Navigating the Vortex

When Donald Trump first offered to buy Greenland in 2019, he was widely ridiculed and nothing much came of it, apart from a cancelled state visit to Denmark. Fast-forward six years and Trump’s renewed “bid” for the world’s largest island is back on the table.

And with renewed vigour at that. In an interview on January 7, the incoming US president refused to rule out the use of force to take possession of Greenland and he dispatched his son, Don Jr, “and various representatives” there on January 8, 2025, to underline his seriousness. With Elon Musk on board as well, money should not be an obstacle to any deal that Trump envisages.

Trump is not the first US politician to try to buy Greenland. The earliest documented attempt to acquire the island goes back to 1868. The last serious pre-Trump effort is that by President Harry S. Truman’s government in 1946. Trump’s renewed interest in Greenland, thus, stands in a long tradition of American efforts of territorial expansion.

Even without this historical background, Trump’s latest bid is less irrational today than it may have seemed back in 2019. Greenland is exceptionally rich in so-called “critical minerals”. According to a 2024 report in the Economist, the island has known deposits of 43 of 50 of these minerals, which, according to the US Department of Energy, are essential for “technologies that produce, transmit, store, and conserve energy” and have “a high risk of supply chain disruption”.

The latter certainly is a valid concern given that China – a key supplier of several critical minerals to global markets – has been increasing restrictions on its exports as part of an ongoing trade war with the US. Access to Greenland’s resources would give Washington more supply chain security and limit any leverage that China could to bring to bear.

Greenland’s strategic location also makes it valuable to the US. An existing US base, Pituffik Space Base, is key to US missile early warning and defence and plays a critical role in space surveillance. Future expansion of the base could also enhance US capabilities to monitor Russian naval movements in the Arctic Ocean and the north Atlantic. US sovereignty over Greenland, if Trump’s deal comes to pass, would also effectively forestall any moves by rivals, especially China, to get a foothold on the island. This may be less of a concern if Greenland remains part of Nato member Denmark which has kept the island economically afloat with an annual grant of around US$500 million (£407 million).

Greenland’s independence – support for which has been steadily growing – could open the door to more, and less regulated, foreign investment. In this case, China is seen as particularly keen to step in should the opportunity arise.

Add to that growing security cooperation between Russia and China and the fact that Russia has generally become more militarily aggressive, and Trump’s case looks yet more credible. Nor is he the only one to have raised the alarm bells: Canada, Denmark and Norway have all recently pushed back against an increasing Russian and Chinese footprint in the Arctic.

So, the problem with Trump’s proposal is not that it is based on a flawed diagnosis of the underlying issue it tries to address. Growing Russian and Chinese influence in the Arctic region in general is a security problem at a time of rising geopolitical rivalry. In this context, Greenland undeniably poses a particular and significant security vulnerability for the United States.

The problem is Trump’s “America first” tunnel vision of looking for a solution. Insisting that he wants Greenland and that he will get it – even if that means exceptional tariffs on Danish exports (think Novo Nordisk’s weight loss drugs) or the use of force. Predictably, Greenland and Denmark rejected the new “offer”. And key allies, including France and Germany, rushed to their ally’s defence – figuratively for now.

Rather than strengthening US security, Trump is effectively weakening it by, yet again, undermining the western alliance, and Nato – the North Atlantic Treaty Organisation – in particular. Not only does the irony of doing so in the north Atlantic appear to be lost on Trump. But it also seems that there is an even more fundamental problem at work here in that this kind of 19th century-style territorial expansionism reflects Trump’s isolationist impulses.

“Incorporating” Greenland into the US would likely insulate Washington from the disruption of critical mineral supply chains and keep Russia and China at bay. And signalling that he will do it whatever the cost is an indication that, beyond the kind of bluster and bombast that is normally associated with Trump, his approach to foreign policy will quickly do away with any gloves.

Rather than investing in strengthening security cooperation with Denmark and the rest of its Nato and European allies to face down Russia and China in the Arctic and beyond, Trump and his team may well think that the US can get away with this. Given that what is at stake here are relations with the US’s hitherto closest allies, this is an enormous, and unwarranted, gamble. No great power in history has been able to go it alone forever – and even taking possession of Greenland, by hook or by crook, is unlikely to change this.

An earlier version of this analysis was published by The Conversation on January 9, 2025.

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On December 31, 2024, the last contract that the Russian energy giant Gazprom had for the over-land supply of natural gas to Europe came to an end. This was the result of Ukraine refusing to renew the transit contract that had been in place since 2019 and contributed around $5bn to Gazprom’s annual revenue. Given that Russia invaded Ukraine in 2022, this was not an unreasonable decision for the government in Kyiv to take. Nor was it unpredictable – already in the summer of 2023, Ukraine had indicated that it had no intention to extend the contract with Gazprom.

By the time the contract came to an end, the dependency of the European Union on Russia for gas had been reduced from its peak above 40% just before the beginning of the Russian aggression against Ukraine to below 10%. And only around half of that came via Ukraine. The EU and its member states were well-prepared for the cut-off, having secured alternative suppliers and sitting on full gas storage tanks to see them through the winter.

