TORONTO (AP) — Canadian Prime Minister Mark Carney and the premier of Canada’s oil rich province of Alberta agreed Thursday to work toward building a pipeline to the Pacific Coast to diversify the country’s oil exports beyond the United States.
The memorandum of understanding includes an adjustment of an oil tanker ban off parts of the British Columbia coast if a pipeline comes to fruition.
Carney has set a goal for Canada to double its non-U.S. exports in the next decade, saying American tariffs are causing a chill in investment.
Alberta Premier Danielle Smith said the agreement will lead to more than 1 million barrels per day for mainly Asian markets so “our province and our country are no longer dependent on just one customer to buy our most valuable resource.”
Carney reiterated that as the U.S. transforms all of its trading relationships, many of Canada’s strengths – based on those close ties to America – have become its vulnerabilities.
“Over 95% of all our energy exports went to the States. This tight interdependence – once a strength – is now a weakness,” Carney said.
Carney said a pipeline can reduce the price discount on current oil sales to U.S. markets.
He called the framework agreement the start of a process.
“We have created some of the necessary conditions for this to happen but there is a lot more work to do,” he said.
Carney said if there is not a private sector proponent there won’t be a pipeline.
The agreement calls on Ottawa and Alberta to engage with British Columbia, where there is fierce opposition to oil tankers off the coast, to advance that province’s economic interests.
Former Prime Minister Justin Trudeau approved one controversial pipeline from the Alberta oil sands to the British Columbia coast in 2016 but the federal government had to build and finish construction of it as it faced opposition from environmental and aboriginal groups.
Trudeau at the same time rejected the Northern Gateway project to northwest British Columbia which would have passed through the Great Bear Rainforest. Northern Gateway would have transported 525,000 barrels of oil a day from Alberta’s oil sands to the Pacific to deliver oil to Asia, mainly energy-hungry China.
The northern Alberta region has one of the largest oil reserves in the world, with about 164 billion barrels of proven reserves.
Carney’s announcement comes after British Columbia Premier David Eby said lifting the tanker ban would threaten projects already in development in the region and consensus among coastal First Nations.
“The pipeline proposal has no project proponent,” he said. “Not only does it have no permits, it doesn’t even have a route.”
Eby said the agreement is a “distraction” to real projects and does not have the support of coastal First Nations.
“We have zero interest in co-ownership or economic benefits of a project that has the potential to destroy our way of life and everything we have built on the coast,” Coastal First Nations President Marilyn Slett said.
The agreement pairs the pipeline project a proposed carbon capture project and government officials say the two projects must be built in tandem.
The agreement says Ottawa and Alberta will with work with companies to identify by April 1 new emissions-reduction projects to be rolled out starting in 2027.
Ukrainian President Volodymyr Zelensky has labeled his military’s strikes on Russia’s oil infrastructure “the most effective sanctions.” Meanwhile, reports indicate that alongside urging Europe and India to halt purchases of Russian oil, Washington plans to share additional intelligence with Ukraine on Russian refineries, pipelines and other energy infrastructure.
Most discussions about these “sanctions” have focused on their financial implications for Russia. Vladimir Putin relies heavily on corruption and patronage, with oil and gas serving as key revenue streams. Disrupting the flow could force Mr. Putin to choose between sustaining the war and maintaining the payouts to oligarchs and citizens that secure his political backing—though such an economic squeeze would take some time.
On the anniversary of Putin’s aggression, however, uncertainty and irritation were undisguised in Kyiv. Ukrainians wanted to know why Western sanctions on Russia are not working, and why Moscow keeps getting components for its missiles from Western companies. Why Ukrainians have to keep asking for weapons; and why the U.S. is not pushing through the crucial new aid package for Ukraine.
“We are very grateful for the support of the United States, but unfortunately, when I turn to the Democrats for support, they tell me to go to the Republicans. And the Republicans say to go to the Democrats,” Ukrainian MP Oleksandra Ustinova said at a separate Kyiv conference on Saturday. “We are grateful for the European support, but we cannot win without the USA. We need the supply of anti-aircraft defenses and continued assistance.”
“Why don’t you give us what we ask for? Our priorities are air defense and missiles. We need long-range missiles,” Ustinova added.
U.S. Congressman Jim Costa explained to the conference that Americans, and even members of Congress, still need to be educated on how the war in Ukraine affects them and why a Ukrainian victory is in America’s best interests.
“I believe that we must, and that is why we will decide on an additional aid package for Ukraine. It is difficult and unattractive. But I believe that over the next few weeks, the US response will be a beacon to protect our security and democratic values,” Costa said.
The West is afraid of Russia, Oleksiy Danilov, Ukraine’s security and defense council secretary, told the Saturday conference.
“The West does not know what to do with Russia and therefore it does not allow us to win. Russians constantly blackmail and intimidate the West. However, if you are afraid of a dog, it will bite you,” he said.
“And now you are losing not only to autocratic Russia but also to the rest of the autocracies in the world,” Danilov added.
“We have been saying this a long time,” he said on a visit to Brussels. “I have been here three times before and always we said if we didn’t do this … the Houthis will never stop. The Houthis have an ideology, have a project. Iran has a project in the region and unfortunately, the others do not respond.”
He expressed frustration that the EU and U.S. spent years pouring their diplomatic energies into wooing Tehran for a nuclear deal, rather than exerting more pressure on the Islamic Republic to stop supporting their Houthi allies, fellow Shi’ite Muslims who were seeking to impose what he labeled a “theocratic, totalitarian” police state.
The idea behind the nuclear talks was that Tehran should limit its nuclear ambitions in return for sanctions relief, but an accord proved out of reach.
No one paid attention
Bin Mubarak noted international momentum for action — which has included U.S. and British strikes on Houthi targets — did not finally come about “because of what [the Houthis] did to the Yemenis. They killed thousands of Yemenis. Not because of the atrocities they committed, raping women … jailing women … Just look at what Houthis did. No one is paying attention.”
He explained Western diplomacy toward Iran was supposed to have focused on three elements: the nuclear program, Tehran’s support for regional proxies, and its ballistic missile program. The fixation on the first, to the detriment of the other two, means the West is now facing an adversary in Yemen that has been very well armed by Iran, bin Mubarak complained.
“[Iran’s] Shahed drones, the first time we started hearing the European Union talking about it, they were being used in Ukraine. But before that, for years, we were saying Iran is supplying Houthis and drones are attacking Yemeni people. No one was believing [it],” he continued, adding that Houthi drone strikes stopped Yemeni oil exports in October 2022.
Western warplanes and guided missiles roared through the skies over Yemen in the early hours of Friday in a dramatic response to the worsening crisis engulfing the region, where the U.S. and its allies are facing a direct confrontation with Iranian-backed militants.
The strikes against Houthi fighters are a response to weeks of fighting in the Red Sea, where the group has attempted to attack or hijack dozens of civilian cargo ships and tankers in what it calls retribution for Israel’s military offensive in Gaza. Washington launched the massive aerial bombardment of the group’s military stores and drone launch sites in partnership with British forces, and with the support of a growing coalition that includes Germany, the Netherlands, Australia, Canada, South Korea and Bahrain.
Tensions between Tehran and the West have boiled over in the weeks since its ally, Hamas, launched its October 7 attack on Israel, while Hezbollah, the military group that controls much of southern Lebanon, has stepped up rocket launches across the border. Along with Hamas and Hezbollah, the Houthis form part of the Iranian-led ‘Axis of Resistance’ opposed to both the U.S. and Israel.
Now, the prospect of a full-blown conflict in one of the most politically fragile and strategically important parts of the world is spooking security analysts and energy markets alike.
Escalation fears
Houthi leaders responded to the strikes, which saw American and British forces hit more than 60 targets in 16 locations, with characteristic bravado. They warned the U.S. and U.K. will “have to prepare to pay a heavy price and bear all the dire consequences” for what they called a “blatant aggression.”
“We will confront America, kneel it down, and burn its battleships and all its bases and everyone who cooperates with it, no matter what the cost,” threatened Abdulsalam Jahaf, a member of the group’s security council.
However, following the overnight operation, Camille Lons, a visiting fellow at the European Council on Foreign Relations, said there may now be “a period of calm because it may take Iran some time to replenish the Houthis stocks” before they are able to resume high-intensity attacks on Red Sea shipping. But, she cautioned, their motivation to continue to target shipping will likely be unaltered.
The Western strikes are “unlikely to immediately halt Houthi aggression,” agreed Jonathan Panikoff, a former U.S. national intelligence officer for the Near East. “That will almost certainly mean having to continue to respond to Houthi strikes, and potentially with increasing aggression.”
“The Houthis view themselves as having little to lose, emboldened militarily by Iranian provisions of support and confident the U.S. will not entertain a ground war,” he said.
Iran also upped the ante earlier this week by boarding and commandeering a Greek-operated oil tanker that was loaded with Iraqi crude destined for Turkey, intercepting it as it transited the Strait of Hormuz. The vessel, the St. Nikolas, was previously apprehended for violating sanctions on Iranian oil and its cargo was confiscated and sold off by the U.S. Treasury Department. Its Greek captain and crew of 18 Filipino nationals are now in Iranian custody, with the incident marking a sharp escalation in the threats facing maritime traffic.
Israeli connection
Washington and London are striving to distinguish their bid to deter the Houthis in the Red Sea from the war in Gaza, fearful that merging the two will hand Tehran a propaganda advantage in the Middle East. The Houthis and Iran are keen to accomplish the reverse.
The Houthi leadership claims its attacks on maritime traffic are aimed at pressuring Israel to halt its bombing of the Gaza Strip and it insists it is only targeting commercial vessels linked to Israel or destined to dock at the Israeli port of Eilat, a point contested by Western powers.
“The Houthis claim that their attacks on military and civilian vessels are somehow tied to the ongoing conflict in Gaza — that is completely baseless and illegitimate. The Houthis also claim to be targeting specifically Israeli-owned ships or ships bound for Israel. That is simply not true, they are firing indiscriminately on vessels with global ties,” a senior U.S. official briefing reporters in Washington said Friday.
Wider Near East crisis
The Red Sea isn’t the only hotspot where American and European forces and their allies are facing off against Iran and its partners.
In November, U.S. F-15 fighter jets hit a weapons storage facility in eastern Syria that the Pentagon says was used by the Iranian Islamic Revolutionary Guard Corps and the Shia militants it supports in the war-torn country. The response came after dozens of American troops were reportedly injured in attacks in Iraq and Syria linked back to Tehran.
Israel’s war with Hamas has also risked spreading, after a blast killed one of the militant group’s commanders in the Lebanese capital, Beirut, earlier in January. Hezbollah vowed a swift response and tensions have soared along the border between the two countries, with Israeli civilians evacuated from their homes in towns and villages close to the frontier.
All of that contributes to an increasingly volatile environment that has neighboring countries worried, said Christian Koch, director at the Saudi Arabia-based Gulf Research Center.
“There’s a lot at stake at the moment and the Kingdom of Saudi Arabia and others are extremely worried about further escalation and then being subject to retaliation,” he said. “Now, the danger of regional escalation has been heightened further, which could mean that Iran will get further involved in the conflict, and this is a dangerous spiral downwards.”
While long-planned efforts to normalize ties between the Saudis and Israel collapsed in the wake of the October 7 attack and the subsequent military response, Riyadh has pushed forward with a policy of de-escalation with the Houthis after a decade of violent conflict, and sought an almost unprecedented rapprochement with Iran.
