put only more up- fertilizer until April made things worse,
ward pressure on food prices. as did China’s move to ban exports of
phosphate fertilizer until at least June.
Terrible Timing The high cost and scarcity of fertilizers
at the end of 2021 led many farmers, in-
Russia’s invasion of Ukraine came at cluding those in Ukraine, to plant fewer
a time when global agriculture and hectares for the coming season than
food supply chains were already frag- they had planned. It also affected deci-
ile. A drought in 2021 across the U.S. sions about which crops to grow – for
and Canada, two of the world’s largest example, farmers were averse to plant-
producers and exporters of wheat and ing fertilizer-intensive crops such as
other grains, reduced crop yields. Dryer corn.
weather also hurt major agricultural ex-
porters in the Southern Hemisphere, re- The effects of the pandemic on energy
ducing the volume of some grains, such and logistics cannot be overlooked ei-
as corn, on the market. Smaller produc- ther. Restarting economies in 2021 gen-
ers like Syria and Iraq also suffered from erated higher industrial activity, which
droughts, reducing their output and in- pushed up energy prices. This, in turn,
creasing import demand. And Russia, pushed up the cost of shipping goods.
the world’s largest wheat exporter, cut Additionally, prolonged logistical bot-
its export quota for 2022 to secure do- tlenecks increased input prices of fi-
mestic supply. Even before the war, the nal products, including food. Although

agriculture and food processing labor serting enormous levels of market un-
shortages were much improved in 2021 certainty. Together, Russia and Ukraine
compared with 2020, there were still account for 28.5 percent of global wheat
production interruptions and calls for exports, 18.7 percent of corn exports,
higher wages. Simply put, there have 29.6 percent of barley exports and 78.3
been far more factors pushing up food percent of sunflower oil exports – sta-
prices than the reverse. ples in the human diet and animal feed.
Market Uncertainty From the first days of the war, Black

Sea ports have been closed while Rus-
The Ukraine conflict contributes to these sian warships patrol the area. Then on
price pressures by knocking two major March 9, Ukraine’s Cabinet passed a res-
producers of grains, oilseeds and other olution banning the export of rye, barley,
commodities out of the market and in- buckwheat, millet, sugar, salt and meat

for the rest of the year. Even before that or Ukraine. Mediterranean countries in
decision, large shares of Ukraine’s 2021 North Africa and the Middle East are first
agricultural production were still await- in the line of fire. Egypt and Turkey have
ing transport: approximately 30 percent suffered the most to date. Turkey relies
of its wheat, 45 percent of its corn and on imports for 40 percent of its wheat
a quarter of its barley and sunflower oil. and 33 percent of its corn. Russia and
Now, those goods will not make it to the Ukraine combined provide Turkey with
market in 2022. 75 percent of its wheat imports and 50
percent of its corn imports (as well as
Russia is encountering problems of its 51 percent of its sunflower oil imports).
own. Though Russian ports and shipping Similarly, Egypt depends on imports for
lanes are open, Western sanctions have approximately 60 percent of its wheat
spooked potential buyers, shippers, in- and corn consumption, and it gets 86
surers and so on. Finding enough ship- percent of its wheat imports and 40 per-
ping containers, shipping companies, cent of its corn imports from Russia and
ports for entry and buyers of any Rus- Ukraine combined.
sian goods has become increasingly dif-
ficult – even more so for the commodityTurkey was already battling severe in-
trade, which is overwhelmingly conduct-flation, and demonstrations related to
ed in U.S. dollars. Speculation about fu-
the price of basic food goods have oc-
ture sanctions targeting container ships
curred. The country’s Agriculture and
would further jeopardize grain exports.Forestry Ministry assured the public that
This leaves grain and oilseed importersgrain supplies are secure through the
vulnerable. next harvest, but even if that is the case,
Ankara has proved unable to tame infla-
Affected Countries tion and stabilize the lira. In other words,
it has not found a way to shield the pub-
The countries most immediately affect- lic from higher food prices, particularly
ed are those that meet two conditions: those related to imports.
They are heavily dependent on imports
of grains and oilseeds, and they have Egypt has already canceled two orders
as their leading suppliers Russia and/ of wheat, citing overpricing in one case

and a lack of sellers in the other. The

Egyptian government heavily subsidizes In Morocco, severe drought increased
wheat products, and previous attempts Morocco’s dependence on imports, es-
to curb these subsidies triggered mass pecially of wheat and cooking oil, over
unrest. Cairo will face the same choice the past couple of years. Morocco has
again in the coming months. a relatively lower import dependence
for wheat of about 40 percent, but it re-
Instability in either of these countries lies on imports for nearly all of its corn.
would be alarming given their signifi- Ukraine and Russia provide Morocco
cance in regional affairs. And neighbor- with 20 percent of its wheat imports and
ing North African and Middle Eastern just under 10 percent of its corn. In late
countries are not faring much better: February, a group called the Moroccan

Social Front led nationwide demonstra- Under these circumstances, and with no
tions against rising food prices. sign of improvement in the short term,
mass unrest is nearly inevitable.
Tunisia relies on Russia and Ukraine for
about half its wheat imports and 60 per- Future Crops
cent of its corn imports. The Tunisian
government is now unable to pay for The conflict in Ukraine could also hurt
incoming wheat shipments because of the production of future grain crops
drastic price hikes. Widespread short- – though the extent to which it will de-
ages of grain products have been re- pends on how long the war lasts. The
ported. most obvious factor is the destruction of
productive farmlands on which the fight-
Lebanon gets approximately 45 percent ing is taking place. Military movements
of its cereal imports from Russia and across these areas will not only damage
Ukraine. In the past two years, imports existing crops but could interrupt the
have been even more critical for the planting for next season’s crops. Pesti-
country. The 2020 Beirut port explosion cide and fertilizer application to wheat
destroyed most of the country’s prima- is supposed to start in March, while till-
ry grain silos, and authorities have been ing resumes late March and early April.
working ever since to compensate for a The barley harvest runs from March to
predicted wheat shortage. April. Corn planting takes place in April
and early May. If fighting persists for
Syria also has a relatively lower depen- just a few more weeks, it risks disrupt-
dence on grain imports (approximately ing these production processes and
50 percent), but Russia and Ukraine fig- jeopardizing future crop production.
ure prominently in that supply. The two
countries provide 61 percent of Syria’s Fertilizers are also a major concern.
wheat imports, 42 percent of its barley The market for fertilizers – especially
imports and 20 percent of its corn im- nitrogen-based fertilizers – is already
ports. Syria has already started rationing outpricing certain crops for production.
wheat products. Russian sanctions didn’t affect fertil-
izer exports simply because they were

already off the market as of the end of 30 percent of potash fertilizer that is no
last year, and there was no guarantee longer available on world markets. And
even absent a war that Russia would re- while Russia continues to export gas
sume exports come May. to Europe, major cuts in Russian gas
supply to buyers like Germany, Poland,
New sanctions have, however, dealt a Lithuania, the Netherlands and Belgium,
major blow to fertilizers through Belar- which together account for 16 percent
us, which provided 17 percent of the of nitrogen fertilizer exports, will like-
world’s potash fertilizer exports. Adding wise threaten the market.
Russia to the mix brings that figure up to

Alternative Suppliers stopped selling their wheat over confu-

sion about pricing and uncertainty.
It’s extremely difficult to increase glob-
al supply when a major player is taken Fertilizer alternatives are trickier. Many
offline. Grain production, for example, of the countries at immediate risk of in-
depends on multi-month crop calendars stability over food supplies are the same
that cannot be rushed. (Governments ones that can cushion fertilizer markets.
around the world have strategic grain re- Egypt and Algeria, for example, supply
serves, but most of them are earmarked the world export market with 9 percent
for emergency domestic use.) Fertilizer of nitrogen fertilizers. Algeria is also a
production depends heavily on resource major producer of natural gas, a key in-
extraction and infrastructure develop- gredient for nitrogen fertilizer but one
ment; a country can’t produce raw mate- that requires necessary infrastructure.
rials it doesn’t have, and even if they do, Egypt and Morocco supply over 30 per-
it takes years to develop the facilities to cent of potassium fertilizer exports for
process and export them. the global market. Given the state of the
fertilizer market and supplies, stability
Even so, alternative supplies to grains, in these countries becomes increasing-
oilseeds and fertilizers do exist. For ly important. Any disruptions to their fer-
wheat, corn and other grains, the best tilizer export activity would hit fertilizer
candidates are the U.S., Canada, Austra- markets at a highly vulnerable time.
lia, Kazakhstan and Argentina. (Australia
had a particularly strong wheat crop to If there were any doubts over contin-
help compensate some supply losses.) ued high food prices, the war in Ukraine
And because prices are so high and sup- put those doubts to rest. How long the
plies so low, even smaller producers like spike will last depends entirely on how
Romania, France and India are becom- long the war lasts. So far, North African
ing more competitive. But just because and Middle Eastern countries along the
a country can export does not mean Mediterranean have borne the brunt. In
they will. Hungary has already banned turn, this creates the risk of instability
grain exports to ensure domestic sup- in a region where governments were al-
ply, while Argentine wheat farmers have ready on weak footing. For the rest of

the world, now’s a good time to consider

going gluten-free.

How the Ukrainian Battlefield

Redefines the World
By George Friedman
March 22, 2022

How the Ukrainian Battlefield Redefines the World
The war in Ukraine is a humanitarian So now Russia is looking for reinforce-

tragedy to be sure, but that’s not why it ments from Syria, Belarus, the Wagner
has commanded the world’s attention. Group, and so on. Even if Moscow finds
After all, there are humanitarian crises willing participants, it takes time to
taking place in Yemen, Syria and other transport troops, familiarize them with
countries as I write this. From a geopo- the battlefield, and insert them in the
litical perspective, the war is potential- combat structure. And even if Moscow
ly a watershed moment – that is, if Eu- succeeds in doing all these things, it still
ropean politico-military unity endures, portends a long and drawn-out conflict.
creating a new model of Europe and To many observers, the need to recruit
redefining the functioning of the global foreign troops indicates a failure of Rus-
system. A secondary issue is whether sian commanders, a weakness in train-
China’s view of the world will change too ing and motivating troops, and logistical
as it either seeks a new understanding problems.
with the United States or becomes more
estranged from it. If Russia wanted to create a sense in Eu-
rope that it could invade at will – some-
The Russians have fought a surprising- thing it likely would not have done, but
ly poor war so far in Ukraine, especially something that would have potentially
when you consider their goals: to secure caused Europe to find an accommo-
Ukraine as a buffer from the West, and to dation with Moscow or reconsider its
demonstrate Russian power as a force relationship with the U.S., just in case
to be reckoned with. So far, the war has – it has failed. For now at least, it has
done the opposite. In some cases this is brought the United States and Europe
surmountable: In Afghanistan, Iraq and closer than before. The continued com-
Vietnam, for example, the United States bat and the brutality that Russia now
failed to impose its will and was seen seems to think are required to defeat
by some as a power in decline. The dif- Ukraine only galvanize it more. It’s hard
ference is that those countries were not to think of an outcome for Russia, short
essential to American security. Ukraine of using weapons of mass destruction,
is vital to Russia’s. that leaves the West worried about Rus-
sia as a major threat.