Moreover, the European energy infrastructure of pipelines and the electricity transmission grid have sufficient levels of in-built flexibility and redundancy and have proved resilient to cope with the sudden lack of supply of gas via Ukraine. This even included the capacity of additional provision of electricity to Moldova – a small country wedged between Romania and Ukraine, which had been highly dependent on gas supplies via Ukraine.

The end of over-land gas supplies and the EU’s ability to cope with this were thus clearly foreseeable for everyone – except, apparently, Slovakia’s prime minister Robert Fico. He predicted a severely negative impact on the EU, including in terms of the costs and availability of heating and electricity. As his row with Ukraine’s president Volodymyr Zelenskyy escalated, Fico also threatened to cut off electricity supplies to Ukraine and warned of further unspecified retaliation measures.

Perhaps most shockingly, Fico even went to Moscow on December 22, 2024, for direct talks with Vladimir Putin. This made him only the third EU leader to go to Russia since the start of the war almost three years ago. The other two that went to meet the Russian president were the outgoing Austrian chancellor, Karl Nehammer, and the Hungarian prime minister, Victor Orban.

Fico and Orban in particular are well-known for their pro-Russian leanings. They have repeatedly used their leverage inside the EU and NATO to undercut support for Ukraine. Trying to play the energy card as they did over the end of the Gazprom deal, thus, has less to do with energy security. Rather, it is part of a political agenda of some of the populist European far right who are more than willing to act as a fifth column for Russia inside western institutions.

For some time now, populist parties have played on voters’ fears of ever-increasing inflation, immigration and an escalation of the war in Ukraine that could ultimately drag NATO and the EU into a direct confrontation with Russia. Parties on the extreme left and right have done well at the polls last year, including in Austria, France, and Romania. They are also likely to be the main beneficiaries of parliamentary elections in Germany in February and potentially of presidential elections in Poland in May. Meanwhile, the resignation of Chancellor Nehammer in Vienna on January 3, 2025, following the collapse of coalition negotiations among three centrist parties, has also opened up a pathway to power for the far-right, pro-Russian Austrian Freedom Party.

The general shift to the political extremes, however, should not be mistaken for a broader, Europe-wide tendency towards accommodating Russia. This is certainly part of the agenda of Orban and Fico, as well as of elements in the German and Austrian far right (and to an extent the German far left). But others in the European right, like Italy’s Giorgia Meloni and France’s Marine Le Pen, have clearly distanced themselves from Putin’s war. Meloni has gone beyond that and been a strong and outspoken supporter of Ukraine.

Those European leaders closest to the Russian president’s agenda also share an anti-democratic and authoritarian streak with him. Whatever their reasons for doing so, they appear to be working towards the weakening western support for Ukraine and eroding western leadership in the current international order – much like Putin himself.

They might all be hoping that the return of Donald Trump to the White House will benefit their own aspirations. And in the short term, this may well prove to be the case. Putin may get a good deal from Trump on Ukraine. Orban, Fico and others may get audiences with Trump (and financial support from Elon Musk).

Yet, for Trump and most in his team, the big prize is defeating China. Both Putin and Orban are likely to fall out of the incoming American president’s good graces if they are unwilling to cut their ties with Beijing – something almost inconceivable for Russia to do.

And Putin’s eastern European acolytes would also do well to remember that in Putin’s imperial mindset there is no place for truly independent neighbours. This is what prompted the invasion of Ukraine and there is no guarantee that Putin’s vision of Russia as a great power will be confined to the borders of the former Soviet Union. In fact, there is nothing to suggest that Putin’s re-imagined Russian empire would not be more like the former communist bloc that extended all the way to the Berlin Wall. In the future, European populists may thus come to regret the erosion of western institutions like NATO and the EU which they now appear so keen to achieve at Putin’s behest.

This is an expanded and updated version of a commentary published by Channel News Asia on January 8, 2025.

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This is the podcast version of our analysis of the likely consequences of the end of over-land deliveries of Russian gas to Europe. You can read the original post, which includes a number of hyperlinks, here.

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This morning, the High-Level week of the 78th session of the United Nations General Assembly gets under way in New York. This is the annual gathering of the heads of state and government of most of the UN’s member states. Notably absent this year, however, are four of the five permanent members of the UN Security Council—Russia, China, and France are not sending their presidents, and neither is the UK prime minister attending.

What will the main focus be for the General Assembly?

Two items will likely dominate the 78th UN General Assembly High-Level Week—the war in Ukraine and progress on the Sustainable Development Goals, on which there is a special summit in New York that is expected to conclude with the adoption of a political declaration today.

Will the war in Ukraine dominate?

The war in Ukraine will probably not dominate, but it will be a key item on the agenda, given especially that Ukraine's president, Volodymyr Zelensky, is one of the speakers scheduled to address the General Assembly on the first day of the debate. The war in Ukraine will also be critical in more indirect ways. Many countries have been affected by the war, including in terms of their food security, in terms of the inflation of energy prices, and in relation to the increasingly tense and fractious relations between Russia and the West which has added to global instability and negatively affected the ability of the international community to tackle key issues, such as development and climate change, more effectively. These issues are likely to be raised by several speakers in the debates and in meetings, like the one between Britain’s Prince William and UN Secretary General Antonio Guterres yesterday.