“Saudi Arabia has had one objective, which is to prevent this from escalating into a wider regional war,” said Tobias Borck, an expert on Middle East security at the Royal United Services Institute. “It has attempted over the last few years to bring its intervention in the war in Yemen to a close, including through negotiations with the Houthis and actually from all we know from the outside, [they] are reasonably close to an agreement.”
The Western coalition is therefore a source of anxiety, rather than relief, for Gulf States.
“Saudi Arabia and UAE are staying out of this coalition because mainly they don’t want to have the Houthis attack them as they had been for years and years with cruise missiles,” said retired U.S. General Mark Kimmitt, a former U.S. assistant secretary of state for political-military affairs. However, American or European boots on the ground are unlikely to be necessary, he added, because “our capabilities these days to find, fix and attack even mobile missile launchers is pretty well refined.”
Far-reaching consequences
At the intersection of Europe and Asia, the Red Sea is a vital thoroughfare for energy and international trade. Maritime traffic through the region has already dropped by 20 percent, Rear Admiral Emmanuel Slaars, the joint commander of French forces in the region, told reporters on Thursday.
According to data published this week by the German IfW Kiel institute, global trade fell by 1.3 percent from November to December, with the Houthi attacks likely to have been a contributing factor.
The volume of containers in the Red Sea also plummeted and is currently almost 70 percent below usual, the institute said. In December, that caused freight costs and transportation time to rise and imports and exports from the EU to be “significantly lower” than in November.
In one indication of the impact on industrial supply chains, U.S. electric vehicle maker Tesla said Friday it would shut its factory in Germany for two weeks.
Around 12 percent of the world’s oil and 8 percent of its gas normally flow through the waterway, as well as hundreds of cargo ships. Oil prices climbed more than 2.5 percent following the strikes, fueling market concerns of the impact a wider conflict could have on oil supplies from the region, especially those being shipped through the Strait of Hormuz, linking the Persian Gulf with the Indian Ocean and the world’s most important oil chokepoint.
The Houthi attacks on the Red Sea, one of the world’s busiest waterways, have already caused major shipping companies, including oil giant BP, to halt shipments through the Red Sea, opting for a lengthy detour around the Cape of Good Hope instead.
According to Borck, the impact on energy prices has been limited so far but will depend on what happens next.
“We need to look for two actors’ actions here. One is the Houthis, how they respond, and the other one is, of course, looking at how Iran responds,” he said. While Tehran has the “nuclear option” of closing the Strait of Hormuz altogether, it’s unlikely to do so at this stage.
“I don’t think the Strait of Hormuz is next. I think there would be quite a few steps on the escalation ladder first,” he added.
But Simone Tagliapietra, an energy expert at Brussels’ Bruegel think tank, warned that a growing confrontation with Iran could lead to tougher enforcement of sanctions on its oil exports. The West has turned a blind eye to Tehran’s increasing sales to China in the wake of the war in Ukraine, which has relieved some pressure on global energy markets.
A crackdown, he believes, “could see global oil prices rising substantially, pushing inflation higher and further complicating the efforts of central banks to bring it under control.”
However, Saudi Arabia and the UAE could help compensate for such a move by ramping up their own production — provided they’re willing to risk the ire of Iran.
Gabriel Gavin reported from Yerevan, Armenia. Antonia Zimmermann from Brussels and Jamie Dettmer from Tel-Aviv.
Laura Kayali contributed reporting from Paris.
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Gabriel Gavin, Antonia Zimmermann and Jamie Dettmer
TAIPEI — Forget Xi Jinping or Joe Biden for a second. Meet Taiwan’s next President William Lai, upon whom the fate of U.S.-China relations — and global security over the coming few years — is now thrust.
The 64-year-old, currently Taiwan’s vice president, has led the Democratic Progressive Party (DPP) to a historic third term in power, a first for any party since Taiwan became a democracy in 1996.
For now, the capital of Taipei feels as calm as ever. For Lai, though, the sense of victory will soon be overshadowed by a looming, extended period of uncertainty over Beijing’s next move. Taiwan’s Communist neighbor has laid bare its disapproval of Lai, whom Beijing considers the poster boy of the Taiwanese independence movement.
All eyes are now on how the Chinese leader — who less than two weeks ago warned Taiwan to face up to the “historical inevitability” of being absorbed into his Communist nation — will address the other inevitable conclusion: That the Taiwanese public have cast yet another “no” vote on Beijing.
1. Beijing doesn’t like him — at all
China has repeatedly lambasted Lai, suggesting that he will be the one bringing war to the island.
As recently as last Thursday, Beijing was trying to talk Taiwanese voters out of electing its nemesis-in-chief into the Baroque-style Presidential Office in Taipei.
“Cross-Strait relations have taken a turn for the worse in the past eight years, from peaceful development to tense confrontation,” China’s Taiwan Affairs Office spokesman Chen Binhua said, adding that Lai would now be trying to follow an “evil path” toward “military tension and war.”
While Beijing has never been a fan of the DPP, which views China as fundamentally against Taiwan’s interests , the personal disgust for Lai is also remarkable.
Part of that stems from a 2017 remark, in which Lai called himself a “worker for Taiwanese independence,” which has been repeatedly cited by Beijing as proof of his secessionist beliefs.
Without naming names, Chinese President Xi harshly criticized those promoting Taiwan independence in a speech in 2021.
Without naming names, Chinese President Xi harshly criticized those promoting Taiwan independence | Mark Schiefelbein-Pool/Getty Images
“Secession aimed at Taiwan independence is the greatest obstacle to national reunification and a grave danger to national rejuvenation,” Xi said. “Those who forget their heritage, betray their motherland, and seek to split the country will come to no good end, and will be disdained by the people and sentenced by the court of history.”
2. All eyes are on the next 4 months
Instability is expected to be on the rise over the next four months, until Lai is formally inaugurated on May 20.
No one knows how bad this could get, but Taiwanese officials and foreign diplomats say they don’t expect the situation to be as tense as the aftermath of then-U.S. House Speaker Nancy Pelosi’s visit to the island in 2022.
Already, days before the election, China sent several spy balloons to monitor Taiwan, according to the Taiwanese defense ministry. On the trade front, China was also stepping up the pressure, announcing a possible move to reintroduce tariffs on some Taiwanese products. Cases of disinformation and electoral manipulation have also been unveiled by Taiwanese authorities.
Those developments, combined, constitute what Taipei calls hybrid warfare — which now risks further escalation given Beijing’s displeasure with the new president.
No one knows how bad this could get, but Taiwanese officials and foreign diplomats say they don’t expect the situation to be as tense as the aftermath of then-U.S. House Speaker Nancy Pelosi’s visit to the island in 2022 | Annabelle Chih/Getty Images
3. Lai has to tame his independent instinct
In a way, he has already.
Speaking at the international press conference last week, Lai said he had no plan to declare independence if elected to the presidency.
DPP insiders say they expect Lai to stick to outgoing Tsai Ing-wen’s approach, without saying things that could be interpreted as unilaterally changing the status quo.
They also point to the fact that Lai chose as vice-presidential pick Bi-khim Hsiao, a close confidante with Tsai and former de facto ambassador to Washington. Hsiao has developed close links with the Biden administration, and will play a key role as a bridge between Lai and the U.S.
4. Taiwan will follow international approach
The U.S., Japan and Europe are expected to take precedence in Lai’s diplomatic outreach, while relations with China will continue to be negative.
Throughout election rallies across the island, the DPP candidate repeatedly highlighted the Tsai government’s efforts at diversifying away from the trade reliance on China, shifting the focus to the three like-minded allies.
Lai has to tame his independent instinct | Annabelle Chih/Getty Images
Southeast Asia has been another top destination for these readjusted trade flows, DPP has said.
According to Taiwanese authorities, Taiwan’s exports to China and Hong Kong last year dropped 18.1 percent compared to 2022, the biggest decrease since they started recording this set of statistics in 1982.
In contrast, Taiwanese exports to the U.S. and Europe rose by 1.6 percent and 2.9 percent, respectively, with the trade volumes reaching all-time highs.
However, critics point out that China continues to be Taiwan’s biggest trading partner, with many Taiwanese businesspeople living and working in the mainland.
5. Lai might face an uncooperative parliament
While vote counting continues, there’s a high chance Lai will be dealing with a divided parliament, the Legislative Yuan.
Before the election, the Kuomintang (KMT) party vowed to form a majority with Taiwan People’s Party in the Yuan, thereby rendering Lai’s administration effectively a minority government.
While that could pose further difficulties for Lai to roll out policies provocative to Beijing, a parliament in opposition also might be a problem when it comes to Taiwan’s much-needed defense spending.
“A divided parliament is very bad news for defense. KMT has proven that they can block defense spending, and the TPP will also try to provide what they call oversight, and make things much more difficult,” said Syaru Shirley Lin, who chairs the Center for Asia-Pacific Resilience and Innovation, a Taipei-based policy think tank.
“Although all three parties said they wanted to boost defense, days leading up to the election … I don’t think that really tells you what’s going to happen in the legislature,” Lin added. “There’s going to be a lot of policy trading.”
On October 7, Hamas fighters launched a bloody attack against Israel, using paragliders, speedboats and underground tunnels to carry out an offensive that killed almost 1,200 people and saw hundreds more taken back to the Gaza Strip as prisoners.
Almost three months on, Israel’s massive military retaliation is reverberating around the region, with explosions in Lebanon and rebels from Yemen attacking shipping in the Red Sea. Meanwhile, Western countries are pumping military aid into Israel while deploying fleets to protect commercial shipping — risking confrontation with the Iranian navy.
That’s in line with a grim prediction made last year by Iranian Foreign Minister Hossein Amirabdollahian, who said that Israel’s counteroffensive in Gaza meant an “expansion of the scope of the war has become inevitable,” and that further escalation across the Middle East should be expected.
What’s happening?
The Israel Defense Forces are still fighting fierce battles for control of the Gaza Strip in what officials say is a mission to destroy Hamas. Troops have already occupied much of the north of the 365-square-kilometer territory, home to around 2.3 million Palestinians, and are now stepping up their assault in the south.
Entire neighborhoods of densely-populated Gaza City have been levelled by intense Israeli shelling, rocket attacks and air strikes, rendering them uninhabitable. Although independent observers have been largely shut out, the Hamas-controlled Health Ministry claims more than 22,300 people have been killed, while the U.N. says 1.9 million people have been displaced.
On a visit to the front lines, Israeli Defense Minister Yoav Gallant warned that his country is in the fight for the long haul. “The feeling that we will stop soon is incorrect. Without a clear victory, we will not be able to live in the Middle East,” he said.
As the Gaza ground war intensifies, Hamas and its allies are increasingly looking to take the conflict to a far broader arena in order to put pressure on Israel.
According to Seth Frantzman, a regional analyst with the Jerusalem Post and adjunct fellow at the Foundation for Defense of Democracies, “Iran is certainly making a play here in terms of trying to isolate Israel [and] the U.S. and weaken U.S. influence, also showing that Israel doesn’t have the deterrence capabilities that it may have had in the past or at least thought it had.”
Northern front
On Tuesday a blast ripped through an office in Dahieh, a southern suburb of the Lebanese capital, Beirut — 130 kilometers from the border with Israel. Hamas confirmed that one of its most senior leaders, Saleh al-Arouri, was killed in the strike.