And that’s not just because of Russia’s Aside from the military aspect, Russia
poor performance on the battlefield. benefitted from the possibility of finan-
Great power status is partly military cial support from China, or at least the
and partly economic. Russia’s gross impression to lenders that China was
domestic product in 2001 was $1.6 tril- backing the Russian economy. It was
lion, ranked 11th in the world just be- obvious that Russia’s ability to contrib-
hind South Korea. Since then, Russia ute significant force to a Chinese battle-
has limped along from volatile ener- field was limited, as was China’ willing-
gy prices, the 2008 financial crisis, the ness to adopt a weak Russian economy.
COVID-19 pandemic, and now crippling The alliance had the power of instilling
sanctions in response to its invasion. In fears in those whom they wanted to be
other words, it can no longer be thought afraid.
of as an economic power either. And
this changes our understanding of the The alliance is still rhetorically there,
world where Russia was considered a but the possibility of actual support is
great power, due to its military force, ac- not. Russia has already been damaged
cepting a weak economy. by economic actions from the United
States and its allies, and China, at this
Weeks before the war began, China economic juncture, cannot afford to be
sought an alliance with Russia because caught in the trap Russia is in. Any mil-
it needed friends in the face of the mas- itary support would run afoul of sanc-
sive U.S. alliance structure running from tions. Put simply, Russia is a liability for
Japan to India. As I have mentioned, China.
China has no significant allies, save Pa-
kistan. China knew it could not provide Beijing’s decision to announce its alli-
economic support to Russia – it has its ance with Russia, I suspect, was based
own problems to manage – but at the on knowledge of Russia’s invasion. This
very least, China needed some relief, made an alliance attractive to China
which it hoped to achieve by harnessing when it believed Russia was capable of
Russian military power to force the Unit- a quick and easy victory, one that would,
ed States and Europe to recalculate the in theory, force the West to reconsid-
threat that sanctions against it poses.

er their position on a China that could, wrong and thus that an invasion of Tai-
maybe, replicate the Russian strategy. wan is something to avoid for now.
Russia’s incompetence has forced Chi- If we think about the great powers of
na to do everything it can to recoup, and the world, we normally list the United
thus it needs to reconsider its relation- States, Europe and Russia. Russia will
ship with the U.S. It is in a severe eco- have a problem claiming something like
nomic downturn. Its alliance with Rus- that unless it does something startling-
sia hasn’t borne any fruit, nor is it likely ly effective. Europe is a great power if
to. The United States and Europe have it sticks together militarily and econom-
developed a model of economic warfare ically. It is doing that now, but as fear
that, if applied to China, would seem to of Russia dissipates, old tensions will
be extremely damaging. China’s short- emerge. China is still a great power, al-
term strategy, then, is to appear confi- beit one with an untested military and a
dent, maintaining its rhetorical support troubled economy. For now, the United
for Russia and criticizing the U.S., while States alone remains great economical-
it considers its next move. ly and militarily.
Notably, Taiwan isn’t the next move. Chi-

na has seen firsthand that wars can go

America’s Broken Supply Chains
Shipping backlogs, labor shortages and low

inventories are persistent issues.

America’s Broken Supply Chains
More than two years after the world first and furniture. This overwhelmed U.S.
learned of COVID-19, U.S. (and other) ports and strained the availability of
supply chains are still experiencing se- shipping containers, driving up freight
vere problems. Prolonged public health rates.
interventions, repeatedly loosened and
then tightened with each subsequent Shifting demand patterns also stretched
variant of the virus, disrupted the move- the labor market to its limits. Linger-
ment of finished goods and raw materi- ing fears about the virus, inflation and
als, seriously hampering manufacturing. heightened economic uncertainty, a
With production slowing significantly, bump in early retirements, disruptions
many experts expected demand would to family life, frustration and fatigue
also decline. Instead, demand for ser- among many in the hospitality sector,
vices shifted toward durable goods like and myriad other factors combined to
motor vehicles, recreational equipment slow the economic recovery.

Russia and the First Economic World War
By Antonia Colibasanu
April 11, 2022
The Kremlin has prepared for decades to confront

the West and its socio-economic model.

As momentous as Russia’s invasion of collapse and the economic crisis of the

Ukraine is, the most strategically import- 1990s, Vladimir Putin inherited a broken
ant event in recent weeks was the global country. Many Russians contemplated
economic war between Russia and the joining the European Union, hoping that
U.S. and its allies. Russia, however, has alignment with the West would bring a
been preparing to confront the West and better life.
challenge the Western socio-economic
model for a long time. The priority for the Russian establish-
ment was to stabilize and rebuild the
The Putin Era to the Pandemic country. Putin just wanted to survive
politically. Following the example of
Russia’s strategic interests in Ukraine past successful Russian leaders, he
are well-known. The geography and centralized power. Knowing he needed
history of Russia compel its leaders to stability and growth to slow the rate of
create and preserve a buffer between emigration and address Russia’s poor
Moscow and the major powers in West- demographics, he sought to make Eu-
ern Europe, and to ensure access to the rope economically dependent on Mos-
Black Sea. Ukraine is crucial to both cow. And looking back at history and
goals. But beyond Ukraine, the Kremlin the current power balance, he identified
perceives the eastward expansion of Germany as the lynchpin of his strategy
Western influence, including into Rus- of dependence.
sia, to be a modern invasion by stealth
that threatens the Russian regime. Russian ties to Germany were key to
establishing ties to the European Union
It is not Western organizations like more broadly, but this was only the
NATO and the European Union that chal- beginning of Russia’s strategy in Eu-
lenge the Kremlin, but the socio-eco- rope. Russia opened up its economy to
nomic model that enabled the West to Western investment, established links
win the Cold War and that enticed East- throughout the Continent and tried to
ern Europeans to want to join the West. understand the inner workings of EU bu-
When he became president of Russia in reaucracy. It established close business
2000, in the wake of the Soviet Union’s ties with Italy, France and later Hungary,

and built a political network that would European economic crisis of the 2010s
help expand its influence in Europe. For sent shivers through Moscow. Russia’s
Moscow, learning about European vul- economy remained fragile overall, and
nerabilities was just as important as the gap between urban and rural areas
building up its economy and growing remained dangerously high, potentially
Russia into a stable economic power. threatening Putin’s control.
The Kremlin also campaigned to join the At the same time, the West offered an at-
World Trade Organization to establish tractive model to rival Russia’s. It wasn’t
deeper relationships with the world’s so much the growing Western influence
biggest economic players. In the pro- in Russia’s buffer zone that bothered the
cess, it benefited from foreign invest- Kremlin, but the fact that ordinary Rus-
ments in Russia and learned how the sians might look at Eastern Europe and
global economy works, building partner- see a better model for political organiza-
ships with not just Western economies tion and economic growth.
but also other economic powers. The
only problem was that China, its major Then the pandemic hit. The Russian
ally against the West, was not seeing president apparently feared that the eco-
the accelerated growth it hoped for and nomic insecurity wrought by COVID-19
was still very much dependent on the could threaten his country’s economic
U.S. market, giving Beijing limited abili- security and stability. As the worst so-
ty to counter U.S. interests in the world cio-economic effects of the pandemic
and forcing Russia to keep its focus on faded, action against the West became
Europe. urgent. From the Kremlin’s point of view,
this was a unique moment. The U.S. has
Average Russians saw improvements been trying to reduce its presence in Eu-
in their standard of living under Putin. rope and instead focus on the Indo-Pa-
In major Russian cities, life was simi- cific and domestic problems. In other
lar to that in the West. However, when words, from the Kremlin, the trans-At-
it became a major player in the energy lantic alliance and the European Union
market, Russia also increased its ex- appear weak. Most important, Russia’s
posure to global economic cycles. The leaders believe they have gained suf-

ficient knowledge of the way the West relations with Moscow made the project
works and can fight it effectively. seem unnecessary, and it faded away.
Preparing for War It is no coincidence that after 2012, the

first full year that Nord Stream 1 was
Russia has been preparing to confront operational, Europe became much more
the West since at least the early 2000s. reluctant to adopt policies that could be
Besides stockpiling foreign reserves, seen as anti-Russian. There was simply
Moscow constructed trade blocs and no interest in Germany to carry them
deepened relations with projects like the out. It is also no coincidence that rela-
Eurasian Economic Union. In Europe, it tions between the U.S. and Germany
enticed Germany to become dependent have cooled down over that time. The
on Russian natural gas, which as is clear U.S. needed Germany to lead Europe, or
today made it extremely difficult for Eu- at least maintain neutrality, to prevent
rope to cut off Russian energy imports. Russia from expanding its influence in
Shifting from gas would require Europe Europe as the U.S. drew back. The fact
to build new infrastructure – a costly, that Russia joined the World Trade Orga-
time-consuming process. nization in 2012 gave it even more lever-
age in the world economy.
The close German-Russian partnership
also benefited the Kremlin’s Europe It is also worth noting that the Kremlin
strategy in other ways. To give a practi- used personal relationships to shore
cal example, the EU had plans to make up its influence. Former German Chan-
the Danube fully navigable through the cellor Gerhard Schroeder was tapped
establishment of additional canals, in- to lead Nord Stream 1. Nord Stream AG
creasing Central Europe’s connection also hired former Finnish Prime Minis-
with the Black Sea. This would have giv- ter Paavo Lipponen as a consultant to
en Europe more leverage against Russia speed up the permit process in Finland.
at the moment, when the war in Ukraine Former Italian Prime Minister Matteo
has forced the rerouting of commercial Renzi served on the board of Delimobil,
flows from the Black Sea to much more a Russian car-sharing service. Former
expensive land routes. Instead, positive Finnish Prime Minister Esko Aho was