Who will the main players be given the leaders from the UK, France, Russia and China won’t be in attendance?

Given that of the permanent five, veto-wielding powers of the Security Council only the US will be represented at the highest level, with President Biden addressing the General Assembly this morning in New York, we can expect key leaders from the Global South playing a more important role this year.

President Lula of Brazil will be the first speaker after the report of the General Secretary. South Africa, another key actor for the Global South, will also be there with its president speaking this morning, while the new Nigerian president will speak in the afternoon.

Apart from the US, key Western players sending their heads of state or government include Switzerland, Germany, and Japan. But in general, we would expect the so-called Middle Powers, including those from the Global South, which have for years pushed for a greater recognition of their role, to take at least part of the limelight. This will also include countries like Turkey, Argentina, and Qatar.

Is it surprising to see that the leaders of these superpowers won’t attend?

Yes and no.

Yes, because the High-level Week at the General Assembly is one of the major universal platforms not only for addressing the assembled international community and raising key issues in front of a global audience but also for these heads of state and government to have bilateral and small multilateral meetings in the margins of the general assembly. This is where a lot of important business gets done--for example, President Biden will host the leaders of five Central Asian states today for the in the first-ever presidential summit in the so-called C5+1 summit.

At the same time, it's also not surprising, for example, that Russia's president Vladimir Putin is not attending given that there is a warrant out for his arrest by the International Criminal Court. And the Chinese president, Xi Jinping has avoided any potential direct encounters with his US counterpart for quite some time.

The absence of the heads of state and government of Russia, China, the UK and France, however, should also not be overstated -- regardless of their high-level presence or not, they remain the key players in the UN system because of their privileged position as veto powers on the Security Council, which, compared to the General Assembly, is the more powerful of the UN organs. And the US Secretary of State, Antony Blinken, met the Chinese Vice President, Han Zheng, yesterday in New York, so the superpowers still interact at the UN, even if not at the highest levels.

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The 15th BRICS Summit, held in South Africa from the 22nd to the 24th of August was predictably underwhelming in its lack of concrete outcomes. The BRICS, even after the addition of six new members next year, will be anything but an alternative or rival to the G7. For all the talk about multipolarity, the BRICS, and their expansion, contribute further to the consolidation of a new bipolar order with just two rival blocs—led respectively by the US and China. It remains to be seen, however, whether dislike of a US-dominated order is enough to sustain the current lure of the BRICS.

What it’s about: The 94-paragraph Johannesburg II Declaration issued at the summit of currently five members of the BRICS—Brazil, Russia, India, China, and South Africa—is a mostly aspirational and self-congratulatory document. The only truly notable outcome of the summit is contained in paragraph 91:

We have decided to invite the Argentine Republic, the Arab Republic of Egypt, the Federal Democratic Republic of Ethiopia, the Islamic Republic of Iran, the Kingdom of Saudi Arabia and the United Arab Emirates to become full members of BRICS from 1 January 2024.

This is preceded by the announcement that “BRICS countries reached consensus on the guiding principles, standards, criteria and procedures of the BRICS expansion process” but without any further elaboration of what these might be. And the announcement of expansion is followed by a commitment “to further develop the BRICS partner country model and a list of prospective partner countries”.

Apart from that, the Declaration is hardly a revolutionary document. It repeats calls for reform rather than replacement of key international institutions, such as the UN, the World Trade Organisation, and the IMF. In addition, the BRICS “reaffirm the importance of the G20 to continue playing the role of the premier multilateral forum in the field of international economic and financial cooperation”.

There are the usual expressions of concern about war and conflict, with Sudan, Niger, Libya, Western Sahara, Yemen, Syria, the Occupied Palestinian Territories, and Haiti all name-checked.

On Ukraine, the language is predictably vague to accommodate the different stakes that the five members have:

We recall our national positions concerning the conflict in and around Ukraine as expressed at the appropriate fora, including the UNSC and UNGA. We note with appreciation relevant proposals of mediation and good offices aimed at peaceful resolution of the conflict through dialogue and diplomacy, including the African Leaders Peace Mission and the proposed path for peace.

On the other big issue in the run-up to the summit—de-dollarisation and the possible establishment of a BRICS currency—the Declaration stretches as far as “stress[ing] the importance of encouraging the use of local currencies in international trade and financial transactions between BRICS as well as their trading partners” and “encourag[ing] strengthening of correspondent banking networks between the BRICS countries and enabling settlements in the local currencies” with BRICS finance ministers and central bank governors to report back on these issues at the next summit.

Why it matters: In their current five-member composition, the BRICS constitute just over 40% of the world’s population and account for one-quarter of global GDP ($26tn out of $104tn, according to World Bank data). The six new members will not significantly increase either of these figures: based on 2022 data, the enlarged BRICS’ share of global GDP will only increase by three percentage points. But with the addition of major Chinese oil and gas suppliers—notably Saudi Arabia and the UAE, less so, for now, Iran—what will, from 2024 onwards count as BRICS-internal trade is likely to increase. The same is probable to occur for BRICS-to-BRICS FDI.