Government officials in Jerusalem have refused to confirm Israeli forces were behind the killing, while simultaneously presenting it as a “surgical strike against the Hamas leadership” and insisting it was not an attack against Lebanon itself, despite a warning from Lebanese caretaker Prime Minister Najib Mikati that the incident risked dragging his country into a wider regional war.
Tensions between Israel and Lebanon have spiked in recent weeks, with fighters loyal to Hezbollah, the Shia Islamist militant group that controls the south of the country, firing hundreds of rockets across the frontier. Along with Hamas, Hezbollah is part of the Iranian-led “Axis of Resistance” that aims to destroy the state of Israel.
In a statement released on Tuesday, Iran’s foreign ministry said the death of al-Arouri, the most senior Hamas official confirmed to have died since October 7, will only embolden resistance against Israel, not only in the Palestinian territories but also in the wider Middle East.
The Israel Defense Forces are still fighting fierce battles for control of the Gaza Strip in what officials say is a mission to destroy Hamas | Jack Guez/AFP via Getty Images
“We’re talking about the death of a senior Hamas leader, not from Hezbollah or the [Iranian] Revolutionary Guards. Is it Iran who’s going to respond? Hezbollah? Hamas with rockets? Or will there be no response, with the various players waiting for the next assassination?” asked Héloïse Fayet, a researcher at the French Institute for International Relations.
In a much-anticipated speech on Wednesday evening, Hezbollah leader Hassan Nasrallah condemned the killing but did not announce a military response.
Red Sea boils over
For months now, sailors navigating the narrow Bab-el-Mandeb Strait that links Europe to Asia have faced a growing threat of drone strikes, missile attacks and even hijackings by Iran-backed Houthi militants operating off the coast of Yemen.
The Houthi movement, a Shia militant group supported by Iran in the Yemeni civil war against Saudi Arabia and its local allies, insists it is only targeting shipping with links to Israel in a bid to pressure it to end the war in Gaza. However, the busy trade route from the Suez Canal through the Red Sea has seen dozens of commercial vessels targeted or delayed, forcing Western nations to intervene.
Over the weekend, the U.S. Navy said it had intercepted two anti-ship missiles and sunk three boats carrying Houthi fighters in what it said was a hijacking attempt against the Maersk Hangzhou, a container ship. Danish shipping giant Maersk said Tuesday that it would “pause all transits through the Red Sea until further notice,” following a number of other cargo liners; energy giant BP is also suspending travel through the region.
On Wednesday the Houthis targeted a CMA CGM Tage container ship bound for Israel, according to the group’s military spokesperson Yahya Sarea. “Any U.S. attack will not pass without a response or punishment,” he added.
“The sensible decision is one that the vast majority of shippers I think are now coming to, [which] is to transit through round the Cape of Good Hope,” said Marco Forgione, director general at the Institute of Export & International Trade. “But that in itself is not without heavy impact, it’s up to two weeks additional sailing time, adds over £1 million to the journey, and there are risks, particularly in West Africa, of piracy as well.”
However, John Stawpert, a senior manager at the International Chamber of Shipping, noted that while “there has been disruption” and an “understandable nervousness about transiting these routes … trade is continuing to flow.”
“A major contributory factor to that has been the presence of military assets committed to defending shipping from these attacks,” he said.
The impacts of the disruption, especially price hikes hitting consumers, will be seen “in the next couple of weeks,” according to Forgione. Oil and gas markets also risk taking a hit — the price of benchmark Brent crude rose by 3 percent to $78.22 a barrel on Wednesday. Almost 10 percent of the world’s oil and 7 percent of its gas flows through the Red Sea.
Western response
On Wednesday evening, the U.S., Australia, Bahrain, Belgium, Canada, Denmark, Germany, Italy, Japan, the Netherlands, New Zealand, and the United Kingdom issued an ultimatum calling the Houthi attacks “illegal, unacceptable, and profoundly destabilizing,” but with only vague threats of action.
“We call for the immediate end of these illegal attacks and release of unlawfully detained vessels and crews. The Houthis will bear the responsibility of the consequences should they continue to threaten lives, the global economy, and free flow of commerce in the region’s critical waterways,” the statement said.
The Houthi movement insists it is only targeting shipping with links to Israel in a bid to pressure it to end the war in Gaza | Houthi Movement via Getty Images
Despite the tepid language, the U.S. has already struck back at militants from Iranian-backed groups such as Kataeb Hezbollah in Iraq and Syria after they carried out drone attacks that injured U.S. personnel.
The assumption in London is that airstrikes against the Houthis — if it came to that — would be U.S.-led with the U.K. as a partner. Other nations might also chip in.
Two French officials said Paris is not considering air strikes. The country’s position is to stick to self-defense, and that hasn’t changed, one of them said. French Armed Forces Minister Sébastien Lecornu confirmed that assessment, saying on Tuesday that “we’re continuing to act in self-defense.”
“Would France, which is so proud of its third way and its position as a balancing power, be prepared to join an American-British coalition?” asked Fayet, the think tank researcher.
Iran looms large
Iran’s efforts to leverage its proxies in a below-the-radar battle against both Israel and the West appear to be well underway, and the conflict has already scuppered a long-awaited security deal between Israel and Saudi Arabia.
“Since 1979, Iran has been conducting asymmetrical proxy terrorism where they try to advance their foreign policy objectives while displacing the consequences, the counterpunches, onto someone else — usually Arabs,” said Bradley Bowman, senior director of Washington’s Center on Military and Political Power. “An increasingly effective regional security architecture, of the kind the U.S. and Saudi Arabia are trying to build, is a nightmare for Iran which, like a bully on the playground, wants to keep all the other kids divided and distracted.”
Despite Iran’s fiery rhetoric, it has stopped short of declaring all-out war on its enemies or inflicting massive casualties on Western forces in the region — which experts say reflects the fact it would be outgunned in a conventional conflict.
“Neither Iran nor the U.S. nor Israel is ready for that big war,” said Alex Vatanka, director of the Middle East Institute’s Iran program. “Israel is a nuclear state, Iran is a nuclear threshold state — and the U.S. speaks for itself on this front.”
Israel might be betting on a long fight in Gaza, but Iran is trying to make the conflict a global one, he added. “Nobody wants a war, so both sides have been gambling on the long term, hoping to kill the other guy through a thousand cuts.”
Emilio Casalicchio contributed reporting.
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Gabriel Gavin, Antonia Zimmermann and Laura Kayali
DUBLIN – For Sinn Féin chief Mary Lou McDonald to become Ireland’s next prime minister, she will have to negotiate a delicate path over the newly hot-button topic of immigration.
Tensions about Ireland’s overwhelmed refugee system have shot to the top of the political agenda following race riots in Dublin — and now pose challenges for all parties ahead of elections later this year.
While centrists in Ireland’s coalition government face their own backroom tensions over immigration policy, it is the main opposition party, Sinn Féin, which is considered most at risk of splitting its base and shedding support to right-wing rivals.
Such a development would undercut Sinn Féin right on the cusp of an historic breakthrough in the Republic of Ireland, where it appears poised to gain power for the first time following decades of expansion from its longtime stronghold in neighboring Northern Ireland. The Irish republicans, with popular anti-establishment messages and strong working-class roots, have held a commanding lead in every opinion poll since 2020 — an advantage that could slip away as public unease over immigration spikes.
Unusually for a nationalist party in Europe, Sinn Féin principally fishes for votes on the crowded left of the Irish political divide, not the relatively empty right – where, according to polling, many of its traditional supporters are flowing as they seek a tougher line on asylum seekers.
Since November 23 — when an Algerian man stabbed three schoolchildren and a teacher in central Dublin, igniting rioting and vandalism by hundreds of protesters chanting bigoted slogans — Sinn Féin has seen its popularity fall below 30 percent in national polls for the first time in two years. Much of the lost support has drifted to rural independent politicians and right-wing fringe parties, among them Sinn Féin defectors now free to express immigration-critical views.
Rank and file Sinn Féin politicians have been warned internally not to post anything on social media at odds with McDonald’s immigration stance, which focuses on the impact on services — reflecting a hyper-twitchy environment in which commentators are primed to pounce on any perceived hardening in her position.
McDonald wants her party to stay focused on housing, specifically its core pre-election promise to build tens of thousands of public housing units beyond the government’s own expanding commitments.
She sees anti-immigrant sentiment as tied to the soul-crushing struggle to secure an affordable home in a country where property prices and rents are among the highest in Europe. This market dysfunction reflects a Europe-leading population boom amid tight supply.
‘I share that anger’
The pace of social change has been staggering, particularly on the relatively impoverished north side of Dublin. Barely a generation ago, Ireland had only 3.5 million people and almost no immigrants in a country where its own people were its biggest export. By contrast, a fifth of today’s nearly 5.3 million residents were born outside Ireland.
The population boom has been fueled by nearly a decade of strong multinational-driven economic growth and, more recently, a disproportionate intake of 100,000 Ukrainian war refugees and more than 26,000 other asylum seekers, hundreds of whom are now sleeping in tents in parks and side streets. Starting later this month, the government is poised to cut benefits to new Ukrainian arrivals in a bid to reduce them coming via other EU states, where benefits are lower.
“If you are a person who can’t get a home, or your son or daughter can’t get housed, and then you reckon that lots more people are coming to the country, naturally enough, you’re going to say: ‘Well, how am I going to be housed?’” McDonald told the Business Post, the latest in a series of interviews in which she portrays anti-immigrant sentiment as both understandable and unfair.
Followers of Hare Krishna, many of whom fled Ukraine during the war, listen to a lecture after prayer near Enniskillen, western Northern Ireland | Paul Faith/AFP via Getty Images
“All of that anger about housing, I share that anger,” she said. “But that’s on the government, not on new people coming into the state.”
It’s an argument that, behind the scenes, McDonald and senior party lieutenants are having with their own supporters, whose anti-immigrant sentiment has been vividly captured by pollsters if not permitted on official Sinn Féin platforms.
According to the most detailed recent survey isolating the views of each party’s grassroots, Sinn Féin voters came out as the most anti-immigrant.
While majorities of voters for other parties identified continued immigration as positive, Sinn Féin’s took the opposite tack. More than 70 percent said too many immigrants were arriving, with a majority associating this with “an increase in crime” and Ireland “losing its personality.” Only 38 percent viewed immigration as “beneficial for the economy.”
Tapping into those sentiments are a disparate array of right wing upstarts. Among them is Aontú (Unity), a party founded by ex-Sinn Féin lawmaker Peadar Tóibín, and the Rural Independents, a loose grouping of lawmakers including another Sinn Féin defector, Carol Nolan. Two other Rural Independents from Cork and Limerick have just founded a new party, Independent Ireland, which they bill as offering “a comfortable alternative” to Sinn Féin.
Independents could potentially hold the balance of power following the next general election, which must come by March 2025 but is widely expected in late 2024.
Sinn Féin vice president Michelle O’Neill, left, watches on during the Sinn Féin Ard Fheis | Charles McQuillan/Getty Images
First, however, these and other rising voices on the far right will get the chance to build grassroots organizations in local council elections, which take place in June alongside European Parliament elections. Likely candidates include anti-immigrant activists who have led protests outside vacant properties earmarked for housing asylum seekers, some of which have subsequently been torched.
Police have failed to bring charges in relation to any of these arson attacks, which began in 2018 and escalated in size and frequency in the past year.
McDonald – a Dubliner who succeeded Gerry Adams as Sinn Féin leader in 2018 – has started to experience heckling from far right activists as she attends meetings with local groups in her central Dublin constituency. These critics vow to field candidates for June’s council elections, potentially gaining a toehold in democratic institutions for the first time.