on the board of Russia’s largest bank, Globally, Russia has maintained close
Sberbank. Former Austrian Chancellor relations with traditional enemies and
Christian Kern resigned from the board competitors of the West. Joining the
of Russia’s state-owned railway compa- WTO gave it a stronger position on the
ny in the early days of the war in Ukraine,global stage, which is used to advance
while another ex-chancellor, Wolfgang the influence and interests of emerg-
Schussel, remained on the board of ing global players, including the BRICS
Russia’s Lukoil. This is just a short list of
countries, which also include Brazil, In-
top politicians, all of whom had at least dia, China and South Africa. Though the
some influence over their country’s for- results were modest, Russia promoted
eign policy discussions. They have cer- the group as an alternative to the West
tainly been useful to Russian economic and continued to focus on building ties
growth and the advance of Russia’s eco- to China and India, establishing links
nomic strategy in Europe. that it hoped would withstand in a poten-
tial confrontation with the West, which
Working closely with Europeans for the we’re seeing play out today.
past two decades has enabled Russia to
learn what is important for the stability To counter the current sanctions, it has
of their countries. It has also helped the looked to China for help. The Eurasian
Kremlin better understand their political Economic Union gives it proxies for con-
agendas and support causes that work tinuing to do business with the world. At
to its advantage. For example, Russia the same time, Russia’s presence in the
enthusiastically supported many green Middle East and parts of Africa helps it
policies, like Germany’s decision to give keep the price of oil high – high enough
up nuclear power – which translated that it can keep paying its bills. Influ-
into greater reliance on Russian gas. ence in the Middle East and the Sahel,
And Russia has openly supported pop- two highly unstable but resource-rich
ulist parties throughout Europe and ef- areas, also gives Russia more leverage
fectively used information warfare, all in over the world economy.
an attempt to destabilize and ultimately
divide Europe. In building its network, Russia has tried
to focus on economics and enhancing

weaknesses in the global network. It The world is witnessing its first econom-
expanded its influence abroad, making ic world war of the modern era. The rules
sure the dependencies it was encour- are undefined, and the global economy
aging were strong enough to give it is complex, meaning collateral damage
leverage but loose enough to allow its is unavoidable and frequently unpredict-
withdrawal when necessary. Russian able. Slowly, we are becoming aware of
strategy certainly has its weaknesses, the repercussions the sanctions on Rus-
but Russia has options in countering the sia are having on the global economy.
West during the current global econom- Less clear are the instruments that Rus-
ic war. Supporting EU fragmentation sia can employ against the West. How
through its economic ties in Europe and this will change the world is a mystery.
using the knowledge of European pol- All we can do is look back at what Rus-
itics that it’s gained over the years are sia has prepared for – and guess what
likely the most important elements of could come next. This is only the begin-
its strategy. The moment European cit- ning.
izens feel the repercussion of Western
sanctions is when the bloc will become
more fragile, which will allow Russia to
exploit the EU’s weaknesses.

China Struggles to Balance Zero-COVID

and the Economy
April 20, 2022
Beijing’s inability to admit the shortcomings of its

pandemic strategy is threatening growth and may
push it closer to Moscow.

China Struggles to Balance Zero-COVID and the Economy
Shanghai, China’s largest city and finan- why Beijing is reacting the way it is, we
cial center, has been under strict lock- first need to understand the unique con-
down since April 1 to contain an out- straints the government is facing.
break of the COVID-19 omicron variant.
Although the government is considering Limitations of Zero-COVID
relaxing restrictions in the city starting
this week, other parts of China are like- It might seem odd that the Chinese gov-
ly to introduce severe restrictions soon ernment is imposing strict lockdowns
as the virus spreads across the country. at a time when the rest of the world is
Guangzhou (a southern transportation opening up. But with infection numbers
hub), Suzhou (an eastern industrial city),rising and health services becoming
Shenzhen (a southern tech hub) and overwhelmed, Beijing has backed itself
Xiamen (a port city in the southeast) are into a corner. It previously touted the
all rumored to be next. success of its strict zero-COVID strate-
gy, using this as an indicator of the gov-
Perhaps most significant, there’s some ernment’s ability to manage the crisis
indication that Beijing could also soon better than other countries, and it can’t
impose a lockdown. Locals have already abandon the policy now.
started stockpiling food, and the direc-
tor of the Beijing Municipal Health Com- However, as the virus spreads to more
mission was put under investigation on and bigger cities, the government’s fidel-
April 16 for allegedly violating unspec- ity to this strategy is turning into a politi-
ified rules, possibly indicating that au- cal burden. The public’s expectation that
thorities believe the virus is spreading lockdowns will protect the population
into the capital. from the virus has contributed to a low
vaccination rate among elderly Chinese.
The lockdowns are increasing the pres- Over half of Chinese citizens aged 65
sure both on China, where frustration or above – more than 92 million people
with the restrictions is growing, and on – still have not received three vaccine
the world economy, which has already doses. About 20 percent of the popula-
seen massive supply chain disruptions tion aged 60 and older, and more than
over the past two years. To understand 40 percent of those older than 80, hasn’t

received their first dose. Many believe comparison, lockdowns have a 50 per-
that the side effects of the vaccine are cent efficacy rate globally – which ex-
worse than getting COVID-19, while oth- plains why they were imposed so readi-
ers believe that the vaccine isn’t effec- ly early in the pandemic before vaccines
tive anyway. were available.
Indeed, the Chinese Sinovac-CoronaVac China now has two choices. The first
vaccine is not as effective as other is to keep imposing strict lockdowns,
vaccines. And with the emergence of as it’s currently doing. The second is to
omicron, a COVID-19 variant that was import the Western vaccines – there-
considered mild in the West, this has be- by admitting the Chinese vaccine isn’t
come an even bigger problem. In Hong as effective – and begin another mass
Kong, the first omicron wave generated vaccination campaign. Considering
the highest COVID-19 mortality rate in that China wanted to position itself as
the world. What happened in Hong Kong a pharmaceutical leader and export its
was proof not only that the low vaccina- own COVID-19 vaccine to other coun-
tion rate poses a high risk for the Chi- tries, the second option is unlikely.
nese health system but also that the
vaccinated population is poorly protect- Beijing is between a rock and a hard
ed against the coronavirus. Thus, having place. The 20th National Party Con-
refused to buy the more effective, West- gress, where President Xi Jinping is ex-
ern-made vaccines, both the Chinese pected to secure his third term, is set for
health system and the Chinese leader- the second half of 2022. And although
ship are facing enormous challenges the government doesn’t want to intro-
with the emergence of omicron. duce unpopular restrictions, especially
right now, lockdowns are the only way
According to the World Health Organi- to keep cases from spreading and the
zation, Sinovac-CoronaVac offers 51 health care system from collapsing.
percent efficacy against symptomatic
SARS-CoV-2 infection and about 49 per- But keeping a city three times larger
cent efficacy against delta variants. Its than New York under lockdown is tough,
efficacy against omicron is unknown. By to say the least. For starters, delivering

food to all the residents locked in their caused problems in supply chains. On
homes is difficult. This is one of the April 18, Vice Premier Liu He ordered the
issues that has caused anger among introduction of a nationally recognized
residents in Shanghai. Then there’s the COVID-19 test pass for truck drivers so
limited availability of health services. that they can deliver goods between
And so, with the growing frustration provinces without having to undergo
comes protests and civil unrest. Some screening at every stop. And in the ag-
demonstrations have already been held gregate, experts predict China’s April
in Shanghai. These factors all make ze- lockdowns have already taken between
ro-COVID increasingly unworkable. 3 percent and 5 percent off China’s
monthly gross domestic product – an
Economic Considerations acceptable cost for the government. At
the same time, Chinese analysts point
More concerning for Beijing than pro- out that actual local monthly income
tests is the increasing economic prob- will drop by more than 50 percent, which
lems China is facing due to lockdowns. could pose further problems for China’s
On April 17, Shanghai authorities provid- leadership.
ed some guidance on measures firms
should take to restart production in the China’s leaders spent two years say-
city, such as stocking up on medical ing that China’s lower COVID-19 deaths
supplies and submitting COVID-19 pre- proved the superiority of the Chinese po-
vention plans for their factories. China’s litical model. The omicron variant chal-
industry regulator identified more than lenges those claims and could eventu-
650 companies in the semiconductor, ally destabilize the Chinese economy.
automobile and medical sectors as pri- And Xi’s position is more tenuous than
ority firms that should resume produc- normal right now. He needs enough elite
tion. support going into the National Con-
gress later this year to head off rum-
However, just three weeks under severe blings of dissent or the emergence of
lockdowns – plus varying levels of re- potential challengers.
strictions in other regions such as Jilin,
a major tech and agricultural hub – have

What’s more, this comes at a time when ers, Indonesia, banned coal exports for
China is already facing challenges on a month in January.
other economic fronts. The first – and
probably the most worrying for the gov- At the moment, the lockdowns are keep-
ernment – is the potentially explosive ing production and energy consumption
crisis in the real estate sector, embodied down. In fact, although China’s ports
by property giant Evergrande. Beijing’s haven’t been fully locked down, the sit-
plan to let the massively indebted com- uation resembles the 2020 supply chain
pany fail slowly to contain market panic crisis, with factory closures and driver
and contagion risks is threatened by the shortages. As a result, the volume of
lockdowns and resulting economic in- goods shipped from Shanghai dropped
stability. Evergrande’s woes may spread 26 percent between March 12 and April
deeper and faster into the real estate 4, while the volume of goods leaving the
market, potentially causing a financial port by truck fell 19 percent, according
crisis. to FourKites, a Chicago-based company
that tracks supply chain data.
The second major problem is an ener-
gy crunch. China is the largest producer, At the same time, the International En-
consumer and importer of coal, which ergy Agency said on April 13 that it had
provides more than 60 percent of the cut its forecast for global coal and oil de-
country’s electricity needs. No other en- mand because of China’s imposition of
ergy source is more important to China, lockdowns since March. The price of oil
considering its large industrial base. The and other fuels has also fallen off since
country needs cheap energy to maintain its explosion in late February when the
price competitiveness. Although China war in Ukraine started.
is committed to reducing its coal use
from 2026 and reaching carbon neutral- China’s temporary shutdowns will buy
ity by 2060, it is likely to be more cau- time for the government to tackle the
tious after coal shortages caused black- energy problem. The government has in-
outs and factory shutdowns in 2021 creased domestic coal output since last
following a Chinese ban on Australian year’s blackouts. But expanding mining
coal. Another of China’s major suppli- takes time and investment, and China