All five current members are part of the G20. With Argentina and Saudi Arabia joining the BRICS in 2024, seven G20 members will also be BRICS countries. If current, and future, members of the BRICS are serious about the G20 as “the premier multilateral forum in the field of international economic and financial cooperation” and if they are able to align and coordinate their approaches to global political and economic issues, dynamics at the G20 may change under the Brazilian presidency in 2024. But this is a very big ‘if’.

Our take: The BRICS do not constitute an alternative world order in either a geopolitical or geoeconomic sense.

The BRICS are not an international organisation in the traditional sense with a legal personality and a permanent secretariat, often established by a formal treaty, and united by a common purpose. Their ‘creation’ was almost accidental, based on an assessment in 2001 that GDP growth in the emerging markets of Brazil, Russia, India, and China would accelerate significantly and consequently have an impact on the global economic and financial system. Their first formal summit was held in 2009 in Russia’s Yekaterinburg. South Africa was invited to join in 2010, turning the BRICs into the current BRICS.

The BRICS’ share of global GDP—25% at present, 28% after their enlargement next year—sounds impressive. However, almost 70% of that is due to the size of the Chinese economy. China similarly dominates in trade terms. Our calculations based on the UN Comtrade Database indicate that Chinese trade in goods with BRICS partners in 2022 came to just over $550 billion, which, however, constitutes less than 10% of China’s total global trade. Expansion will add another $273bn to this figure, based on 2022 data, making BRICS trade worth approximately 15% of China’s total trade.

The single most important trade partner among the current BRICS for China is Russia with just over $190bn, but this was just over 3% of China’s total global trade in 2022. By comparison, trade with the US in 2022 was slightly more than $761bn, making the US China’s single most important trade partner overall, accounting for 12%.

China’s most important trade relationships are with other blocs. First among them is the Regional Comprehensive Economic Partnership, a free trade area including China, all ASEAN member states, and Australia, Japan, New Zealand, and South Korea. Trade with this bloc amounted to $1.9tn in 2022, equivalent of just under 31% China’s global trade. China’s trade with the EU was worth close to $900bn (14% of global Chinese trade in 2022). Trade with all the individual members of the G7, which do not constitute a free trade area, was worth just over $1.7tn, or 27% of all Chinese trade in 2022.

While China’s trade with the BRICS as a whole and its individual members may be less important for Beijing than other trading relationships, the reverse is not true. For Brazil, trade with China constitutes just over 27% of its total trade. Corresponding figures for Russia (based on 2021 trade volume) are 24%, for India 11.5%, and for South Africa 24%. For new members, the data differ slightly. Oil and gas exporters Saudi Arabia and United Arab Emirates depend on China for 26% and 13%, respectively (both 2021 data). For Argentina (2022), Egypt (2022), and Ethiopia (2021), the corresponding figures are 13%, 14%, and 15%.

From a geoeconomic perspective, China, thus, clearly dominates the current BRICS and will continue to do so after enlargement. But its trade relationships overall will still be highly diversified and the BRICS, even after enlargement, are unlikely to become a major trading bloc or a key driver of geoeconomic fragmentation. For that to happen, membership would need to grow significantly more, members would need to agree on a free trade arrangement, and they would need, collectively, to decouple more from the G7. None of this is impossible, but it is highly unlikely to occur anytime in the near future.

Geopolitically, the picture is only slightly different. Since 2010, the BRICS have developed a stronger sense of common purpose, which can loosely be described as gaining more in…

In this emergency episode of the "Navigating the Vortex," podcast Lucy P. Marcus and Stefan Wolffprovide a detailed analysis of Prigozhin’s fast march to Moscow, the role of key players, and the potential consequences, and opportunities, for the region and the world.

Lucy and Stefan delve into the many facets of the aftermath: the implications for the war in Ukraine, the changing power dynamics inside and outside Russia, and the kaleidoscope of players, from the African nations to multinational boardrooms, and from Washington DC and New Delhi to Beijing.

Two reports out this week — the World Bank’s Global Economic Prospects and the OECD’s Global Economic Outlook — paint a picture of slow growth and incremental recovery threatened by persisting economic, political, and environmental risks. Both reports emphasise the importance of sound macro-economic policy, including addressing inflation, responsible debt management, and structural policy reforms that enhance productivity and can sustain longer-term growth.

What it’s about: The prospects of global economic growth remain bleak. Both the World Bank and the OECD project very moderate growth across all regions for 2023 and 2024. The projections are not identical in the last detail of every percentage point, but the underlying message is clear: growth is at best fragile and risks remain significant. Above all, whatever economic growth might be possible is unlikely to be sufficient to create the fiscal space for governments to address a vast number of socio-economic, political, and environmental challenges by simply throwing money at these problems.

Instead, the World Bank and the OECD both point out the need to return to the fundamentals of macro-economic policy making; that is, to move away from a permanent crisis mode that responds to whatever appears as the most pressing issue of the day and ensure that foundations are (re-) built that will enable sustainable long-term growth.

The growth required to deal with the challenges that lie ahead is substantial. Populations are growing globally, but unequally; climate change requires a transition to net-zero and much greener economies than we have today; workforces need to become more diverse and inclusive and will need a whole range of new skills.