Some are members of the Brexiteer-aping Irish Freedom Party, which predicts shelters “will continue to burn” unless government policy on immigration is reversed. Others back the far-right National Party, although its divided leadership is mired in dispute over the ownership of €400,000 in gold bars seized by police from the party’s HQ.
The irony of Irish people demonizing immigrants is not lost on government ministers tasked with salvaging Ireland’s tourist-focused image of céad míle fáilte – “a hundred thousand welcomes.”
When Nolan introduced a Rural Independents anti-immigration motion in parliament last month, Green Party Minister for Integration Roderic O’Gorman recalled how Ireland had “closed the doors” to Jews fleeing the Holocaust and should never act that way again – particularly given millions of Irish had emigrated since the 18th century in search of a better life.
Sinn Féin principally fishes for votes on the crowded left of the Irish political divide, not the relatively empty right | Charles McQuillan/Getty Images
Referring to the motion’s claim that placing “unvetted single males” in rural towns and villages presented “grave potential consequences for residents,” O’Gorman said the opposition should vet their own family trees.
“Can any of us put our hand on our heart and say there is not a male member of our family who has not gone abroad seeking work?” he said. “There are ‘unvetted’ male migrants in every one of our families. We are lucky as a country that other countries let them come in and contribute to the system.”
BRUSSELS — In early August, Bulgarian officials spotted something they weren’t sure was legal.
Barrels of Russian oil were arriving in the country priced above a $60 limit allies had adopted to sap Moscow of critical revenue for its war in Ukraine.
Bulgaria was in an unusual position among its partners. It had been given an exemption to European Union sanctions barring most imports of Russian oil, ostensibly to ensure the country wouldn’t face acute energy shortages even though the EU’s broader policy aimed to crush Russia’s main cash artery following its full-scale assault on Kyiv.
But could Bulgaria still import Russian oil if it was above the price cap? Customs officials in Sofia wanted to know for sure, so they reached out to EU officials asking for “clarification,” according to a private email exchange dated August 4 and seen by POLITICO.
The answer: Let it in.
“Crude oil imported based on these derogations does not need to be at or below $60 per barrel,” came the EU’s reply.
Green light in hand, Bulgaria proceeded to import Russian crude exclusively above the price cap from August until October, according to confidential customs data seen by POLITICO. The shipments were worth an estimated €640 million, according to calculations by the Centre for Research on Energy and Clean Air (CREA) think tank. The cash went to Russian energy firms, which pay the taxes helping fill the Kremlin’s war chest.
The sanctions gap is emblematic of the broader flaws that have corroded the EU’s attempt to stymie the billions Russia earns from energy exports. Roughly a year after adopting the initial penalties, legal loopholes have combined with poor enforcement and a mushrooming parallel trade to keep Moscow’s fossil fuel revenues flowing, and feeding almost half of Vladimir Putin’s war-hungry budget.
Russian oil is likely winding up as fuel in Europe via new routes. Enforcement across the Continent is scattered and reliant on inconsistent data. And a whole new black market has sprung up to insure, ship and hide Russia’s fuel as it travels the world.
The sanctions, in other words, have come up short. Russia’s oil export earnings have dropped just 14 percent since the restrictions were imposed. And in October, Russia’s fossil fuel revenues hit an 18-month high.
It also appears the EU has run out of steam to do much about it. The latest EU sanctions package, set to be finalized at a leaders’ summit this week, is mostly focused on administrative tweaks that experts say will do little to curb widespread evasion. Absent are any efforts to drop the level of the oil price cap further.
“The whole sanction mechanism works only if you keep adopting on a regular basis decisions that close loopholes and impose new sanctions,” Ukrainian Foreign Minister Dmytro Kuleba told POLITICO. “Every actor in the world has the capacity to adapt.”
The Bulgarian oversight
The reason behind Bulgaria’s price cap loophole is arguably a clerical oversight.
When the EU wrote the G7 nations’ price cap into law, officials expressly forbade EU shipping firms and insurance companies from trafficking Russian oil above the $60 threshold to non-EU countries. The aim was to squeeze the Kremlin’s revenues while keeping global oil flows steady.
But officials never thought to impose similar rules on shipments to EU countries, partly because Brussels had banned Russian seaborne crude oil imports that same day.
Except for Bulgaria.
The backdoor has meant millions in extra revenue for Moscow. According to CREA, Russian oil export earnings from Bulgarian sales between August to October — a third of which came from sales above the price cap — raised around €430 million in direct taxes for the Kremlin. All Russian-origin shipments delivered during this time — priced between $69 and $89 per barrel — relied on Western help, including from Greek ship operators and British and Norwegian insurers.
And it was all technically legal.
The situation “reveals that Bulgaria has aided Russia to exploit this glaring loophole to maximize the Kremlin’s budget revenues from these oil sales without any apparent benefits for Bulgarian consumers,” said Martin Vladimirov, a senior analyst at the Sofia-based Center for the Study of Democracy (CSD) think tank, which has studied the issue.
More broadly, Bulgaria’s exemption from the Russian oil ban has been lining the pockets of both Russia’s largest private oil firm, Lukoil, which dominates Bulgaria’s fuel production with its sprawling Black Sea refinery, and the Kremlin itself.
More broadly, Lukoil’s crude oil imports to Bulgaria raked in over €2 billion in export revenues for Russia since the sanctions went into effect in February, according to a new CREA and CSD analysis. And the Kremlin has made €1 billion in direct taxes from the sales, POLITICO revealed last month.
There is now mounting pressure to mend these money-making fissures.
Bulgaria has vowed to cut short its opt-out from the Russian oil ban by six months, provisionally moving the deadline up to March.
And Kiril Petkov, the former prime minister who leads one of two parties controlling Bulgaria’s current governing coalition, told POLITICO the price cap workaround should “absolutely” be closed too. He vowed to pressure the government and ask the European Commission, the EU’s executive in Brussels, to do so, while insisting that Bulgaria is accelerating its efforts to shake off its Russian energy ties, unlike nearby countries like Slovakia.
Bulgaria proceeded to import Russian crude exclusively above the price cap from August until October, according to confidential customs data seen by POLITICO | Robert Ghement/EPA-EFE
“We do not like the $60 loophole that was created by the EU Commission derogation,” Petkov said. “We don’t want Putin to receive any euro that he doesn’t have to.”
The Bulgarian case “highlights one of the many loopholes that make sanctions less effective at lowering Russian export earnings used to finance the Kremlin’s war chest,” according to Isaac Levi, who leads CREA’s Russia-Europe team.
Bulgaria’s finance ministry and Lukoil didn’t respond to requests for comment.
‘Not all rainbows and unicorns’
A major challenge is poor monitoring and enforcement.
In October, a report commissioned by the European Parliament found EU sanctions enforcement is “scattered” across over 160 local authorities, while capitals have “dissimilar implementation systems” that include “wide discrepancies” in penalties for violations.
That assumes you can find a breach to begin with. Even those involved in shipping oil get only limited access to information on trades, according to Viktor Katona, chief crude analyst at the Kpler market intelligence firm.
Insurers, for example, rely on a single document from firms buying and selling oil cargoes pledging the sale is not above $60 per barrel, which amounts to a “declaration of faith,” he said.
The EU’s upcoming 12th package of sanctions is trying to crack down on this problem with new rules forcing traders to actually itemize specific costs. The goal is to prevent buyers from purchasing Russian oil above the limit and then hiding the extra costs as insurance or transport fees. But few in the industry have high hopes the added paperwork will stop the workaround.
Several EU countries with large shipping industries are also reluctant to tighten the price cap, making things even trickier. During the latest round of sanctions, Cyprus, Malta and Greece once again raised concerns over calls to strengthen the restrictions, according to two EU diplomats, who like others in the story were granted anonymity to speak freely.
A diplomat from a major maritime EU nation said stricter sanctions would only push Russia to use more non-Western operators to ship oil. Instead, the diplomat argued, the focus should be on broadening the countries adhering to the price cap. Currently, the G7, the EU and Australia are on board.
“It would be stupid to push for price caps, and then other shipping registers do not abide by it because they are not EU members,” the diplomat said, adding that “all that will be achieved is the total destruction of the shipping industry.”
Meanwhile, EU countries are still allowing Russian oil cargoes to cross their waters on their way elsewhere.
CREA research on behalf of POLITICO found that 822 ships transporting Moscow’s crude transferred their cargo to another ship in EU territorial waters — the majority in Greek, but also Maltese, Spanish, Romanian and Italian waters — since the oil sanctions kicked off last December. The volumes were equivalent to 400,000 barrels per day.
A Commission spokesperson defended the EU sanctions, noting Russia has been forced to spend “billions of dollars” to adapt to the new reality, including on new tankers, and its oil extraction and export infrastructure as Western demand shriveled.
That has caused “serious and ongoing economic and policy consequences,” the Commission spokesperson said. And CREA did find that the oil price limit has stripped the Kremlin of €34 billion in export revenues, equivalent to roughly two months of earnings this year.
Others point out that teething issues are normal — it’s the first time the EU has deployed sanctions at such a scale.
“Let’s be fair … all of the sanctions measures are unprecedented, so there’s an element of learning by doing it, as well,” said one of the EU diplomats. “We don’t live in a perfect world: it’s not all rainbows and unicorns.”
Deep dark waters
Instead of accepting the tough rules designed to drain its finances, Moscow has sparked a sanctions circumvention arms race, looking for loopholes as part of what one senior Ukrainian official has described as a “cockroach strategy.”
To ensure it can sell its fossil fuels at whatever price it can get, in violation of the oil price cap and other restrictions, Russia has presided over the creation of a parallel shipping market that, through a mixture of law-breaking and law-bending, is lining the pockets of its state energy firms and oligarchs.
A “shadow fleet” of aging tankers has emerged, mysteriously managed through a network of companies that obscure their ownership, frequently trading their cargo of fuel with other ships at sea. To help them escape the jurisdiction of Western sanctions while meeting basic maritime requirements, a cottage industry of murky insurance firms has sprung up in countries like India.
“When they were introduced, the sanctions seemed to be having an effect for a very short time. But now the state of play is most of the sanctions that have beeninplace have not really worked — or they’ve been very limited in terms of what they’ve been able to do,” said Byron McKinney, a director at trade and commodity firm S&P.
As Russian trades move increasingly away from Western operators and traders, that makes tracking them even more difficult, said Katona, the Kpler oil analyst.
“Every single” Russian type of oil now trades above the price cap, he said, while CREA estimates only 48 percent of Russian oil cargoes were carried on tankers owned or insured in G7 and EU countries in October.
“It’s like coming to a party and telling everyone not to drink alcohol, but not coming to the party yourself,” Katona said. “How do you make sure that no one’s drinking?”
At the same time, countries like India have increased their imports of cheap Russian crude by 134 percent, CREA found, processing it and then selling it everywhere. That means European consumers could unknowingly be filling up their cars with fuel produced from Russian crude, bankrolling Moscow’s armed forces at the same time.
The waning West?
The EU is well aware of the problem.
“Unless you have big players like India and China as part of it, effectiveness sooner or later fades away,” conceded one senior Commission official.
“It shows us the limits of what the tools of Western players can achieve at a global level,” the official added, noting it’s “a lesson in how much the [global] power balance has changed compared to 10 or 20 years ago.”
Expectations are low, however, that India or China — or Turkey, another critical shipping country — will come around to the price cap any time soon.