will have to compete on international creased uncertainty in already unstable

markets in the meantime. Therefore, commodities markets. It also pushed
Beijing may be using the lockdowns in up already high energy and food pric-
part to negotiate with global coal supplies, a trend that is likely to continue in
ers, one of which is Russia. the coming months. These higher input
prices challenge China’s ability to main-
The lockdowns are also certainly push- tain production and exports. At best, if
ing the Chinese government to think it plays its cards right, Beijing could use
about its priorities and shifts in the the economic war between Russia and
global economy. During the National the West in its favor.
People’s Congress and Chinese Peo-
ple’s Political Consultative Conference Hoping to make the most of the war,
in Beijing in March, it was made clear China has not joined Western sanctions
that a key government concern is lower against Russia, even as it ensures it
foreign demand for Chinese products. doesn’t risk secondary sanctions on it-
Global consumption shifted toward self. In the run-up to the war, with Mos-
goods during the pandemic, but now cow anticipating sanctions, the Kremlin
it’s rebalancing back toward services. worked to increase trade with Beijing.
Many countries have begun considering According to Chinese customs data,
facilitating local production for basic turnover in Chinese-Russian trade from
goods in order to secure their demand. January to February reached $26.4 bil-
If Chinese lockdowns continue, the shift lion, an increase of 38.5 percent com-
away from Chinese goods may persist. pared with the same period last year.
Beijing is aware of the risk but can do The 2021 figure was itself a 35.8 per-
little about it without abandoning its ze- cent increase on 2020 numbers.
ro-COVID policy.
Moreover, with Western sanctions block-
Global Economic Warfare ing Russia from using the dollar and the
SWIFT payment system, China and Rus-
Russia’s invasion of Ukraine isn’t doing sia renegotiated contracts to denomi-
China any favors either, but there is little nate them in renminbi. Previously, only
China can do about it. The war has in- 17 percent of bilateral trade was settled

in the Chinese currency. The lockdowns However, it will take more than cheap
have surely caused a slowdown for Rus- Russian imports to keep Chinese prod-
sian exporters who have encountered ucts competitive in Western markets.
logistical problems in shipping their China also runs some reputational risk
merchandise into China. But the renego- from its close relationship with Russia.
tiation has facilitated the restoration of Ironically, reduced demand for Chinese
Russian energy deliveries to China, with exports and the consequent weakening
coal shipments scheduled to be the first of the Chinese economy could push Bei-
to arrive, followed by crude deliveries. jing and Moscow closer together in an
effort to stabilize their economies and,
Maintaining access to cheaper Russian while doing so, counter the West. China’s
commodities will be crucial to Chinese existing economic model would need to
efforts to balance exports and econom- fail for Beijing to consider such a strat-
ic growth with its zero-COVID policy. At egy – and from the looks of it, China is
the same time, Moscow needs partners fighting hard to avoid that outcome. The
right now and thus has its own interest West – and the U.S. in particular – is
in preserving good relations with Beijing. currently most important for China.

Can Africa Replace Russian Energy in Europe?
By Ekaterina Zolotova
April 25, 2022
Moscow isn’t too worried, but neither is it taking

any chances.

Unsurprisingly, the economic war heavily on oil and gas revenues. Wash-
against Russia has created tensions ington set a ceiling for Western Europe
in European energy markets, which are – allies could buy only up to 30 percent
scrambling to find alternate sources of their total gas consumption from the
from what is still their largest supplier. Soviet Union – and banned the Gener-
Italy, for example, has already reached al Electric Corporation from exporting
agreements to increase natural gas sup- technology and equipment to the Soviet
plies from Algeria and Angola. However, Union under the threat of sanctions. Eu-
Russia isn’t all that concerned – it fig- rope ultimately went its own way: West
ures the internal problems endemic to Germany and the Soviet Union had im-
the region, the recent OPEC+ deal and portant oil and gas infrastructure con-
the competition for energy in the Euro- tracts that neither wanted to abandon,
pean Union will conspire to keep Europe and other countries had too few options
fairly dependent on its own exports. But for ginning up their own production.
neither is Moscow taking any chances. It
sees what Europe is doing and will take Today’s tension is somewhat similar.
all appropriate steps to maintain its po- It’s true that curbing Russian imports
sition in European markets by increas- would hurt the government in Moscow.
ing cooperation with African states. It generates more than a third of its bud-
get with oil and gas sales, with Europe
Hopes importing about 85 percent of all Rus-
sian gas. Which is why the European
The debate over abandoning Russian Commission has accelerated a plan to
gas for other suppliers, particularly in reject Russian carriers. If implemented,
Africa, isn’t new. U.S. President Ronald the EU could reduce its demand for Rus-
Reagan encouraged Europe to do so as sian supplies by as much as two-thirds
far back as 1981, right around the time by the end of 2022, its supplies offset
the Urengoy-Pomary-Uzhgorod gas pipe- by increases in imports from the Arabi-
line – the primary conduit for Russian ex- an Peninsula, Central Asia, Africa, Azer-
ports to Europe via Ukraine – was being baijan and Norway, as well as the U.S.,
built. The idea was to weaken the Soviet which is supplying liquified natural gas.
Union, which, like Russia today, relied

But in the context of the current eco- with gas pipelines and LNG terminals to
nomic war, African countries occupy a boot. Third is the simple fact that coun-
unique place for a couple of reasons. tries such as Algeria and Nigeria already
First is the sheer amount of natural gas supply a not-insignificant amount of gas
resources – about 455.2 trillion cubic to Europe. (Algeria accounts for almost
meters, according to British energy firm 12 percent of European consumption,
BP. Second is proximity. The legacy of while Nigeria accounts for about 3 per-
colonialism has left many African recent.)
gions oriented toward trade with Europe,

More important is that African countries boost African production enough to off-
have the potential to increase produc- set the loss of Russian supplies.
tion and supplies without dramatically
reorienting global supply flows. Stimu- Indeed, it’s hard to overstate how dif-
lating production and discovering new ficult it will be to build up the neces-
deposits will be a much more effective sary infrastructure in the short term.
method of energy warfare than the re- It’s not that there aren’t any pipelines.
orientation of existing trade flows. After
Transmed, a natural gas pipeline from
all, if the European Union prefers coun-Algeria via Tunisia to Sicily and thence
tries that already have a developed in- to mainland Italy, delivers some 30 bil-
frastructure for production, processing lion cubic meters of gas per year. And
and transportation, and already have Medgaz, the main gas pipeline connect-
customers and occupy a sizable market ing the largest gas field in Algeria with
share, then these countries will most Spain, has a design capacity of 8 billion
likely have to abandon their current mar-
cubic meters per year. It’s that existing
kets to cover European demand. (Think pipelines either have far too low a ca-
Azerbaijan, Qatar and Norway.) This willpacity to replace Russia or have been
almost certainly result in Russian oil fill-
rendered inoperable by construction
ing the gaps. Goosing production in Af- or regional conflicts. (Such is the case
rica sidesteps that problem. with the Maghreb-Europe Gas Pipeline
in Algeria.) This is to say nothing of the
Doubts difficulty in constructing new pipelines
through the Mediterranean Sea, which is
All this is easier said than done. Just often too deep for modern technologies
about every EU country is trying to ac- to accommodate.
complish the same thing but on a bilat-
eral basis. What may benefit one coun- And even if new infrastructure were com-
try may well come at another’s expense. pletely operable, it ignores the fact that
Moreover, EU members that go it alone gas producers tend to start consuming
will have a harder time marshaling the more of their products. In Algeria, for
huge amounts of resources needed to example, gas consumption increased
from 25.3 billion cubic meters in 2010

to 43.1 billion cubic meters in 2020. In es, and West Africa roughly two-thirds
Egypt, it jumped from 43.4 bcm to 57.8 of what it produces.
bcm, while in West Africa it jumped from
8.6 bcm to 25.2 bcm. That means Alge- Production is typically incommensurate
ria consumes nearly half of what it pro- with increased consumption for a vari-
duces, Egypt nearly all of what it produc- ety of reasons. International oil com-
panies began to reduce investment in

response to falling oil prices. In Algeria, percent stake in the Zohr offshore gas
the development of new potential ex- field in Egypt. Gazpromneft has projects
ploration zones, most of which are new in Libya and offshore fields in Equatorial
shale gas deposits, becomes unsustain- Guinea and Angola through its subsid-
able due to the lack of water resources iary, NIS. Gazprom is participating in
necessary for hydraulic fracturing. In exploration and production operations
Nigeria, gas production depends on oil at El Assel, Algeria, in which it has a 49
production, and oil production is limit- percent share. Russia also participates
ed by the OPEC+ agreement. In Angola, in maritime transport, as evidenced by
production has fallen by more than a a delivery to Spain from Cameroon on a
third because Western operators simply Gazprom-chartered tanker.
do not want to invest any more money
in perpetually unstable economies. And For Europe, then, finding new partners
it goes without saying that redirecting is possible but difficult. Finding new
needed gas supplies to Europe will be deposits is expensive and time-con-
sure to upset the local populations, po- suming. And redirecting existing flows
tentially leading to bouts of unrest. risks creating more markets for Russia.
Even if things proceed without a hitch,
Meanwhile, Russia has significantly it’s unlikely that Africa can replace the
strengthened its position in the region. Russian energy that Europe wants to
Lukoil, Gazprom, Rosneft and others are forgo – namely, about 40 percent of
directly or indirectly enhancing energy what it consumes every year – any time
relations with many African states. For soon. Moscow will therefore bank on
example, Lukoil entered the offshore the ineffectiveness of Europe’s current
deepwater project on the Tano block of African project in the short term, while
the Ghana shelf in West Africa, where continuing to enhance its market share
there are two gas fields. Lukoil also in the medium term. Given the lack of in-
acquired a 25 percent stake in the Ma- vestment and technology and the rather
rine XII hydrocarbon production project friendly attitude of African states toward
on the shelf of the Republic of Congo, Russia and their nonaligned sanctions
where Litchendjili gas condensate is policies, the future may still be bright for
being produced. Rosneft acquired a 30 Russia.


Indonesian Exports and Palm Oil Prices
After a spike in domestic prices led to shortages and unrest,

Jakarta expanded its restrictions on palm oil exports.