Why it matters: This is not the first time that key economic and financial institutions have pointed out that the underlying drivers of economic growth are weak and that the prospects for achieving levels of sustainable growth that would be sufficient to deal with challenges as diverse as climate change, sovereign debt crises, and demographic change are mixed at best.

“Is global growth doomed?” was a question that we discussed some two months ago (On Our Radar, 5 April 2023), the problems are deep-seated, the consequences of not addressing them will be negative and long-lasting, and the solutions, while in many ways obvious, difficult to achieve at a time of geoeconomic and geopolitical fragmentation.

In this sense, the World Bank’s Global Economic Prospects and the OECD’s Global Economic Outlook don’t tell us anything new per se. They identify similar underlying trends — inflationary pressures, the risks to global trade from ‘de-coupling’ and ‘de-risking’, etc. Both note the lasting impact of the COVID-19 pandemic in terms of the unsustainable loosening of fiscal policies. Both point to Russia’s aggression against Ukraine as an exacerbating factor.

Counter to the perennial call for everyone to “think outside the box” to find the solutions, what is important, is the emphasis on “getting back in the box”. That a permanent crisis mode of economic policy making can all too easily become a self-fulfilling prophecy by making the crisis itself permanent. For that reason alone, both reports are important, and their advice needs to be heeded by policy makers around the world.

Our take: Resilience is at the top, front, and centre of a seemingly never-ending series of global summits, as we covered in our On Our Radar pieces on 22 May and 5 June — “Moving on from Ukraine? China-West relations between Xi'an and Hiroshima” and “Summitry continued: the EU and Central Asia, BRICS and Friends, and the European Political Community”.

And if any further proof of the focus on resilience was needed, the OECD’s 2023 Ministerial Council Meeting, which endorsed the Global Economic Outlook report, was imaginatively titled “Securing a Resilient Future: Shared Values and Global Partnerships”. Its Key Issues paper identified Ukraine, trade, energy, and innovative technologies as key factors in “a world [that] faces economic, social, environmental, political and development challenges on a scale not witnessed for decades” and in which “geopolitical uncertainty grows”.

Yet, many of the prescriptions on how to achieve resilience are driven primarily by geopolitical imperatives around national security concerns. These may be narrow in their intended economic impact as evident, for example, in speeches given by European Commission President Ursula von der Leyen on 30 March 2023, US Treasury Secretary Janet Yellen on 20 April 2023, US National Security Advisor Jake Sullivan on 27 April 2023. However, their broader perception and consequences reinforce exactly the kind of geoeconomic and geopolitical fragmentation that has been repeatedly identified as one of the key risks to sustainable economic growth.

Pointing out the risks of ‘de-risking’ is one thing, offering an alternative is quite another, especially when the risks of an over-reliance, for example on Russian oil and gas, were so obvious to see once they materialised in the context of Moscow’s aggression against its Ukrainian neighbour. The other lesson learned from this, especially in Europe, was that a straightforward decoupling from Russia, though slow and painful initially, was possible.

The challenges of ‘de-risking’ in relation to China are a multiple of what they are in the context of Russia, and crucially they extend beyond trade. True resilience, therefore, needs to be conceptualised beyond supply chains, Chinese access to advanced technologies, and inward and outward investment.

And this is where some of the policy recommendations from the World Bank’s Global Economic Prospects and the OECD’s Global Economic Outlook come in, because they help us refocus on some of the fundamentals of sound economic policy making that goes beyond this crisis or that and, in fact, makes our economies more resilient to future crises. Reigning in public spending and focusing it on both those most in need and on job creation will benefit economies because it will reduce inflationary pressures while protecting the most vulnerable in societies and open opportunities for increasing government revenue. Expanding the workforce both by investing in skills development and by making it more gender-inclusive will have additional growth-generating effects. Stimulating private investment, and supplementing it as needed with public investment, in the transition to a green economy is also likely not only to stimulate growth but also to mitigate the key challenge of climate change. It may not prevent this particular crisis in the future, but it will better equip us to manage it.

These domestic policy measures will need to be flanked with a similar re-focus on the fundamentals of international (economic) relations. This would require strengthening the World Trade Organisation, a global re-commitment to the UN and its specialised agencies, such as the World Food Programme, the Food and Agricultural Organisation, and the World Health Organisation, among others. It will also mean making a success of COP 28, regardless of the misgivings one might have about its President-Designate or the potential participation of Syrian president Bashar al-Assad.

At a time when it is all too easy (and justifiable) to get lost in the flurry of crises from the escalating war in Ukraine to the stand-off in Kosovo and to the civil wars in Afghanistan and Sudan and all too tempting to share in the outrage over Donald Trump and Boris Johnson, we must always look to the lesson that can be gleaned from these, and recognise that these are symptoms of failing institutions and a mix of self-serving and incompetent people within them. Going back to the fundamentals of what sound and responsible policy making used to look like will not fix all of these and other problems but it can restore, and lay, the foundations not just for sustainable future economic growth but for more security and stability in a world…

Last week saw another three summits in quick succession: the foreign ministers of the BRICS countries met in Cape Town, South Africa; the European Political Community met at Mimi Castle in Bulboaca, Moldova, and the Heads of State of Central Asia and the President of the European Council came together in Cholpon-Ata, Kyrgyzstan. None of the meetings produced much in terms of concrete outcomes, but even as mere talking shops they are indicative of geopolitical and geoeconomic flux and uncertainty.