And back in Brussels, political leaders seem to be throwing up their hands. When EU leaders gather for their summit on Thursday, the sanctions package they’re expected to endorse will do little to stanch the flow of Russia’s energy cash, omitting any measures targeting Russian oil or lowering the price cap.
Until such steps are taken, Russia’s finances won’t truly wither, said Alexandra Prokopenko, an economist and nonresident scholar at the Carnegie Russia Eurasia Center.
“The oil price is now the only real channel of transmission for external risk,” she said. “Russia will feel extremely bad if the average price on its oil is $40 or $50 per barrel — that would be painful for its budget and for Putin’s ability to finance expenditures.”
Getting to that point, however, was never going to be easy.
“The Russian economy was quite a big animal,” Prokopenko said, “that makes it hard to shoot it with a single shot.”
Victor Jack and Giovanna Coi reported from Brussels. Gabriel Gavin reported from Yerevan.
Claudia Chiappa contributed reporting from Brussels.
DUBAI, United Arab Emirates — Next year’s COP29 climate summit is set to take place in oil-rich Azerbaijan after Eastern European countries resolved a political deadlock on Saturday.
Geopolitical tensions had left the 2024 conference in limbo for months, with Russia blocking EU countries from hosting and feuding neighbors Armenia and Azerbaijan vetoing each other.
But after Armenia and Bulgaria formally withdrew their bids earlier this week, the 23-country Eastern European group backed Azerbaijan during a meeting on Saturday, Bulgarian Environment Minister Julian Popov told POLITICO.
Earlier on Saturday, Mukhtar Babayev, Azerbaijan’s minister of ecology and natural resources, said in a speech that he was “delighted” to announce that there was overall consensus on Azerbaijan’s candidacy to host COP29.
“We are very grateful to all countries, in particular to the Eastern European group and the host United Arab Emirates for their support,” said Babayev. “We are committed to working inclusively and collaboratively with everyone to ensure the success of COP29. May COP28 lead us forward toward a more sustainable and secure future for all.”
Baku’s bid will still have to be voted on by the entire COP plenary, but that is usually a formality.
If confirmed, next year’s summit will once again take place in a major oil- and gas-producing country.
The UAE, host of this year’s COP28, is the world’s seventh-largest oil producer. Fossil fuels make up more than 90 percent of Azerbaijan’s exports. And the host of the COP30 climate talks in 2025, Brazil, has just announced it would join the OPEC+ oil cartel.
US Commerce Secretary Gina Raimondo said her department needs more money to stop China from catching up on cutting-edge semiconductors.
“We cannot let China get these chips. Period,” she said at the Reagan National Defense Forum in Simi Valley, California, on Saturday. “We’re going to deny them our most cutting-edge technology.”
To do that, Raimondo said the Commerce Department’s Bureau of Industry and Security, which manages export controls for the US, needs more funding from Congress.
“I have a $200 million budget. That’s like the cost of a few fighter jets. Come on,” she said. “If we’re serious, let’s go fund this operation like it needs to be funded.”
Raimondo said American companies will need to adapt to US national security priorities, including export controls that her department has placed on semiconductor exports.
“I know there are CEOs of chip companies in this audience who were a little cranky with me when I did that because you’re losing revenue,” she said. “Such is life. Protecting our national security matters more than short-term revenue.”
Raimondo called out Nvidia Corp., which designed chips specifically for the Chinese market after the US imposed its initial round of curbs in October 2022.
“If you redesign a chip around a particular cut line that enables them to do AI, I’m going to control it the very next day,” Raimondo said.
The Commerce Department updated the semiconductor curbs this fall to capture Nvidia’s made-for-China chips — and the company responded by designing three new AI components for the Asian country.
Communication with China can help stabilize ties between the two countries, but “on matters of national security, we’ve got to be eyes wide open about the threat,” she said.
“This is the biggest threat we’ve ever had and we need to meet the moment,” she said.
— With assistance from Mackenzie Hawkins
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This article is part of the Road to COP special report, presented by SQM.
Last week’s surprise deal between China and the United States may provide a boost to the climate talks in Dubai — but the two powers remain at odds on tough questions such as how quickly to shut down coal and who should provide climate aid to developing nations.
The world’s top two drivers of climate change are also divided by a thicket of disagreements on trade, security, human rights and economic competition.
The good news is that Washington and Beijing are talking to each other again and restarting some of their technical cooperation on climate issues, after a yearlong freeze. That may still not be enough to get nearly 200 nations to commit to far greater climate action at the talks that begin Nov. 30.
The two superpowers’ latest detente creates the right “mood music” for the summit, said Alden Meyer, a senior associate at climate think tank E3G. “But it still is not saying that the world’s two largest economies and two largest emitters are fully committed to the scale and pace of reductions that are needed.”
The deal, announced after a meeting this month between U.S. climate envoy John Kerry and his Chinese counterpart Xie Zhenhua, produced an agreement to commit to a series of actions to limit climate pollution. Those include accelerating the shift to renewable energy and widening the variety of heat-trapping gases they will address in their next round of climate targets.
U.S. President Joe Biden and Chinese leader Xi Jinping endorsed that type of cooperation after a meeting in California on Wednesday, saying they “welcomed” positive discussions on actions to reduce greenhouse gas emissions during this decade, as well as “common approaches” toward a successful climate summit. Biden said he would work with China to address climate finance in developing countries, a major source of friction for the U.S.
“Planet Earth is big enough for the two countries to succeed,” said Xi ahead of his bilateral with Biden.
But the deal leaves some big issues unaddressed, including specific measures for ending their reliance on fossil fuels, the main contributor to global warming. Andthe two countries are a long way from the days when a surprise U.S.-Chinese agreement to cooperate on climate change had the power to land a landmark global pact.
That puts the nations in a dramatically different place than in 2014, when Xi and then-President Barack Obama made a historic pledge to jointly cut their planet-warming pollution, paving the way for the landmark Paris Agreement to land in 2015.
Even a surprise joint deal between the two nations in 2021 failed to ease friction, with China emerging at the last minute to oppose language calling for a phase-out of coal power. The summit ended with a less ambitious “phase-down.”
House Speaker Nancy Pelosi speaks after receiving the Order of Propitious Clouds with Special Grand Cordon, Taiwan’s highest civilian honour | Handout/Getty Image
The two countries’ struggles to find comity have come at the worst possible moment — at a time when rapid action is crucial to preventing climate catastrophe. A growing number of factors has threatened to widen the U.S.-Chinese wedge further, including their competition for supremacy in the market for clean energy.
Two nations at odds
While the U.S. has contributed more greenhouse gases to the atmosphere than any other nation during the past 150 years, China is now the world’s largest climate polluter — though not on a per capita basis — and it will need to stop building new coal-fired power for the world to stand a chance of limiting rising temperatures.
The recent agreement hints at that possibility by stating that more renewables would enable reductions in the generation of oil, gas and coal, helping China peak its emissions ahead of its current targets.
The challenge will be bridging the countries’ diverging approaches to climate issues.
The Biden administration is urging a rapid end to coal-fired power, which is waning in the U.S., even as it permits more oil drilling and ramps up exports of natural gas — much of it destined for Asia.
At the same time, it wants the United States to claim a larger role in the clean energy manufacturing industry that China now dominates, and is seeking to loosen China’s stranglehold on supply chains for products such as solar panels, electric cars and the minerals that go into them. It’s also pressuring Beijing to contribute to U.N. climate funds, saying China’s historic status as a developing country no longer shields it from its responsibility to pay.
China sees the U.S. position as a direct challenge to its economic growth and energy security.
Beijing wants to protect the use of coal and defend developing countries’ access to fossil fuels. It has also backed emerging economies’ demands that rich countries pay more to help them deploy clean energy and adapt to the effects of a warmer world. China says it already helps developing countries through South-South cooperation and points to a clause in the 2015 Paris Agreement that says developed countries should lead on climate finance.
Hanging over the talks is also the prospect of a change of administration in the U.S., and continued efforts by Republicans to vilify Beijing and accuse the Biden administration of supporting Chinese companies through its climate policies and investments. And as China’s response to Pelosi’s trip underscored, climate cooperation remains hostage to other tensions in the two countries’ relationship, a dynamic likely to heighten in the coming year as both Taiwan and the U.S. hold presidential elections.
One challenge is that China doesn’t seem to see much to gain from offering more ambitious climate actions amid worsening relations with other countries, said Kevin Tu, a non-resident fellow at the Center on Global Energy Policy at Columbia University and an adjunct professor at the School of Environment at Beijing Normal University.
“In the past several years, China has voluntarily upgraded its climate ambitions a few times amid rising geopolitical tensions,” Tu said, pointing to its 2020 pledge to peak and then zero out its emissions. “So China does not necessarily have very strong incentive to further upgrade its climate ambition.”
The divide between the two nations has created a dilemma for some small island nations that often walk a fine line between negotiating alongside China at climate talks while pushing for more action to scale back fossil fuels.
The U.S. and China remain at odds on how quickly to shut down coal and who should provide climate aid to developing nations | Brendan Smialowski/AFP via Getty Images
“The U.S. is trying to drag everyone to talk about an immediate coal phase-out,” Ralph Regenvanu, climate minister for the Pacific island nation of Vanuatu, said during a recent call with reporters, calling the effort a “U.S.-versus-China thing.”
“But we also need to talk about no more oil or gas as well,” he added.
Operating on its own terms
The dynamic between China and the U.S. will either drag down or bolster the ambitions of countries updating their national climate pledges, a process that begins at the close of COP28. Nations are already woefully behind cuts needed to hit the goals they laid out in Paris.
China’s new 10-year targets will be crucial for meeting those marks, given that China accounts for close to 30 percent of global greenhouse gas emissions and that it plans to build dozens of coal-fired power plants in the coming years. The U.S., and many other countries, will be looking for greater commitments from China — whether that’s modifying what it means by phasing down coal or setting more stringent targets.
China has pledged to peak its carbon emissions before 2030 and zero them out before 2060,a decadelater than the United States has promised to reach net-zero. Beijing is unlikely to accelerate that timeline, in part because — analysts say — its philosophy is fundamentally different from that of the U.S.: underpromise and overdeliver.
Even without committing to more action, China’s massive investments in low-carbon energy installations — twice that of the United States — may inadvertently help the country achieve its peaking target early, some analysts say.
A complicated picture
If the Trump years drove China further from America, the global pandemic and resulting economic slowdown that started during his final year didn’t bring it closer. And the energy crunch stemming from Russia’s war with Ukraine cemented China’s drive for reliable energy to meet the rising needs of its 1.4 billion people. That created a coal boom.
Meanwhile, China heavily subsidized the expansion of wind, solar and electric vehicle production. Its clean energy supply chain dominance has lowered the global costs for those technologies but drawn scorn from the U.S. as it tries to rebuild its own domestic manufacturing base.
China has turned more combative in response. Rather than work with the U.S. to make joint announcements on climate action, Xi has made clear that China’s climate policy won’t be dictated by others. At G20 meetings, China has aligned with Saudi Arabia and Russia in opposing language aimed at phasing out fossil fuels.
“At the end of the day, it’s harder to make a claim that China needs the U.S. and it’s harder to make the claim that the U.S. can rely on China,” said Cory Combs, a senior analyst at policy consulting firm Trivium China.
Wealthy countries’ inability to deliver promised climate aid to vulnerable countries hasn’t helped. While China remains among the bloc of developing nations in calling for more action on climate finance, it also points to the investments it’s making in the Global South through its Belt and Road infrastructure initiative and bilateral aid.