Indonesian Exports and Palm Oil Prices
Palm oil is an essential good all over the pandemic began. Export restrictions in
world. It is used not only in cooking but Indonesia, the largest palm oil produc-
also as an ingredient in food manufac- er, will directly contribute to higher food
turing, detergents, cosmetics and biofu- prices globally. This will especially affect
el. Earlier this week, after a spike in do- African countries, which use palm oil in
mestic palm oil prices led to shortages local cuisine and are extremely vulnera-
and unrest, the Indonesian government ble to price fluctuations. Food expenses
expanded its restrictions on palm oil ex- in sub-Saharan Africa already account
ports to include crude palm oil, RBD (re- for 40 percent of households’ consumer
fined, bleached and deodorized) palm spending, so it will be difficult to absorb
oil, and used cooking oil. Jakarta even the extra cost. Advanced economies
deployed its navy to prevent illegal ex- like the U.S. will also see higher prices,
ports of palm oil. notably in processed food products and
things like soaps and makeup.
Like other food prices, palm oil prices
have been rising since the COVID-19

China’s Role in Sri Lanka’s Economic Crisis
By Victoria Herczegh
May 4, 2022
Beijing’s ability to come to its allies’ aid is

hampered by its own domestic problems.

Over the past several weeks, Sri Lanka its own constraints – structural eco-
has been experiencing an economic cri- nomic issues and its fight against the
sis that has brought the country to the coronavirus – could prevent it from
brink of bankruptcy. Nearly $7 billion of coming to their aid. Thus, China will in-
its $25 billion in foreign debt is due for creasingly struggle to maintain its influ-
repayment this year, meaning the coun- ence in these countries and to keep rival
try is low on cash at a time when it’s also powers out.
experiencing the fallout of government
mismanagement of the COVID-19 pan- Strong Ties
demic. To address the crisis, Sri Lanka
will need outside financial help. One op- China’s growing investment in Sri Lan-
tion is an International Monetary Fund ka has been strongly supported by the
loan, which would require the country to administrations of both current Presi-
ensure it can manage its debt by, for ex- dent Gotabaya Rajapaksa and former
ample, restructuring existing loans. This President Maithripala Sirisena. China is
is unlikely, since one of its major lend- already Sri Lanka’s fourth-largest lender
ers, China, prefers not to engage in IMF- after international financial markets, Ja-
backed processes. Another option is to pan and the Asian Development Bank.
reach out to regional economic powers The ADB is a Japanese-led institution
for more credit. Though this would only and reflects mainly Japanese and U.S.
increase its total debt, at least it would interests. Its Chinese-led counterpart,
be able to avoid default. the Asian Infrastructure and Invest-
ment Bank, also finances significant
The most obvious choice is China, since infrastructure projects in Sri Lanka, like
Beijing has already invested heavily in affordable housing and land redevelop-
many countries of the region, seeing ment.
this as a way to build its influence in
strategically important locations. How- In recent decades, China has lent Sri
ever, when these countries experience Lanka over $5 billion for large-scale in-
financial difficulty, as Sri Lanka is right frastructure projects as part of Beijing’s
now, they’re likely to turn to Beijing for Belt and Road Initiative. This money has
help. And the problem for China is that gone toward funding roads, an airport

and several ports. One of its most signif- swap some of the debt it owes for the
icant projects is the Colombo Port City, country’s own stocks.
in which China’s $1.4 billion stake is the China has the strongest influence in Sri
largest single foreign investment in Sri Lanka of any foreign country, having
Lanka’s history. But the country is now supplanted India over the past decade
heavily indebted to China, having taken despite India’s proximity to the island
loans at rates ranging from 3 percent nation. That’s partly because its invest-
to 6 percent compared to the 1 percent ments there have steadily increased
to 3 percent rates offered by the World since the early 2010s but also because
Bank and IMF. Unable to pay them back, Beijing has gradually built political ties
Sri Lanka has even had to ask China to and pulled Sri Lanka into its orbit. Sri
Lanka’s China-friendly political tilt, driv-

en by the promise of quick and efficient willingness to lend money to countries

economic and technical assistance, can shunned by the international communi-
be seen in both the Sirisena and Rajapak- ty for their poor human rights records.
sa governments. China succeeded in Indeed, their relationship strengthened
winning Sri Lanka’s trust because of its after allegations emerged in Sri Lanka

of state-sponsored human rights abus- tee access to international trade routes

es during the Tamil Tigers-led insurgen- nearby.
cy in the country.
However, China hasn’t exactly been en-
China’s Motivations thusiastic about coming to its ally’s aid.
It even refused to restructure Sri Lanka’s
What’s in it for Beijing? China has been debt when asked. India, on the other
investing massively in infrastructure hand, was the first country to provide
and other projects in nearby countries, immediate help, with a $1.5 billion line
primarily because this helps guarantee of credit. A line of credit may not be ide-
its access to foreign markets through al given Sri Lanka’s situation, but right
key regional maritime routes. These in- now it needs whatever help it can get.
vestments are a substantial source of New Delhi’s offer is clearly an attempt to
Chinese influence in the region. pry the island nation away from Beijing
– not surprising since India is trying to
In addition, Sri Lanka is of major signifi- counter China in the Indo-Pacific region,
cance in China’s “string of pearls” strate- where the two regional powers have
gy in the Indian Ocean. The port of Ham- competing interests. For India, wooing
bantota, operated as a joint venture and one of China’s “pearls” would be a big
currently leased to China for 99 years, step.
straddles an extremely busy east-west
shipping route. It offers a diversified China’s hesitancy in helping Sri Lanka
range of transport and logistical ser- is a result of domestic constraints. The
vices. China has a strategic imperative East Asian country is facing its own
to gain immediate access to the Indian structural economic problems and has
Ocean and control ports in the Asia-Pa- been battling an outbreak of the omicron
cific region, so that it can conduct trade COVID-19 variant for months, which has
and maintain strong relations with its led to partial or full lockdowns of major
numerous partners. Hambantota is cities including its financial hub, Shang-
close to major sea lanes, so building hai. Given that Beijing spent weeks con-
a port there could help Beijing guaran- sidering whether to provide Sri Lanka
with financial assistance, it seemed that

China was either unwilling or unable to China failed to come through with prom-
help. ised funds on time.
On April 25, however, talks between the Waiting in the Wings

two countries began after Chinese Pre-
mier Li Keqiang said China was ready to China’s role in helping Sri Lanka resolve
provide much-needed assistance for Sri its economic crisis is important because
Lanka. But many in Sri Lanka see this as it will set a precedent for other countries
an empty promise – one that came too in South and Southeast Asia that may
late and only as a response to Sri Lan- also face economic difficulties in the
ka’s talks with the IMF. Doubts about near future. Also, China’s global image
China’s credibility aren’t surprising giv- is in part based on its ability to assist
en that Sri Lanka in the past has had to and invest in smaller neighboring coun-
find new financing for BRI projects after tries, so if Beijing fails to come through,

it could cast a negative light on its inter- sistance to countries of the region and
national standing. may welcome an opportunity to under-
mine China here. Furthermore, Sri Lanka
Moreover, as seen with India, other pow- expects to receive $500 million as emer-
ers are waiting in the wings to fill the gency aid from the Asian Development
void left by Beijing. China’s failure to act Bank and World Bank – two institutions
opens the door for other nations that affiliated with countries that have an in-
want to counter Chinese influence in terest in countering Chinese influence –
the region. And Sri Lanka has no other in the next six months.
choice but to rely on its largest credi-
tors, many of which have an interest in A lot depends on how China chooses to
curbing China’s regional influence. manage Sri Lanka’s economic crisis. Its
hesitation has already given an oppor-
India, as mentioned, is one example, but tunity for several other players to step
Japan is another potential source of fi- up. These actors have a common inten-
nancial assistance. It has historically tion: to chip away at China’s foothold
been a major source of development aid in South and Southeast Asia. Whatever
for Sri Lanka and offered help during the China chooses to do, it’ll have to give up
country’s last economic crisis in 2016. something significant – money or influ-
The U.S. has also provided financial as- ence – in the process.

India Powers Down
Energy disruptions are threatening the country’s economic recovery.

India Powers Down
Although India has some of the world’s power demand was well above peak
largest coal reserves, its massive pow- consumption last summer, and pow-
er consumption means that it also must er plants are now in a weaker position
import coal to meet its energy needs. In-
to meet upcoming summer demand.
dia is facing a two-part coal conundrum:Coal shortages and slumping invento-
supply shortages and rising prices. Oil ries have created electricity shortages
and natural gas prices were already in major Indian cities, including New
rising as economies across the globe Delhi, where hospitals have been affect-
came back online from the pandem- ed. Sixty percent of households in India
ic. Between the recovery and the price have already experienced some level
hikes provoked by Russia’s invasion of daily power cuts. The government is
of Ukraine, many countries turned to making plans to increase domestic coal
cheaper energy alternatives, including output and reduce coal supplies to the
coal. This, in turn, pushed up coal prices.
non-power sector. The supply cuts will
affect aluminum smelters, steel mills
The situation is concerning for the In- and other industrial activities, risking
dian economy on several fronts. April’s the country’s economic recovery.

Arab Food Insecurity and Political Failure
By Hilal Khashan
May 12, 2022
Current disruptions in the food supply chain high-

light long-standing problems for Arab countries.

The Arab region, extending from the graphic changes, water scarcity, climate
Persian Gulf in the east to the Atlantic change, the COVID-19 pandemic and
Ocean in the west, faces severe short- unresolved conflicts all contribute to the
ages of several staple foods. Given that problem. And today, the war in Ukraine
at least 65 percent of people in most is revealing the extent of these vulnera-
Arab countries are poor or vulnerable bilities, which will continue to plague the
to poverty, it’s little surprise that hunger region long after the war’s conclusion.
and malnutrition are prevalent in the re-
gion. Even in oil-rich Saudi Arabia, con- Water Scarcity
servative figures place at least 20 per-
cent of the population below the poverty Of the world’s 17 most water-stressed
line. Poor government planning, demo- countries, 12 are in the Middle East and