What it’s about: The foreign ministers of Brazil, Russia, India, China, and South Africa — collectively also known as the BRICS — met in Cape Town. Their Joint Statement emphasised a common commitment to challenge what is, in the BRICS’ view, a western-dominated international order, often couched in calls to both strengthen and reform existing multilateral institutions like the UN and to promote “a more agile, effective, efficient, representative and accountable international and multilateral system.”

The three stated pillars of the BRICS — political and security, economic and financial, and cultural and people-to­ people cooperation — are not very different from discussions at the second meeting of the European Political Community. Held in Moldova in a not-so-subtle endorsement of that country’s EU ambitions, the forty-five gathered leaders discussed peace and security, energy resilience, and connectivity and mobility in Europe. Intended as an informal policy coordination forum, there was no official communiqué and only a brief pre-meeting statement by the Head of the European Council, Charles Michel, as well as an even shorter statement by him following a separate discussion he chaired between the leaders of Armenia, Azerbaijan, France, and Germany.

The brevity of these two statements could be explained either with the secrecy (or vacuousness?) of the discussions in Moldova or with Michel’s busy schedule, as he headed straight to Cholpon-Ata to the second EU-Central Asia summit from there. While this meeting did produce a more fulsome joint press communiqué, it was perhaps the one most devoid of concrete results, reaffirming intentions that had already been reaffirmed in a similar communiqué after the first summit on 27 October last year.

Why it matters: As we discussed in our earlier piece, Moving on from Ukraine? China-West relations between Xi'an and Hiroshima (On Our Radar, 22 May 2023), the war in Ukraine remains an important driver of the current flux and uncertainty in the international system, but not the only one, and it certainly gives rise to, and exacerbates, any number of other factors that add to the current conflagration of multiple crises.

Last week’s three summits are no different. The BRICS statement did not mention Ukraine, but noted “concern about the use of unilateral coercive measures, which are incompatible with the principles of the Charter of the UN and produce negative effects notably in the developing world” before doubling down by recognising “the impact on the world economy from unilateral approaches in breach of international law and they also noted that the situation is complicated further by unilateral economic coercive measures, such as sanctions, boycotts, embargoes and blockades.” A charitable reading here might consider the reference to “unilateral approaches in breach of international law” as including Russia’s invasion of Ukraine, but the key point that permeates these and other passages of the statement is the concern about the economic impact of the war in Ukraine and the intensifying economic conflict between China and the US. An impact that is primarily borne by the global south — of which the BRICS consider themselves the leading voices and which they also seek to shape more, including through a potential expansion of the format.

This desire to remould the BRICS from an alternative to the G7 into to an alternative to a US-led global West that combines elements of the old Cold War Soviet block and the erstwhile non-aligned movement was particularly obvious in the “Friends of BRICS” gathering on the sidelines of the summit in Cape Town. Not exactly or exclusively great company — Iran, Saudi Arabia, the United Arab Emirates, Cuba, the Democratic Republic of Congo, Comoros, Gabon, and Kazakhstan were physically present with Egypt, Argentina, Bangladesh, Guinea-Bissau, and Indonesia joining online — it indicates the potential attractiveness of an enlarging BRICS to a wide range of countries.

Our take: The BRICS are still quite a bit off from being able to mount an effective challenge to the current international order. But that order is clearly in trouble and will change. Yet neither the US nor China, and their respective allies, have a clear vision of what it might look like, and above all none that would be credible in the sense of accommodating whatever individual visions might exist and how they could ensure a return to some semblance of stability and predictability in international relations.

This continuing uncertainty is neither cost- nor consequence-free. The costs are borne by many of the poorest countries around the world, and the Global South is right to point to this out. But we should equally not forget that a much higher and much more direct cost of Russia’s aggression is borne by Ukraine and Ukrainians.

The widespread sentiment in the Global South that the war should end as soon as possible and regardless of the impact on Ukraine may be understandable from the perspective of a country like Indonesia — whose foreign minister proposed a new peace plan at the IISS Shangri-La Dialogue 2023 on 3 June — but it is insensitive to Ukraine’s rights and potentially endorses, and encourages, the flagrant violation of fundamental principles of international law.

What is more, it is short-sighted. Never mind disputes in and near the South China Sea, including Indonesia’s own Natuna Islands, and not only because such a stance effectively accepts Russia’s territorial dismemberment of a sovereign neighbour. But also because it will likely have unintended and unwanted economic consequences.

The G7 remain the world’s most prosperous and powerful economies by some margin. As we covered in last week’s podcast “The Debt Ceiling, Summitry, and Corporate Governance in Japan…or just follow the money”, they now put significant emphasis on economic resilience, including the security of supply chains and the associated re-shoring, near-shoring, and friend-shoring. The implication here is clearly that you don’t recommend yourself as a ‘shore’ going so obviously against the Western understanding of the principles that should guide a just and sustainable settlement of the war in Ukraine.