A foreign diplomat who asked for anonymity to speak openly said China has resisted pressure to contribute money to a climate fund that would help developing countries rebuild after climate disasters and would likely push back against a focus on its continued build out of coal-fired power plants.
US climate envoy John Kerry sits next to China’s special climate envoy Xie Zhenhua | Fabrice Coffrini/AFP via Getty Images
“Anything that would signal that they would need to do more is something that gets blocked,” the person said.
China did release a plan earlier this month to cut emissions of the potent greenhouse methane, delivering on a promise it had made in a joint declaration with the U.S. at climate talks in 2021. But it has still not signed onto a global methane pledge led by the U.S. and the European Union.
All that amounts to a complicated picture for the U.S.-Chinese relationship and its broader impact on global climate outcomes.
“The U.S.-China talks will help stabilize the politics when countries meet in the UAE, but critical issues such as a fossil fuel phase-out still require much [further] political efforts,” said Li Shuo, incoming director of the China climate hub at the Asia Society Policy Institute.
“It’s very much about setting a floor,” and the talks in Dubai still need to build out from there, Shuo added.
He argues in a recent paper that China will subscribe to targets it sees as achievable and will continue toside with developing countries on climate finance. Chinese government officials are cautious about what they’re willing to commit to internationally, which sometimes serves as a disincentive for them to be more ambitious, he said.
The calculation is likely to be different for Biden’s team, who “want a headline that the world agrees to push China,” said David Waskow, who leads the World Resources Institute’s international climate initiative.
Not impossible
The power of engagement can’t be completely written off, and in the past it has proven to have a positive effect on the U.S.-China relationship.
“[Climate] sort of was a positive pillar in the relationship,” said Todd Stern, Obama’s former chief climate negotiator. “And it came to be a thing where when the two sides have come to get together, it was like, ‘What can we get done on climate?’”
Engagement with Chinaat the state and local level and among academics and research institutes has potential — in large part because it’s less political, said Joanna Lewis, a professor at Georgetown University who closely tracks China’s climate change approach.
There could also be opportunities to separate climate from broader bilateral tensions.
“I do feel like there’s that willingness to say, ‘We recognize our roles, we recognize our ability to have that catalytic effect on the international community’s actions,’” said Nate Hultman, director of the University of Maryland’s Center for Global Sustainability and a former senior adviser to Kerry. “It doesn’t solve all the world’s issues going into the COP, but it gives a really strong boost to international discussions around what we know we need to do.”
Sara Schonhardt and Zack Colman reported, and Phelim Kine contributed reporting, from Washington, D.C.
This article is part of the Road to COP special report, presented by SQM.The article is produced with full editorial independence by POLITICO reporters and editors. Learn more about editorial content presented by outside advertisers.
This article is part of the Road to COP special report, presented by SQM.
LONDON — World leaders will touch down in Dubai next week for a climate change conference they’re billing yet again as the final off-ramp before catastrophe. But war, money squabbles and political headaches back home are already crowding the fate of the planet from the agenda.
The breakdown of the Earth’s climate has for decades been the most important yet somehow least urgent of global crises, shoved to one side the moment politicians face a seemingly more acute problem. Even in 2023 — almost certainly the most scorching year in recorded history, with temperatures spawning catastrophic floods, wildfires and heat waves across the globe — the climate effort faces a bewildering array of distractions, headwinds and dismal prospects.
“The plans to achieve net zero are increasingly under attack,” former U.K. Prime Minister Theresa May, who set her country’s goal of reaching climate neutrality into law, told POLITICO.
The best outcome for the climate from the 13-day meeting, which is known as COP28 and opens Nov. 30, would be an unambiguous statement from almost 200 countries on how they intend to hasten their plans to cut fossil fuels, alongside new commitments from the richest nations on the planet to assist the poorest.
But the odds against that happening are rising. Instead, the U.S. and its European allies are still struggling to cement a fragile deal with developing countries about an international climate-aid fund that had been hailed as the historic accomplishment of last year’s summit. Meanwhile, a populist backlash against the costs of green policies has governments across Europe pulling back — a reverse wave that would become an American-led tsunami if Donald Trump recaptures the White House next year.
And across the developing world, the rise of energy and food prices stoked by the pandemic and the Ukraine war has caused inflation and debt to spiral, heightening the domestic pressure on climate-minded governments to spend their money on their most acute needs first.
Even U.S. President Joe Biden, whose 2022 climate law kicked off a boom of clean-energy projects in the U.S., has endorsed fossil fuel drilling and pipeline projects under pressure to ease voter unease about rising fuel costs.
Add to all that the newest Mideast war that began with Hamas’ attack on Israel on Oct. 7.
On the upside, investment in much of the green economy is also surging. Analysts are cautiously opining that China’s emissions may have begun to decline, several years ahead of Beijing’s schedule.And the Paris-based International Energy Agency projects that global fossil fuel demand could peak this decade, with coal use plummeting and oil and gas plateauing afterward. Spurring these trends is a competition among powers such as China, the United States, India and the European Union to build out and dominate clean-energy industries.
But the fossil fuel industry is betting against a global shift to green, instead investing its profits from the energy crisis into plans for long-term expansion of its core business.
The air of gloom among many supporters of global climate action is hard to miss, as is the sense that global warming will not be the sole topic on leaders’ minds when they huddle in back rooms.
“It’s getting away from us,” Tim Benton, director of the Chatham House environment and society center, said during a markedly downbeat discussion among climate experts at the think tank’s lodgings on St James’ Square in London earlier this month. “Where is the political space to drive the ambition that we need?”
Fog of war
The most acute distraction from global climate work is the war between Israel and Hamas in Gaza. The conflagration is among many considerations the White House is weighing in Biden’s likely decision not to attend the summit, one senior administration official told POLITICO this month. Other leaders are also reconsidering their schedules, said one senior government official from a European country, who was granted anonymity to speak about the sensitive diplomacy of the conference.
The war is also likely to push its way onto the climate summit’s unofficial agenda: Leaders of big Western powers who are attending will spend at least some of their diplomatically precious face-time with Middle East leaders discussing — not climate — but the regional security situation, said two people familiar with the planning for COP28 who could not be named for similar reasons. According to a preliminary list circulated by the United Arab Emirates, Israeli President Isaac Herzog or Prime Minister Benjamin Netanyahu will attend the talks.
A threat even exists that the conference could be canceled or relocated, should a wider regional conflict develop, Benton said.
The UAE’s COP28 presidency isn’t talking about that, at least publicly. “We look forward to hosting a safe, inclusive COP beginning at the end of November,” said a spokesperson in an emailed statement. But the strained global relations have already thrown the location of next years’ COP29 talks into doubt because Russia has blocked any EU country from hosting the conference, which is due to be held in eastern or central Europe.
The upshot is that the bubble of global cooperation that landed the Paris climate agreement in 2015 has burst. “We have a lot of more divisive narratives now,” Laurence Tubiana, the European Climate Foundation CEO who was one of the drafters of the Paris deal, said at the same meeting at Chatham House.
The Ukraine war and tensions between the U.S. and China in particular have widened the gap between developed and developing countries, Benton told POLITICO in an email.
Now, “the Hamas-Israel war potentially creates significant new fault lines between the Arab world and many Western countries that are perceived to be more pro-Israeli,” he said. “The geopolitical tensions arising from the war could create leverage that enables petrostates (many of which are Muslim) to shore up the status quo.”
Add to that the as yet unknown impact on already high fossil fuel commodity prices, said Kalee Kreider, president of the Ridgely Walsh public affairs consultancy and a former adviser to U.S. Vice President Al Gore. “Volatility doesn’t usually help raise ambition.”
The Biden administration’s decisions to approve a tranche of new fossil fuel production and export projects will undermine U.S. diplomacy at COP28, said Ed Markey, a Democratic U.S. senator from Massachusetts.
“You can’t preach temperance from a barstool, and the United States is running a long tab,” he said.
U.N. climate talks veterans have seen this program before. “No year over the past three decades has been free of political, economic or health challenges,” said former U.N. climate chief Patricia Espinosa, who now heads the consulting firm onepoint5. “We simply can’t wait for the perfect conditions to address climate change. Time is a luxury we no longer have — if we ever did.”
The EU backlash
Before the Mideast’s newest shock to the global energy system, the war in Ukraine exposed Europe’s energy dependence on Russia — and initially galvanized the EU to accelerate efforts to roll out cleaner alternatives.
But in the past year, persistent inflation has worn away that zeal. Businesses and citizens worry about anything that might add to the financial strain, and this has frayed a consensus on climate change that had held for the past four years among left, center and center right parties across much of the 27-country bloc.
In recent months, conservative members of the European Parliament have attacked several EU green proposals as excessive, framing themselves as pragmatic environmentalists ahead of Europe-wide elections next year. Reinvigorated far-right parties across the bloc are also using the green agenda to attack more mainstream parties, a trend that is spooking the center.
Germany’s government was almost brought down this year by a law that sought to ban gas boilers — with the Greens-led economy ministry retreating to a compromise. In France, President Emmanuel Macron has joined a growing chorus agitating for a “regulatory pause” on green legislation.
If Europe’s struggles emerge at COP28, the ripple effect could be global, said Simone Tagliapietra, a senior fellow at the Brussels-based Bruegel think tank.
The “EU has established itself as the global laboratory for climate neutrality,” he said. “But now it needs to deliver on the experiment, or the world (which is closely watching) will assume this just does not work. And that would be a disaster for all of us.”
U.K. retreats
The world is also watching the former EU member that stakes a claim to be the climate leader of the G7: the U.K.
London has prided itself on its green credentials ever since former Prime Minister May enacted a 2019 law calling for net zero by 2050 — making her the first leader of a major economy to do so.
According to May’s successor Boris Johnson, net zero was good for the planet, good for voters, good for the economy. But under current Prime Minister Rishi Sunak, the messaging has transformed. Net zero remains the target — but it comes with a “burden” on working people.
In a major speech this fall, Sunak rolled back plans to ban new petrol and diesel car sales by 2030, bringing the U.K. into line with the EU’s 2035 date. With half an eye on Germany’s travails, he said millions of households would be exempted from the gas boiler ban expected in 2035.
In making his arguments for a “pragmatic” approach to net zero, Sunak frequently draws on the talking points of net zero-skeptics. Why should the citizens of the U.K., which within its own borders produces just 1 percent of global emissions, “sacrifice even more than others?”
The danger, said one EU climate diplomat — granted anonymity to discuss domestic policy of an allied country — was that other countries around the COP28 negotiating table would hear that kind of rhetoric from a capital that had led the world — and repurpose it to make their own excuses.
Sunak’s predecessor May sees similar risks.
“Nearly a third of all global emissions originate from countries with territorial emissions of 1 per cent or less,” May said. “If we all slammed on the brakes, it would make our net zero aspirations impossible to achieve.”
Trump’s back
The U.S., the largest producer of industrial carbon pollution in modern history, has been a weathervane on climate depending on who controls its governing branches.
When Republicans regained control of the U.S. House of Representatives in 2022, it created a major drag on Biden’s promise to provide $11.4 billion in annual global climate finance by 2024.
Securing this money and much more, developing countries say, is vital to any progress on global climate goals at COP28. Last year, on the back of the pandemic and the energy price spike, global debt soared to a record $92 trillion. This cripples developing countries’ ability to build clean energy and defend themselves against — or recover from — hurricanes, floods, droughts and fires.