North Africa. Even though the Arab re- of the country’s water supply. The Iraqi
gion includes 5 percent of the world’s Ministry of Water Resources says that
population, its share of the world’s unless Turkey releases more water into
freshwater is less than 1 percent. Arab the Euphrates and Tigris rivers – which
countries import more than half of their flow into the Shatt al-Arab waterway
food supplies, spending 5 percent of south of Baghdad – they will dry up in 20
their gross domestic product on these years. In Syria, around 60 percent of the
imports. water flow comes into the country from
Turkey, which has used the resource as
These problems have affected coun- a political weapon to increase its influ-
tries in different ways. In Iraq, drought, ence in Syria. It typically releases more
sandstorms, high temperatures and ex- water into Syria in the winter, when dams
ternal restrictions on water flows have reach maximum capacity, threatening
led to 60 percent water loss. Turkey’s their structural integrity. During the dry
and Iran’s aggressive dam construction summer season, reduced water flows
policies have hugely aggravated water can cause immense economic losses in
supply problems in both Iraq and Syria. agriculture and fisheries.
In Egypt, Addis Ababa’s Grand Ethiopi-
an Renaissance Dam has deprived the Saudi Arabia has already depleted its
country of 25 percent of its Nile water underground aquifers, having used
supply. Israel’s virtual monopoly of the annually 5 square miles of its nonre-
Jordan River system has further wors- newable fossil water on farming. Even
ened Jordan’s severe water scarcity. though Saudi Arabia and other Gulf Co-
operation Council countries have nearly
In Syria and Iraq, where 12 million peo- 900 water desalination plants, farming
ple have lost access to water, wheat remains unviable, with more than half of
production is collapsing. Land under the plants’ output going toward house-
cultivation shrank by half last year in hold use. In Algeria and Morocco, where
Iraq, where the population will double water shortages are rising, agriculture
by 2050 but potable water will decrease depends heavily on rainfall, which is un-
by 20 percent because of declining pre- predictable.
cipitation, which constitutes 30 percent

Outdated Technology ment. Inefficient irrigation systems

such as flood irrigation consume 40 per-
Water scarcity isn’t the only problem, cent more water than sprinkler or drip
however. The lack of agricultural pro- irrigation. Agricultural cooperatives are
ductivity is also a result of outdated scarce, and Arab governments do not
technology and cultivation techniques, provide incentives for expansion, result-
as well as poor planning and manage- ing in the perpetuation of small, fam-

ily-owned lots that are not suitable for able because of the war, reducing avail-
modern irrigation and mechanized culti- able drinking water by 40 percent over
vation. Agriculture also lacks sufficient the past decade and causing sewage
fertilizers and pesticides. These issues water to contaminate supplies.
lead to low yields, averaging 1.3 tons
per hectare, compared to the world av- Government Failures
erage of 3.6 tons per hectare. High birth
rates – around 2 percent compared to Arab countries are the world’s leading
the world average of 1 percent – compli- grain importers, but Russia’s war on
cates the situation. Ukraine has revealed the vulnerability
of the region’s lack of self-sufficiency.
The region’s arable land totaling 70 mil- Even though Russia and Ukraine export
lion hectares, 30 percent of which are in only 12 percent of the world’s food, their
Sudan, would be sufficient to meet its proximity to the region makes their prod-
agricultural needs. What Arabs lack is a ucts substantially cheaper and more
workable irrigation system and the abil- competitive than those of other food ex-
ity to work together. But corruption and porters. The conflict has been especial-
personal politics often stand in the way. ly disruptive to Arab countries because
In Iraq, the government doesn’t seem of the importance of bread in Arab diets.
to take the water situation seriously. In Around 35 percent of caloric intake in
2018, it allocated $15 million, about 0.2 Arab nations comes from bread alone.
percent of its budget, to address wa- Some countries, such as Iraq, Yemen
ter issues. Iraq needs to invest at least and Lebanon, import more than 70 per-
$180 billion in dam construction and ir- cent of their wheat.
rigation projects to tackle its acute wa-
ter scarcity over the next two decades. Shortages of food staples, including
Syria’s water issues predate the 2011 bread, cooking oil and legumes, are
uprising. Metropolitan Damascus, with common, notably in Egypt, Algeria and
a population of more than 4 million in- Morocco, and have forced the ruling elite
habitants, frequently experiences water to take steps to avoid possible revolts.
cuts that last several weeks. Half of Syr- For years, Algerians have complained
ia’s water treatment facilities are inoper- about food scarcity and inflated pric-

es, as their purchasing power dropped ed a strategic vision to achieve Arab

by 40 percent over the past six years. food security by developing an econom-
The cash-strapped government’s de- ically efficient agricultural sector, prop-
tachment from the crisis and decision erly managing environmental resources
to reduce imports have increased the and enhancing farmers’ quality of life.
level of public frustration. In Egypt, the Arab agriculture ministers approved the
country’s 20th century irrigation policy, summits’ recommendations during the
which culminated in completion of the 2008 meeting of the Arab Organization
Aswan High Dam in 1970, did not lead for Agricultural Development in Bahrain.
to an agricultural revolution. Instead, The recommendations included devel-
the gap between local food production oping modern agricultural techniques
and imports has increased, reaching an and encouraging investment in agricul-
alarming rate in recent years. Domestic tural processing. They also called for
grain yields totaled 69 percent in 2000, improving farming competitiveness and
but local production decreased to 45 investing in human resource develop-
percent in 2018. During the same peri- ment.
od, its locally grown legumes declined
from 56 percent to 37 percent, and the But Arab regimes ruined the prospects
downward trend has continued. for launching a successful agricultural
revolution. They rejected possibilities to
Arab regimes are more concerned cooperate, preferring to import food that
about security than food independence. annually costs the Arab region more than
For example, Egypt, Algeria and Moroc- $100 billion and exposes it to price fluc-
co spend five times, 12 times and 25 tuations and import disruptions due to
times more on defense than on agricul- foreign conflicts. Arab dictators willfully
ture, respectively. Some in the Arab re- contributed to wasting their countries’
gion proposed, all the way back to 1956, meager water resources. In 1992, Iraqi
establishing a common Arab market in strongman Saddam Hussein ordered
preparation for launching an economic the drying up of the Mesopotamian
union – but the idea never materialized. Marshes in southern Iraq, where insur-
The 2005 Arab League summit in Algiers gents sought shelter, destroying its ag-
and the 2007 summit in Riyadh present- riculture, fisheries and unique biodiver-

sity. In the early 1990s, Syrian President ernment. These figures are particularly
Hafez Assad diverted sewage water to stark given that Sudan could feed most
the Barada River, which crossed through of the Arab region if it was able to meet
Damascus and provided the capital with its full agricultural potential.
water for domestic and agricultural use.
He also rerouted its canals away from In wealthy GCC countries, however, over-
his palace for security reasons. His son, nutrition is a big problem. The Arab diet
Bashar, changed the direction of the riv- depends heavily on refined flour and
er mouth to flood rebel areas outside rice, and variety in food consumption is
Damascus. either beyond most people’s means or
is not part of the traditional cuisine. In
Impact on Public Health addition, government subsidies do not
cover wholesome foods. Unhealthy eat-
According to the Food and Agriculture ing habits have contributed to high rates
Organization, the number of people of suffering from chronic diseases, es-
who go hungry in the Arab region has pecially diabetes. A quarter of adults in
risen by more than 90 percent over the GCC countries will become diabetic by
past two decades, exceeding 69 million 2030. In Saudi Arabia, more than 50 per-
in 2020. One-third of the region’s 420 cent of people over 30 are prediabetic.
million people suffer from malnourish- In Egypt, 21 percent of adults have dia-
ment. More than 20 percent of children betes, and an equal percentage are pre-
under five suffer from stunted growth. diabetic.
Eight percent are underweight, and 11
percent are overweight, primarily be- The Arab region has failed to tackle the
cause of poor diets, which exceeds the underlying causes of its food issues
international average by 5 percent. In and thus is unlikely to overcome them
Yemen, 45 percent of adults suffer from in the near future. Achieving sustain-
hunger, and 60 percent of young people able development requires resolving
are anemic. In Sudan, more than 20 per- the endemic food crisis and exiting the
cent of the country’s 45 million people vicious cycle of poverty. This process
suffer from severe hunger, which could involves reprioritizing state objectives
double under its military-controlled gov- from defense to agriculture and revers-

ing internal migration patterns that saw tor yet failed to promote other produc-
a massive population movement from tive industries. Arab rulers may be eager
rural areas to urban centers over the to develop their countries, but they are
past half-century. These demographic unwilling to abandon their fixation on re-
changes weakened the agriculture sec- gime stability and order.

The Global Economy Rebounds, Stumbles Again
The IMF’s latest data would be encouraging

if it had accounted for the war in Ukraine.

The Global Economy Rebounds, Stumbles Again
Economic data for the past two years – gan after the data was published. This
that is, the majority of the COVID-19 pan- explains why its estimates are relative-
demic – has finally been processed and ly rosy, if not quite as strong as the re-
made available thanks to the Interna- bound in 2021. Data available in July will
tional Monetary Fund, giving us a more no doubt account for the Russian inva-
clear picture of how the global economy sion, which has been yet another exog-
is performing. Though the pandemic ini- enous shock to aa system that had just
tially hit much of the world hard, most barely started to recover from the pan-
countries seem to have rebounded, as demic. States that had hoped to turn the
have their industrial production, both of tide this year will likely find themselves
which are leveling off this year. waiting much longer than they expect-
ed.
Notably absent from the IMF Outlook,
however, is the Ukraine war, which be-

Diesel Supplies and Food
By Allison Fedirka
June 6, 2022
At worst, shortages could shrink the global food

supply.

Diesel supplies appear to be the next Western Hemisphere. Diesel and ga-
casualty of global energy disruptions. In soil – both middle distillates – are the
fact, they started the year in a weak po- primary fuels in Latin American freight
sition, thanks to the COVID-19 pandem- transport and farming machinery. U.S.
ic. Inventories were tight, and global farming and trucking also use a ton of
refining capacity dropped to 78 million diesel because it’s usually cheaper than
barrels per day from 82.1 million bpd. gasoline. In other words, a threat to crop
Things got only worse after Russia in- production and shipment is a threat to
vaded Ukraine. The United States, Rus- food supplies.
sia and China have the three highest
crude oil distillation capacities, while Three of the world’s leading grain and
the U.S. and Russia are the two leading oil seeds exporters – Brazil, Argentina
diesel exporters, accounting for 22 per- and the U.S. – are especially vulnerable.
cent of global trade by value. Last year, the U.S. was the world’s sec-
ond-largest wheat exporter, Argentina
Supplies from Russia have been severe- the seventh. Together they accounted
ly disrupted or have been taken offline for a fifth of global wheat exports by val-
entirely. Just under a third of Russia’s ue. The U.S. is the global leader in corn
refining capacity has been idled due to exports, Argentina is the second, and
Western sanctions, and in April, Rosneft Brazil is the fourth. They account for
announced it would no longer export nearly 63 percent of global corn exports.
diesel. Consequently, market experts Brazil leads global exports in soybeans,
estimate that 1.3 million bpd from Rus- while the U.S. ranks second and Argenti-
sia will remain offline for the rest of the na fourth. They dominate the global soy
year, and Russian production is likely market, accounting for 87 percent of ex-
to stay down given its dependence on ports. Brazil and Argentina have already
technology it no longer has access to so reported concerns over diesel supply
long as sanctions remain in place. and have warned of the impact it will
have on their crops. The U.S. is better
The biggest concern over potential die- positioned but will find itself increasing-
sel shortages is how they will hurt the ly constrained when it comes to rising
agriculture sector, particularly in the