Yet, continuing uncertainty also has consequences for the west and its allies. The EU, despite its focus on Ukraine, is also keen to consolidate its neighbourhood, now referred to as ‘wider Europe’. One of the few notable outcomes of the European Political Community summit in Moldova was a mini-lateral summit on the conflict between Armenia and Azerbaijan over Nagorno Karabakh which kept the momentum in the EU’s mediation efforts alive. Were the Union to succeed in brokering a normalisation between the conflict parties and even a peace treaty, this would have a significant and positive impact on supply chains along the Middle Corridor, including energy supplies from Kazakhstan.

Speaking of Kazakhstan, here is an obvious example of the many countries that are still hedging their bets in the current turmoil. Courted by China, the country was present at the BRICS summit as a ‘friend’, while its President attended the EU-Central Asia summit, signing up to the joint commitments made there, including “to formalise and advance the implementation of the Joint Road Map for Deepening Ties between the EU and Central Asia.” This may be more limited than the plethora of agreements signed at the China-Central Asia summit in Xi’an two weeks earlier, but it does …

Join hosts Lucy Marcus and Stefan Wolff for a deep dive into some of the most pressing issues of today and tomorrow.

In this episode of Navigating the Vortex, Lucy and Stefan talk through the continuing impact of the potential US default; the regional and global summits that tell us about China's growing influence in Central Asia, Ukraine's diplomatic efforts, G7 concerns regarding China; and how money is the glue that ties the threat of default by the US government, the recent banking sector crisis, and Japanese corporate governance together.

Too late to avoid the consequences of a potential default?

Lucy and Stefan begin with an update on the potential US default and the ongoing negotiations to raise the debt ceiling. They talk about the geoeconomic consequences of a default and the credit rating agencies' concerns about political partisanship hindering a resolution.

Summit-palooza

Then it is on to recent and upcoming regional and global summits. Stefan talks through China's Belt and Road Initiative and its economic and political influence in Central Asia, the runners and riders embracing China's investments, as well as where the war in Ukraine, President Zelensky's diplomatic efforts, and support from Western partners fit into all of it.

Lucy and Stefan delve into the G7 summit particularly regarding its focus on China and concerns about economic resilience and security. They highlight the implications for the private sector, such as evaluating equipment, protecting advanced technologies, and considering foreign investment strategies.

Coming up, there is more summitry to be had with the Nato foreign ministers meeting, the European Political Community gathering, and the 25th anniversary of the European Central Bank—Lucy and Stefan will brief you on key issues from these summits as and when they arise.

The hum of instability, both economic and political, balanced by borderless money

Lucy and Stefan outline some of the threads of the interconnectedness of geopolitics and geoeconomics, drawing together the threat of US default, the recent banking sector crises, and corporate governance issues - this time looking at Japan.

Above all else, they emphasize the fragility of global economic stability and the importance of vigilance.

Deeper Dive

As promised in the podcast episode, here are links to several items mentioned for those who’d like a deeper dive:

Stefan and Lucy first discussed the potential impact of a US debt default on the global economy several weeks ago. Starting with an explanation of what the debt ceiling actually is, they talk through severe consequences for the US economy and that a US default would have significant global consequences due to the US's central role in the global economy and financial system. Here is that episode:

Stefan mentioned a webinar that he co-organised with the Foreign Policy Centre in London, where he is a Senior Fellow. The video of the webinar “The impact of the war in Ukraine on connectivity in Eastern Europe and the South Caucasus” is below.

Lucy mentioned a piece she wrote, The Better Corporation, about the forced transformation of corporate governance in Japan, prompted in no small part by international investors expecting Japanese companies to adhere to universal principles of good corporate governance.

Also, this link takes you to a collection of all of the columns on corporate governance on Navigating the Vortex.

We hope you'll continue to share Navigating the Vortex far and wide, with friends, family, colleagues, across social media, and people you meet at summer garden parties.

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Four weeks ago, on 26 April 2023, Presidents Xi and Zelensky spoke on the phone for the first time since Russia’s invasion of Ukraine in February last year. This was an important first step in the direction of at least some cooperation between China and the West to work together on ending the war in Ukraine. But progress in this direction has been slow, and fighting in Ukraine has further intensified since. As China and the West have continued to shore up their respective alliances, Ukraine remains a major divisive issue but one that is becoming more and more a sideshow in the competition to shape a new geopolitical and geoeconomic order.

What it’s about: When Xi and Zelensky spoke for almost an hour about their countries’ bilateral relations and the war in Ukraine, the Chinese president focused on the importance of dialogue and negotiation “to bring lasting peace and security to Europe” while his Ukrainian counterpart confirmed “a just and sustainable peace for Ukraine” was inextricably linked to restoring “the territorial integrity of Ukraine … within the 1991 borders.”

This is the position that the G7 leaders’ communique supported as well, specifically calling on China “to support a comprehensive, just and lasting peace based on territorial integrity and the principles and purposes of the UN Charter, including through its direct dialogue with Ukraine.”