Even when the money is there, the politics can be challenging. Multibillion-dollar clean energy partnerships that the G7 has pursued to shift South Africa, Indonesia, Vietnam and India off coal power are struggling to gain acceptance from the recipients.
Yet even more dire consequences await if Trump wins back the presidency next year.
A Trump victory would put the world’s largest economy a pen stroke away from quitting the Paris Agreement all over again — or, even more drastically, abandoning the entire international regime of climate pacts and summits. The thought is already sending a chill: Negotiations over a fund for poorer countries’ climate losses and damage, which Republicans oppose, include talks on how to make its language “change-of-government-proof” in light of a potential Trump victory, said Michai Robertson, lead finance negotiator for a bloc of island states.
More concretely for reining in planet-heating gases, Trump would be in position to approve legislation eliminating all or part of the Inflation Reduction Act. Biden’s signature climate law included $370 billion in incentives for clean energy, electric vehicles and other carbon-cutting efforts – though the actual spending is likely to soar even higher due to widespread interest in its programs and subsidies – and accounts for a bulk of projected U.S. emissions cuts this decade.
House Republicans have attempted to claw back parts of Biden’s climate law several times. That’s merely a political messaging effort for now, thanks to a Democrat-held Senate and a sure veto from Biden, but the prospects flip if the GOP gains full control of Congress and White House.
Under a plan hatched by Tubiana and backed by former New York Mayor Michael Bloomberg, countries would in the future log their state and local government climate plans with the U.N., in an attempt to undergird the entire system against a second Republican blitzkrieg.
The U.S. isn’t the only place where climate action is on the ballot, Benton told the conference at Chatham House on Nov. 1.
News on Sunday that Argentina had elected as president right-wing populist Javier Milei — a Trump-like libertarian — raised the prospect of a major Latin American economy walking away from the Paris Agreement, either by formally withdrawing or by reneging on its promises.
Elections are also scheduled in 2024 for the EU, India, Pakistan, Taiwan, Sri Lanka, Indonesia and Russia, and possibly the U.K.
“A quarter of the world’s population is facing elections in the next nine months,” he said. “If everyone goes to the right and populism becomes the order of the day … then I won’t hold out high hopes for Paris.”
Zack Colman reported from Washington, D.C. Suzanne Lynch also contributed reporting from Brussels.
This article is part of the Road to COP special report, presented by SQM.The article is produced with full editorial independence by POLITICO reporters and editors. Learn more about editorial content presented by outside advertisers.
BRUSSELS — When EU digital chief Věra Jourová sat down in Beijing with a senior Chinese official in September, her complaint list was as long as the 11-course dinner her host had prepared.
Sore points included Beijing’s disinformation campaigns, electoral interference, state control over Artificial Intelligence development, and ties with Russia.
Predictably, Jourová didn’t get many straight answers from her counterpart, Vice Premier Zhang Guoqing. It’s a nail-biting time to be a politician in China, as major figures such as Qin Gang and Li Shangfu have recently been purged as foreign and defense ministers, and no one wants to be accused of making big concessions to the West.
Then, in a sudden surprise initiative, Zhang said he was ready to offer a goodie to European businesses facing an increasingly hostile political environment in President Xi Jinping’s China. He explained Beijing was willing to move on data flows — a sphere where China has been trying to curb the ability of foreign companies to export data generated within the country. All that data is a goldmine for European business, but China guards it zealously.
A deal on data flows was a big call from Zhang, but can be explained by China’s growing fears about its precarious economy. While security is front-and-center to Chinese policymakers, they also know they have to offer some big carrots to keep foreign investors onside.
“You could feel that something clicked on the spot,” said an EU official with knowledge of the discussion, recalling the heated debates on data over Chinese delicacies like beef in lotus leaves and dim sum.
Although the dinner happened in September, three officials with knowledge of China’s switching tack have only now explained how the change of heart in Beijing came about.
“The vice-premier told her he understood the proposal makes sense, and asked the relevant authorities to take the matter forward,” the first official said. Zhang immediately turned to his junior colleagues from the Cyberspace Administration of China and the Ministry of Industry and Information Technology. “You had a feeling that that was the moment the big guy gave the go-ahead.”
According to another official, when Trade Commissioner Valdis Dombrovskis visited Beijing shortly after Jourová, he received the final confirmation of the changes to the data laws from his counterpart, Vice Premier He Lifeng, an influential economic aide to President Xi Jinping.
Shortly afterward, China agreed to reverse the burden of proof under the relevant laws, allowing most data stored in China to be transferred out of the country unless expressly excluded by the authorities. EU officials, though, cautioned that they’ll still wait to see how Chinese authorities at all levels implement the new provision.
Special gift to Europe
Even though U.S., Japanese and other companies had also been pushing for this kind of measure from Beijing on data, China offered the diplomatic win to the EU.
The European Union Chamber of Commerce, among the first to be notified when Beijing made the legal revision, sent Jourová a congratulatory letter, seen by POLITICO.
China’s Vice Premier Zhang Guoqing | Lintao Zhang/Getty Images
“Make no mistake, China is merely fixing a problem of its own making,” the second official noted. “It’s not an act of benevolence. It’s an act of self-correction.”
Still, that self-correction is far from a given under a nationalistic government facing stiff competition from the U.S.
Increasingly, China’s uncompromising ideological focus is forcing many companies to adjust their business strategies, including by taking their new investments out of China. Indeed, the EU and the rest of the G7 rich democracies are calling on their companies to “de-risk,” as Russia’s war against Ukraine prompts concerns about a possible Chinese invasion of Taiwan.
According to a report issued Wednesday by Penta, a business research group, one in five EU policymakers considers China to be the most pressing issue facing the bloc — while only 16 percent of people say they’re open to working with companies from China, bottom of the list.
It’s against this backdrop that Beijing wants — and needs — to throw some bones to the EU.
“For sure there’s a lot of self-interest for China [to give EU the data deal], where there’s a sharp drop of foreign direct investment which China desperately needs,” the first official said.
European Council President Charles Michel and European Commission President Ursula von der Leyen | Kenzo Tribouillard/AFP via Getty Images
Over the past three months, Beijing has welcomed a long line of EU officials in a thaw from the 2021 low point where China’s sanctions on EU politicians and intellectuals were followed by an indefinite freeze of a massive EU-China trade deal, which remains unratified.
Commission President Ursula von der Leyen and her European Council counterpart Charles Michel are expected to attend an EU-China Summit in December and meet Chinese President Xi Jinping.
EU officials should use China’s underperforming economy — most specifically in the real estate sector — as leverage, according to Luisa Santos, deputy director of BusinessEurope, a Brussels-based lobby group, who is currently visiting China.
Speaking before her trip, Santos described the Chinese economy as “not in a great situation,” adding that EU officials should seize this opportunity to convince Beijing to open up further.
“China needs to recognize that what is happening in our bilateral relationship is something that is not sustainable,” she said.
Last winter, Europeans faced exorbitant energy bills as the Continent rapidly weaned itself off Russian gas. This year the EU is better prepared — but now a second war also threatens to roil its energy markets.
The conflict between Israel and Hamas threatens to disrupt Europe’s relationships with the Middle East, or even draw Iran into direct confrontation with Israel and its Western partners. While markets are relatively calm for now, either of those scenarios could cause chaos.
Nevertheless, Europe is “equipped to face oil and diesel global market tightness,” Energy Commissioner Kadri Simson told POLITICO in an interview. Officials have learned lessons from Russia’s war on Ukraine, and are working to build “a good understanding of all our vulnerabilities to best address them and how we can be prepared for any incidents or emergencies.”
EU officials have held a slew of meetings with oil-producing nations in recent weeks, both old friends like Norway and emerging partners such as Algeria and Nigeria, to get ahead of any potential disruptions, she said.
“After the Gaza crisis unfolded, we are faced with two conflicts in the European neighborhood. The Eastern Mediterranean is an important theater for European energy security, as Europe’s energy transition is still entangled in geopolitical uncertainties,” Simson said, attributing the lack of drama in the markets to “the preparedness and crisis management that the EU put in place to respond to Russia’s energy blackmail.”
Fighting in Gaza and, to a lesser extent, along Israel’s northern border with Lebanon has had only a limited impact on oil markets. Prices initially rose on the news of the attack by Hamas militants on October 7 and Israel’s massive response, but key crude benchmark Brent dropped back by 4.2 percent this week to around $81 per barrel, around the levels seen before the start of the violence.
Markets have avoided a repeat of 1973, when the Yom Kippur War between Israel and its neighbors prompted the big Arab producers, led by Saudi Arabia, to embargo their exports to Israel’s allies. Gulf country relations with Israel have improved markedly in the past 50 years: The UAE and Bahrain recognized its sovereignty under the 2020 Abraham Accords, while Saudi Arabia is in negotiations to do the same.
Traders are therefore betting that as long as the conflict doesn’t expand, supplies of oil will remain more or less stable, said Viktor Katona, lead crude analyst at energy intelligence firm Kpler.
The risk stems more from Iran, he said. In the worst case, an expansion of the conflict could cause Iran to disrupt shipping from Gulf Arab countries through the Strait of Hormuz. Iran’s own crude oil, while sanctioned by the West, is exported in large quantities to China. “If Israel starts to strike the Iranian territory and Iran as a consequence needs to export less, then China doesn’t have enough crude and needs to buy from somewhere else,” sending global prices rocketing, Katona said. “It’s an entire spiral that gets triggered immediately.”
While Iran’s theocratic leadership has consistently vowed to destroy the state of Israel and publicly endorsed Hamas’ attacks last month, it denies involvement in their planning and execution. The Israel Defense Forces say they have carried out strikes on militant groups in Syria with close links to Iran’s Islamic Revolutionary Guard Corps, but have so far stopped short of hitting targets inside Iran itself.
Lessons learned
Gas markets felt a more immediate impact from the war. Israel turned off the taps at its Tamar offshore gas field in the hours following Hamas’ surprise attack, amid reports that it was a target for rocket attacks. While Israel produces only relatively small quantities of natural gas — around 21 billion cubic meters last year, compared to Russia’s 618 billion — it is a key exporter to neighboring Egypt, and the downtime worsened regular rolling power outages there. The flow has since been resumed, albeit in smaller quantities.
Any escalation with Iran could affect gas as well as oil markets, given a third of the world’s liquefied natural gas and a sixth of its oil is shipped through the Strait of Hormuz. “If things stay as they are there’s no problem, but if there’s a war where Iran was included and they [block trade through] the Hormuz strait then prices will go up for sure,” said one EU diplomat with knowledge of internal energy strategy talks, granted anonymity to speak candidly.
However, “all the big players want to avoid escalation, Iran wants to avoid this” because of threat of sanctions, the envoy insisted.
Absent that dire scenario, the impact on EU gas markets is likely to be limited, says Tom Marzec-Manser, head of gas analytics at commodities intelligence company ICIS — but more because of the last conflict than the most recent one.
“From a European gas pricing perspective, we’re still looking relatively OK and that’s been driven largely by weak demand. Many industrial consumers continue to use noticeably less gas than they did prior to the energy crisis last year, so consumption in Europe has remained low,” he said.
According to the European Commission, member states collectively shaved almost 20 percent from their natural gas use in the run-up to last winter, with industry slowing output and renewable power playing a much larger role in electricity generation. Despite that, consumption actually rose in October for the first time since the start of the war, in an early sign that businesses could be tentatively trying to restore lost productivity.