prices and distributing the diesel sup- prompted some Brazilian farmers to re-
plies it has available. duce their sowing area for the upcoming
season and have raised concerns about
Brazil truckers’ ability to distribute what crops
are harvested.
For Brazil, the problem with diesel short-
ages is three-fold: high prices, import Despite producing roughly 75 percent of
constraints and domestic political bat- its own diesel, Brazil has a hard time se-
tles. If current trends hold, shortages curing imports, which have risen as Bra-
will begin in September, according to zil fails to increase refining capabilities.
state-owned oil company Petrobras, In recent weeks, Brazilian importers
just in time for the seasonal spike in ag- have reported a notable decline in the
riculture demand. These concerns have number of responses to calls for fuel

purchases. (Past calls would receive of- ry levels, which currently stand at three
fers from about 20 ships; now that num- to five days. Leading distributors such
ber is two or three.) About 80 percent of as Vibra have already started doing as
its imports come from the U.S., but Bra- much on their own and have set inven-
zil isn’t sure that it can count on Wash- tories at seven to nine days. A second
ington, which may experience its own option involves increasing the percent-
shortages and has begun to look for age of biodiesel in diesel from 10 per-
other supplies in West Africa and India. cent volume to 12-13 percent. Last, the
government is considering legislation
Either way, domestic political consid- that would allow private companies to
erations will constrain Brazil’s man- use state-run terminals and pipelines,
agement of diesel shortages. Through with the ultimate goal of reducing pric-
Petrobras, the Brazilian government can es. Ultimately, Brazil’s efforts to resolve
set domestic fuel prices. The Petrobras the diesel crisis pit its interest in keeping
pricing mechanism also affects imports. fuel prices low against importing great-
If the company imports fuel at a market er volumes of needed diesel.
price higher than the domestic price, it
must absorb the difference so that the Argentina
cost isn’t passed on to consumers. This
framework has discouraged Petrobras Argentina is no stranger to shortages.
from importing diesel at its current price In fact, the government’s economic in-
and has paralyzed the company from tervention has played a notable role
being able to raise prices. Containing in the development of shortages. De-
food and fuel prices is paramount to the mand for diesel fuel in Argentina has
sitting government’s strategy for reelec- risen 17.7 percent this year. According
tion, and the government has therefore to the Energy Secretariat, this is due to
strongly resisted efforts to hike prices. seasonal demand, increased econom-
ic activity and, most important, sales
The government and Petrobras, howev- to vehicles crossing the border from
er, are looking for ways to redress the Paraguay and Brazil. In Argentine prov-
issue. For one, they are calling on dis- inces bordering those countries, diesel
tributors to increase mandatory invento- demand increased 37-57 percent. The

spike in foreign purchases of Argentine diesel much cheaper than diesel sold in
diesel is a direct result of the govern- neighboring countries. Argentine freight
ment price controls that keep Argentine drivers have already reported difficul-

ties acquiring enough gasoil and diesel from two or three ships to four. But un-
fuel. The latest survey by the Argentine known time frames and volumes cast
Federation of Freight Transportation En- doubt on whether incoming volumes
tities showed that only a third of freightcan do much good. The country’s larger
transporters can freely access fuel. The macroeconomic problems, particularly
majority (57 percent) have some limita- revolving around U.S. dollar supply and
tions or difficulties with acquiring fuel debt, also put into question the govern-
for their vehicles, while 10 percent re- ment’s ability to pay for increased ener-
ported no access at all. gy imports. These financial constraints
will limit the government’s ability to im-
Argentina’s diesel shortage overlaps port diesel, which will become increas-
with its agriculture production. The ingly more difficult as prices rise.
country’s agriculture activity is concen-
trated in Buenos Aires, Cordoba and The United States
Santa Fe provinces. Agriculture activity
also extends farther north to the Para- One of the shared challenges facing Ar-
guayan border and the northeast, where gentina and Brazil is that their main sup-
fuel shortages are even more severe. plier of diesel, the U.S., is dealing with
The shortages started in late May, to- diesel supply problems of its own. On
ward the end of soy and corn harvesting the geopolitical front, the U.S. must sup-
season, which runs from mid-March to port Europe as it reels from decreased
early June. The lack of diesel supply and energy supplies from Russia. Before
depleted inventories have already made the Ukraine war began, Europe relied
farmers worried about harvesting what on Russia for 45-50 percent of its die-
remains of current crops and about their sel imports and Russian oil products to
ability to sow new ones in the coming feed its domestic refineries. In an effort
months. to offset these losses, the U.S. exported
1.47 million barrels of diesel and gas-
The government’s options for manag- oil to Northern Europe in March, a sig-
ing diesel shortages are limited. State- nificant rise compared to the 300,000
owned oil company YPF plans to in- barrels in February. April and May ship-
crease fuel imports in June and July

ments are on par with or higher than the low at the start of May with 104 million
March values. barrels. Current inventories are about
20 percent lower than the pre-pandemic
The question, then, is how long the U.S. five-year average and can last about 28
can sustain exports and meet domestic days. This decline has been most heav-
demand without prices skyrocketing. ily felt on the East Coast, where inven-
The U.S. Energy Information Administra- tories are the lowest since 1996 due in
tion forecasts diesel exports to average large part to declining refinery capabili-
1.3 million bpd this summer, a 38 percent ty in the region. Select service stations
increase from last summer. At the end of like Pilot and Love’s have started warn-
May, U.S. distillate stocks totaled 106.8 ing about diesel shortages at some East
million barrels after reaching a 14-year Coast locations. And with U.S. refineries

already running at 92-95 percent capaci- ed; the rest will be done by the end of
ty, there’s only so much Washington can the month. However, the harvesting sea-
do to goose production. son for most grains and oil seeds is in
August and September. Diesel demand
U.S. farmers are in a less dire situation will dramatically increase at that time,
than their South American counterparts further pressuring prices and supply.
but remain wary about the impact die- The White House is contemplating an
sel prices and possible shortages may emergency decree that would allow ac-
have on their crops. Most of the U.S. cess to 1 million barrels of diesel in stra-
spring season has already been plant- tegic reserves. Such a move could be a

stop-gap measure for rising summer they are already high. At worst, they
demand but falls short of solving any of could lead to material declines in vital
the structural supply and production is- food-exporting countries, which would
sues afflicting the country. strongly aggravate the food supply cri-
sis.
At the very least, the rising cost of diesel
will jack up food prices at a time when

Exerting Economic Influence in Latin America
China has become the top trading partner for certain countries
but the U.S. is still the largest source of investment.

Exerting Economic Influence in Latin America
In recent years, the U.S. has leaned more Though the U.S. is Latin America’s larg-
heavily on using economic engagement est trade partner writ large, there are
and economic warfare to exert influence countries in which China has an edge.
over other countries. In Latin America, These include Brazil, Peru and Chile,
Washington’s marquee policies in that where China has bought up soy, cop-
regard are the Cuba embargo and the per and ore. U.S. trade with top partners
running sanctions on Venezuela. But such as Colombia, Ecuador and Mexico
it also pursues a lower-profile, parallel consists more of manufactured goods,
strategy in the Western Hemisphere. and while U.S. foreign direct investment
Through the International Development into the region still surpasses China’s.
Finance Corporation, the U.S. provides It’s notable, however, that China used fi-
direct funding for various development nancing and loans to exert its influence
projects and assurances to private U.S. in Latin America for much of the 21st
businesses Washington would like to century but in the past few years has
have more involved in the region. The pri- started to focus more on mergers and
mary purpose in this region is to foster acquisitions instead.
the growth of small and medium-sized
enterprises, as well as local-level infra-
structure work.

Economies and War
By George Friedman
June 14, 2022

Economies and War
The American economy, the largest and Guns and butter meant either massive
most dynamic in the world, is a geopo- borrowing, or massive loosening by the
litical issue. And right now, it is in a pre- Federal Reserve. Everyone wanted to join
dictable period of dysfunction. It’s been Johnson in having his cake and eating it
compared – rightly, in my opinion – to too. The result was both money printing
the tumult of the 1970s. Unemployment and borrowing, creating massive infla-
reached 8.2 percent in 1975, inflation tion and weakening of the dollar.
rates hit 14.4 percent in 1980 and in-
terest rates were 11.2 percent in 1979. Richard Nixon was elected later, inherit-
I bought my first house in 1978 at 19 ing not only the Vietnam War but also an
percent interest. It was a hard time, and economy that seemed to be out of con-
it was intimately linked to the Vietnam trol. In August 1970, he did two things
War. nearly simultaneously: He imposed a
freeze on prices and wages for 90 days,
Lyndon B. Johnson inherited that war and he abandoned the gold standard,
and intensified it. The U.S. was facing which had been established by the Bret-
an election in 1964 and another in 1968. ton Woods Agreement. That agreement
By then, things in Vietnam were not go- obligated Washington to convert dollars
ing well. Arguably more important to to gold at $35 an ounce. The sudden
Johnson was what he called the Great freeze on prices immobilized the econ-
Society, a massive and very expensive omy, and abandoning the gold standard
attempt to wage war on poverty. He was made the dollar more volatile. Broadly
faced with a choice between “guns and speaking, it decreased in value and led
butter.” A massive social program and to inflation.
a full-scale war were incompatible, but
Johnson was ideologically committed The unemployment rate rose because
to the social program and couldn’t aban- laying people off was the only way to
don the war. He decided to do both. It manage expenses. Interest rates and in-
was at that point that the economic cri- flation rose. It appeared that everything
sis that would erupt in the 1970s began. was out of control, but the real blow was
yet to come. In October 1973, with Nix-
on wallowing in the Watergate scandal,