The corresponding Xi'an Declaration of the China-Central Asia Summit was unsurprisingly less specific in this regard, but the six presidents nonetheless “reaffirmed their commitment to the purposes and principles of the Charter of the United Nations and stressed that the territorial integrity and sovereignty of States cannot be undermined.”

Why it matters: The war in Ukraine so far has cost hundreds of thousands of lives on both sides, caused hundreds of billions of dollars’ worth of damage to Ukraine’s economy and infrastructure, and contributed to a global cost-of-living crisis by driving up the prices of energy and food. Western sanctions on Russia and the increasingly tough stance by the G7 on sanctions evasion and circumvention have accelerated a trend of geoeconomic fragmentation that reinforces the geopolitical reconfiguration of the international order into a US- and an emerging China-led block.

China’s consolidation of its relations with Central Asia at the summit of the presidents of all five Central Asian states with Xi Jinping in Xi’an indicates Beijing’s expanding influence in a region traditionally dominated by Moscow. Meanwhile, G7 leaders in Hiroshima re-committed to “de-risking, not de-coupling” in their quest for a common approach among them to economic resilience and security.

China and the West both try to maintain some momentum in shaping their respective alliances, and the war in Ukraine continues to matter in this context. But it is increasingly becoming a distraction from a range of other issues that China and the West, as well as the rest of the world, are grappling with. There can be no question that the war needs to be brought to an end but given the broader stakes in the China-West relationship, managing it by containment in the absence of a credible peace plan is becoming a more likely approach—and one that will intensify the political and economic rivalry between China and the West.

Our take: Bringing the war in Ukraine to a just and sustainable end will not be quick or easy, but China’s overt commitment to attempting a process of mediation is now evident with the visit last week by China’s special envoy on the issue, Li Hui, to Kyiv. While any Chinese mediation will play out only slowly, even if it is reluctantly supported by the West, both sides will continue in their efforts to reshape the international order in which a settlement of the war in Ukraine will eventually happen. The two rival summits in Xi’an and Hiroshima clearly demonstrate that the contest over the shape of this new order has taken centre-stage, and the war in Ukraine, and its two main protagonists, are turning into instruments of China and the West in their intensifying rivalry.

To understand why and how this happened, we need to look at the bigger picture. A flurry of European visits to China sought to convey one key message to Beijing, namely that another ‘forever-war’ is in nobody’s interest, especially not one like that in Ukraine near the centre of Europe with the enormously destabilising consequences for the global economy and international peace and security.

Although he was much derided for various comments during and after his trip to China, it seems as if President Macron of France was able to impress this point on President Xi. This was not Macron’s doing alone, and it is important to bear in mind that other ‘messengers’ played an important role as well—EU Commission President Ursula von der Leyen travelled with Macron to China, and German Foreign Minister Annalena Baerbock followed them a week later. Similarly important for Beijing to hear, von der Leyen’s earlier speech about de-risking the EU’s relationship with China, rather than de-coupling from it, was echoed in a speech by US treasury secretary Janet Yellen just days before the Xi-Zelensky call.

As we wrote in an earlier piece, Europe-China relations: still just muddling through? (On Our Radar, 9 April 2023), maintaining channels of dialogue between Europe and China “is by no means a bad thing at a time when communication is often the first victim of intensifying geopolitical and geoeconomic rivalry.” Yet, not only is this rivalry between China and the West far from over but it appears to be intensifying despite the war in Ukraine which is unlikely to come to a sustainable solution without cooperation between Beijing, Brussels, and Washington.

At the time of the Xi-Zelensky call, China and the West were seemingly treating the war in Ukraine as an issue where they might demonstrate to each other that progress towards a settlement reflected their self-interest in restoring even a modicum of geopolitical and geoeconomic stability, including in their own relationship.

This may still be the case, to some extent, but the two summits in Xi’an and Hiroshima also indicate that things have moved on. Through the Xi’an Declaration, China has firmly locked the five Central Asian states into its expanding sphere of influence. Economically, this has been a trend for the last decade since President Xi launched the Belt and Road Initiative in Kazakhstan in September 2013. Politically and in terms of security, China’s influence has gradually and substantially increased as well—partly because of the crisis in Afghanistan, partly because of the war in Ukraine. The statement in the Xi’an Declaration that “China firmly supports the development path chosen by the Central Asian countries and supports all countries in safeguarding their national independence, sovereignty and territorial integrity and in adopting independent domestic and foreign policies” leaves little doubt that the days of Russia’s dominance in the region are over while also sending a clear message to the West that China will not tolerate any rival influence there.

The G7 Hiroshima Leaders’ Communiqué is similarly unequivocal about the rivalry between China and the West being the defining feature in the contest over the geopolitical and geoeconomic shape of the new international order. While there are some proverbial olive branches extended to China in relation to cooperation on climate change, biodiversity, debt sustainability, global health, and macroeconomic stability, there follows a long list of concerns regarding China’s conduct. These include practices of economic coercion, market distortion, industrial espionage, and so on, leading the G7 leaders to conclude that “economic resilience requires de-risking and diversifying.”

As we wrote earlier in Black Swan Events & Business Resilience: Insights from Ukrainian Companies amid War (On Our Radar, 15 May 2023), many of the measures ad…