Economies and War
Egypt and Syria caught Israel by sur- but drastically constrained investment
prise in a stunning and unexpected at- and in turn opened the door to Japa-
tack. The U.S. held back from support- nese exports. A shift in the tax code that
ing Israel, but as Israel started to run out increased investment and decreased
of artillery shells and other necessities, consumption solved the problems cre-
the U.S. began to airlift supplies in. Arab ated first by war and then by politics.
oil producers responded by placing an Ronald Reagan happened to be presi-
oil embargo on the United States and dent and carried out policies that he had
Israel’s other supporters, particular- no choice but to carry out. What started
ly in Europe. It was a stunning blow to with guns and butter ended in the capi-
the U.S. economy, where oil prices not tal that drove the technology boom.
only rose but oil became unavailable.
Gas stations that had fuel had lines of It is easy to blame Johnson and Nixon,
cars a half mile lined up. Oil was an es- but they executed policies demanded by
sential commodity, and it was unavail- the public. The public wanted the prob-
able. Inflation surged. Unemployment lems solved at no cost to them. Since
soared as businesses closed. Interest that was impossible, the political sys-
rates rose as banks protected reserves. tem generated the illusion of a solution.
The oil embargo continued for months That illusion satisfied short-term public
among some producers. It’s not exces- demands, the demands that frequently
sive to say that the American and other end in greater pain than they imagined.
economies were heading toward melt-
down. The political maneuvers that had In other words, war begat an unintend-
impacted the U.S. economy over previ- ed consequence. Another war imposed
ous years now seemed modest. an extraordinary hardship but led to an
upheaval in the political system. As I
What began with the Vietnam War accel- have written elsewhere, this is how our
erated with the Arab-Israeli War. The real culture works. In our era, the end of the
pain did not come until the early 1980s, cycle began with COVID-19, which had
when a new political paradigm confront- the same disruptive effect as a war and
ed the idea that inflation and high inter- created the same raging anger. This has
est rates not only affected private life been followed by another war, Ukraine,

Economies and War
which is having a massive effect on the for what happens, as that is an Ameri-
global economic system. Inflation is can tradition. The irresistible process
surging and interest rates rising. creates the pain, and the miracles de-
manded by the public will make things
If my model follows course, the politi- worse. The politicians will be blamed.
cal system will not be able to solve the But it clears out the system and readies
problems before the end of the decade. us for the future.
We will of course blame the politicians

Checking in on the Global Economy
June 15, 2022
There are disruptions in energy, finance and trade

underway that could alter the global order.

Let’s check in on the global economy. extract energy resources in places such
The world is struggling with inflation, as western Siberia and to refine the ex-
even as it continues to mend broken tracted products. For now, Russia is
supply chains. The Japanese yen, the supplying most of its clients, but as the
Indian rupee, the Chinese yuan and the fallout from the war and sanctions con-
euro have all slid against the dollar, tinues, its ability to do so will likely di-
prompting expectations that the Feder- minish. Less Russian oil and gas on the
al Reserve will raise interest rates again global market would hurt both Russia
this week. and the global economy. Insufficient in-
vestment worldwide in projects over the
Energy prices are particularly worri- past several years has only compound-
some. Gasoline prices have been on an ed the problem.
upward trend ever since the COVID-19
pandemic fundamentally changed con- Meanwhile, the dollar, which most of the
sumption patterns, but the Russian inva- world uses to buy oil, is growing stronger
sion of Ukraine, and the sanctions that in global financial markets. Risk-averse
followed, sent prices through the roof. investors are less interested in betting
The European economy is especially be- on potentially high-reward projects than
holden to Russian energy. Natural gas they are in investing in reliable, if low-re-
imports keep households heated and turn, opportunities. This means less
industries humming. The longer the war money is going into new technologies
goes on, the more volatile the energy and more is being invested in consumer
environment in Europe will be. (This has products. It also means less money is
prompted many European states to look being spent on developing economies
for other suppliers, which could create than developed economies, of which the
new opportunities for oil-rich states that U.S. is the safest – hence why the val-
are looking for investments in their ener- ue of the dollar has increased by more
gy sectors.) than 10 percent since the beginning of
the year compared to most world cur-
Meanwhile, Western sanctions against rencies.
Russia have prevented producers there
from accessing certain technologies to

This comes at a time when the financial food supply disruptions. In response,
system was already under pressure. The most countries are looking at ways to
retirement of the baby boomers was al- diminish their dependencies on other
ready driving a major restructuring, with countries and better integrate produc-
a notable shift from saving to consumption chains internally. In short, protec-
tion of leisure goods and health care tionism has grown.
services. This transition will mean lower
overall spending on high-tech, innova- The U.S. is no exception. Presidents
tive sectors that have driven economic Donald Trump and Joe Biden followed
growth in recent years. the same script on trade, making sup-
port for American production a priority.
At the same time, the pandemic gen- The war in Ukraine further bolsters the
erated mass relocations in developed case for protectionism, as it exposes
countries, adding pressure on the global even more vulnerabilities. This week,
credit market. This includes not only the the U.S. Congress will vote on the 2022
baby boomers but also their children, the Ocean Shipping Reform Act, the largest
millennials, the second-largest genera- overhaul of shipping regulations since
tion in most developed countries. While 1998. In light of the government’s desire
the boomers are looking for cheaper to promote U.S. exports while reining
housing in warmer climates, millennials in ocean carriers’ market power, the bill
want affordable single-family homes would broaden the regulatory powers of
for raising families. This is causing de- the Federal Maritime Commission and
mand pressures on credit markets and set up a legal framework for the creation
beyond. The demand for dollars is only of vessel alliances. The goal is to secure
growing. the U.S. as the primary power controlling
the ocean shipping industry.
A major trade dislocation is also in prog-
ress. The pandemic demonstrated the At the same time, a decades-old trend
negative effects of interdependence. is reversing. Since the 1980s, firms have
Most countries have experienced sup- expanded their production abroad and
ply chain problems in essential goods, developed global supply chains. But in
such as pharmaceuticals, or temporary response to the pandemic and Ukraine,

which affected perceptions of the costs shipping act. It’s why pretty much all
(resilience) and benefits (efficiency) of developed states are looking to secure
globalization, companies have started supplies of food, key commodities and
discussing reshoring or “friend-shor- microchips.
ing.” Reshoring means companies relo-
cating supply chains within their nation- But more important, this means some
al borders, something that’s possible of the globalization of the past four de-
only for countries like the U.S. where cades will be cut back. Some of these
there’s enough resource diversity to cov- processes were already underway, and
er most needs, albeit at higher prices. the pandemic accelerated many oth-
Friend-shoring – setting up production ers. The war in Ukraine only amplifies
in nearby friendly countries – is more the trend. Energy dislocation, financial
likely, since it still promises shorter sup- dislocation, and trade and investment
ply chains. dislocation will alter the global econom-
ic order. These changes won’t happen
All these firms’ adaptation strategies overnight, and the actions governments
involve adjustment costs and new in- will take are unclear. However, all this
vestments. All will put pressure on gov- makes it more urgent for leaders to start
ernments to adjust and establish the rethinking economic models now, which
necessary regulatory environments to in the end will affect their strategy and
protect their interests. This is one of the the global geopolitical model.
reasons the U.S. is revising the ocean

MISSON STATEMENT
Geopolitical Futures understands the world through the rigorous application of geopolitics: the
political, economic, military and geographic dimensions that are the foundation of nations. The
imperatives and constraints contained in these define the nation. We study the past to understand
the future. At its core geopolitics assumes, as does economics, that events are governed by these
impersonal forces and not by individual whim or ideology.
Geopolitical Futures is rigorously non-ideological. Our staff may have their personal beliefs, but
they must check them at the door. Therefore, we strive to be objective and indifferent to the opin-
ions swirling around the world. We believe that liberal democracy can survive only if there is a
segment of society, which we call the learned public, who is not caught up in the passions of the
moment, but is eager to look at the world as it is. It is this learned public that will influence the
political system toward the prudence that flows from understanding, and whom we serve with the
methods we have developed.
Above all, Geopolitical Futures is an intellectual undertaking, an ongoing experiment in finding

order in the apparent chaos of the world. We are a business that lives the life of the mind.
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twitter.com/GPFutures
instagram.com/geopoliticalfutures
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The Global Economy: THE WORLD IN 2022

How the Ukrainian Battlefield Redefines the World...........................................................14

America’s Broken Supply Chains.....................................................................................18

Russia and the First Economic World War.......................................................................20

China Struggles to Balance Zero-COVID and the Economy...............................................26

Can Africa Replace Russian Energy in Europe?................................................................33

Indonesian Exports and Palm Oil Prices..........................................................................40

China’s Role in Sri Lanka’s Economic Crisis.....................................................................42

India Powers Down........................................................................................................49

Arab Food Insecurity and Political Failure.......................................................................51

The Global Economy Rebounds, Stumbles Again.............................................................59

Diesel Supplies and Food...............................................................................................61

Exerting Economic Influence in Latin America.................................................................70

Economies and War.......................................................................................................72

Checking in on the Global Economy................................................................................76

www.geopoliticalfutures.com 2 © 2022 Geopolitical Futures

Enclosed is a compendium of analyses that chronicles our coverage of it. It will

www.geopoliticalfutures.com 3 © 2022 Geopolitical Futures

Analysts contributing﻿ to this special report

Antonia Colibasanu is Geopolitical Futures’ COO and a senior analyst. She is

Allison Fedirka is the director of analysis at Geopolitical Futures. Ms. Fedirka

Viktória Herczegh is an analyst at Geopolitical Futures. She is also a Ph.D. can-

Hilal Khashan is a Senior Analyst at Geopolitical Futures and a Professor of po-

Ekaterina Zolotova is an analyst for Geopolitical Futures. Ms. Zolotova has a

www.geopoliticalfutures.com 4 © 2022 Geopolitical Futures

Rising Food Prices Will Shake the Middle East

Russia’s invasion of Ukraine came at a time when

www.geopoliticalfutures.com 5 © 2022 Geopolitical Futures

The war in Ukraine is exacerbating pre- U.S. Department of Agriculture’s 2021-

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Market Uncertainty From the first days of the war, Black

www.geopoliticalfutures.com 7 © 2022 Geopolitical Futures

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and a lack of sellers in the other. The

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Alternative Suppliers stopped selling their wheat over confu-

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the world, now’s a good time to consider

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How the Ukrainian Battlefield

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How the Ukrainian Battlefield Redefines the World

The war in Ukraine is a humanitarian So now Russia is looking for reinforce-

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How the Ukrainian Battlefield Redefines the World

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How the Ukrainian Battlefield Redefines the World

Notably, Taiwan isn’t the next move. Chi-

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America’s Broken Supply Chains

Shipping backlogs, labor shortages and low

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America’s Broken Supply Chains

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Russia and the First Economic World War

The Kremlin has prepared for decades to confront

www.geopoliticalfutures.com 20 © 2022 Geopolitical Futures

Russia and the First Economic World War

As momentous as Russia’s invasion of collapse and the economic crisis of the

www.geopoliticalfutures.com 21 © 2022 Geopolitical Futures

Russia and the First Economic World War

www.geopoliticalfutures.com 22 © 2022 Geopolitical Futures

Analysts contributing to this special report