But even though the bloc’s gas reserves are more than 99 percent full ahead of schedule, prices have still remained stubbornly high across the Continent compared to other regions. That means Europeans are more at risk of short-term spikes in the cost of energy, with industry potentially having to slow down again if bills become unaffordable.
“We are in a much better situation than in 2022,” said Georg Zachmann, a senior fellow at the Bruegel energy think tank. “We have more heat pumps, power plants are back in the picture that we didn’t have available last year, and we’ve built more liquified natural gas terminals.” However, he warned, if member states lose focus on reducing demand and try to give their own industries a head start with subsidies, that could spark a wasteful race “that is essentially to everyone’s detriment.”
At the same time, winter in Europe isn’t what it used to be. Record-breaking temperatures have been recorded across the globe for the past four months, according to an EU Copernicus satellite monitoring report published this week, while last winter was the second-warmest ever recorded on the Continent. While that might be good news for conflict-prone fossil fuel supplies in the short term, it’s probably bad news for just about everything else in the not-so-much-longer term.
Russian President Vladimir Putin is not worried about Western sanctions — quite the opposite, in fact.
Faced with the prospect of a 12th round of EU sanctions — which could include trade in anything from diamonds to needles — the Russian leader brushed off the plan as ridiculous and took a jab at Europe and its crawling bedbug problem.
“Perhaps the less junk, the better. There is less of a chance of bedbugs coming here from large European cities,” Putin joked on Wednesday, reported Russian state-run news agency TASS.
Several European cities, including Paris, are battling an infestation of bedbugs in recent months. The tiny insects have swarmed public transport, raising alarm among residents and public officials, and sending cities into a frenzy.
Last month, French intelligence even blamed Russian propaganda for stoking fears about the bedbugs by posting fake articles that looked like they were written by reputable French newspapers.
Putin’s comment comes as the EU is preparing a new round of sanctions against Russia, which is likely to include export restrictions on welding machines, chemicals and diamonds, among other items. According to EUobserver, Lithuania has proposed a plan which also includes the ban of exports of “nails, tacks, drawing pins” and “sewing needles, knitting needles.”
Putin — whose full-scale invasion of Ukraine is heading toward the two-year mark — has ridiculed the proposal, saying that Western officials “are now simply reaching the point of absurdity in their fantasies.”
KYIV — Sergeant Yegor Firsov, deputy commander of a Ukrainian army strike drone unit, sounds exhausted in a voice message he sent to POLITICO from Avdiivka, an industrial city at the center of intense fighting on the eastern front.
Russian troops have been storming Avdiivka relentlessly for more than two weeks in an all-out effort to encircle the Ukrainian forces there.
“The situation is very difficult. We are fighting for the heights around the city,” Firsov said. “If the enemy controls these heights, then all logistics and roads leading to the city will be under its control. This will make it much harder to resupply our forces.”
Facing an enemy with superior numbers of troops and armor, the Ukrainian defenders are holding on with the help of tiny drones flown by operators like Firsov that, for a few hundred dollars, can deliver an explosive charge capable of destroying a Russian tank worth more than $2 million.
The FPV — or “first-person view” — drones used in such strikes are equipped with an onboard camera that enables skilled operators like Firsov to direct them to their target with pinpoint accuracy. Before the war, a teenager might hope to get one for a New Year present. Now they are being used as agile weapons that can transform battlefield outcomes. Others are watching, and learning, from a technology that is giving early adopters an asymmetric advantage against established methods of warfare.
“It’s hard to handle the emotion when a drone pilot hits a tank. The whole group and the whole platoon are happy like babies. Infantry units are rejoicing nearby. Everyone is screaming, and hugging. Although they do not know the guy who gave them this happiness,” Firsov wrote in a Facebook post.
A typical FPV weighs up to one kilogram, has four small engines, a battery, a frame and a camera connected wirelessly to goggles worn by a pilot operating it remotely. It can carry up to 2.5 kilograms of explosives and strike a target at a speed of up to 150 kilometers per hour, explains Pavlo Tsybenko, acting director of the Dronarium military academy outside Kyiv.
“This drone costs up to $400 and can be made anywhere. We made ours using microchips imported from China and details we bought on AliExpress. We made the carbon frame ourselves. And, yeah, the batteries are from Tesla. One car has like 1,100 batteries that can be used to power these little guys,” Tsybenko told POLITICO on a recent visit, showing the custom-made FPV drones used by the academy to train future drone pilots.
“It is almost impossible to shoot it down,” he said. “Only a net can help. And I predict that soon we will have to put up such nets above our cities, or at least government buildings, all over Europe.”
Contagious technology
Commercial drones were first weaponized in Azerbaijan’s — ultimately successful — campaign to retake the Nagorno-Karabakh breakaway region from Armenian separatists. Their use has expanded rapidly in the 20-month-old Russian war in Ukraine.
And, earlier this month, Hamas militants flew drones to knock out Israeli border defenses during a surprise attack in which they massacred more than 1,400 people and took around 200 hostages. For Ukrainians, the video clip of a Hamas drone destroying an Israeli main battle tank by dropping a grenade was a film they had seen before.
Ukrainian drone experts and intelligence officials are convinced that Russian specialists have trained Hamas in the art of drone warfare — although Moscow denies this.
Some experts worry that militants across the world will soon learn how to use FPV drones to sow terror | Simon Wohlfahrt/AFP via Getty Images
“Only we and the Russians know how to do this — and we definitely did not teach them,” Andriy Cherniak, a representative of Ukraine’s Military Intelligence Directorate, told POLITICO.
Ruslan Belyaiev, head of the Dronarium military academy, shares that view. He warns that other militants will soon learn how to use FPV drones to sow terror.
“No one is immune from such attacks,” said Belyaiev. “In theory, a specialist with my level of expertise could plan and execute an operation to liquidate the first persons of any European state … Pandora’s box is open.”
Secret training
While NATO militaries hesitate to use commercial drones that are mostly made in China, or made from Chinese components, some Western democracies have already shown interest in learning from Ukraine’s experience of drone warfare.
Several figures in Ukraine’s drone community, granted anonymity due to the sensitivity of the matter, told POLITICO that special forces and anti-terrorist units of two NATO countries bordering Russia have taken courses from Ukrainian drone operators over the past six months.
Their focus is on countering small kamikaze drones and commercial drones that can be successfully used for reconnaissance, correcting artillery fire and video signal transmission, one person with direct knowledge said.
Basic training for a drone pilot takes five days. Learning how to pilot a kamikaze drone takes more than 20 days, Tsybenko said.
Battlefield experience has led the Ukrainian government to shift its preference away from conventional military drones, which are miniature fixed-wing aircraft with a long enough range to strike targets inside Russian territory. The effectiveness of FPV drones at closer quarters has led Defense Minister Rustam Umerov to simplify approvals for new models to be deployed.
“FPV drones are effective tools for destroying the enemy and protecting our country. The Ministry of Defense is doing everything possible to increase number of drones,” Umerov said in a statement on Wednesday.
Team players
Every FPV drone pilot works in tandem with aerial reconnaissance units, who fly a DJI Mavic or other type of drone with video and audio transmitters to observe their mission. “An FPV loses its video signal close to the target. So, the other drone helps the pilot and supporting units to understand the target was indeed hit,” Tsybenko said.
Firsov confirmed that in a Facebook post from the front. What looks simple on video in fact requires close coordination between dozens of people.
“Everything seems so simple, put on glasses — and “Bam!” you destroyed a tank,” said Firsov. “In fact, aerial scouts spend hours looking for targets. A decryptor looks at video and finds targets that the enemy has carefully hidden. A navigator who is nearby helps the pilot to fly along the route. An engineer attaching explosives, a sapper, who twists standard ammunition for drones and many, many others.”
Russian forces use FPV drones to target single soldiers | John Moore/Getty Images
Most FPV drones are kamikaze, Tsybenko said. And their effectiveness has changed the stakes. The Russians, who at first lagged behind Ukraine in mastering drone warfare, have learned from their mistakes. And now they are scaling up Ukraine’s methods of drone warfare.
Russian forces now have “countless” FPV drones that they now use to target single soldiers.
Russia has also launched its own production lines and is devising new tactics to deploy drones in swarms. “One manager and all the others will repeat the movement. This controlled pack is a very big threat on the battlefield,” Tsybenko warned.
China factor
However, neither Ukraine nor Russia are able to produce drones for warfare by themselves. They still source crucial parts from China — the leading maker of commercial drones. Earlier this year the Chinese Ministry of Commerce imposed restrictions on drone exports to both Ukraine and Russia out of “fear it would be used for military purposes.”
Still, it’s possible to obtain components and drones via third countries. “Yes, China can either stop or stall the export of parts if it sees ‘Ukraine’ in export data. But it can’t control what we buy in Europe. Russia has fewer problems and a common border with China, and that makes drone imports way easier.”
“Every lock has its key. Indeed, the commercial drones we buy in stores are synchronizing their data with a server. But we learned how to create user logins that are completely anonymized. Even the drone might think it is flying somewhere in Canada — and not in Donbas,” Tsybenko said.
“When we talked to Europeans, they were amazed at how easy it is to hack and anonymize Chinese drones. It is safe to use them, we tried to persuade our partners,” Tsybenko said, adding that Ukraine did not have the luxury of time to independently develop and certify its own drones.
“If we waited, the war would be over when they finally arrived.”
Russian President Vladimir Putin will meet Chinese counterpart Xi Jinping in Beijing this week — a rare international visit by the Russian leader.
During the October 17-18 visit to Beijing, Putin will attend a forum marking 10 years of the Belt and Road Initiative, China’s global infrastructure program that has helped boost its influence worldwide.
Washington and Brussels have been eyeing with alarm the relationship between China and Russia, with Beijing refusing to condemn Moscow’s full-scale invasion of Ukraine, even as it has voiced support for the principle of territorial integrity.
Russia has increased its energy exports to China as it grapples with Western sanctions imposed as a response to the invasion of Ukraine.
EU foreign policy chief Josep Borrell urged China during a three-day trip to the country that wrapped up this weekend to use its influence with Russia, particularly on the U.N. Security Council, to stop the war in the country. He also warned Beijing that “any direct military support to Russia … would be a serious concern for us.”
The European Union is expected to have a summit with China before the end of the year.
This week’s Belt and Road Initiative Forum takes place against the background of a darkening economic picture for China, which has seen an economic slowdown, propelled in part by a property downturn. Representatives from more than 100 countries are expected to attend the forum in Beijing, including Hungarian Prime Minister Viktor Orbán.
At the same time, Defense Minister Li Shangfu has not been seen in public for more than six weeks, raising questions about his whereabouts and safety.
The visit to Beijing would mark Putin’s second international trip since the International Criminal Court (ICC) issued a warrant for the Russian leader’s arrest in March over the forced transport of children to Russia from Ukraine. Putin last week attended a summit of ex-Soviet nations in Kyrgyzstan. Neither Kyrgyzstan nor China is a party to the ICC.
CORRECTION: This story has been updated to indicated that the China trip would be Putin’s second international trip since the ICC issued its arrest warrant in March.
KYIV — Ukraine has hammered Russia’s Black Sea fleet so hard that Moscow is shifting much of it away from Crimea, allowing Kyiv to reopen its ports to grain vessels despite Russia’s blockade threats.
“As of today, Russia is dispersing its fleet, fearing more attacks on its ships. Some units are relocating to the port of Novorossiysk. They try not to visit Sevastopol so often because they don’t feel safe there anymore,” Ukrainian navy spokesperson Dmytro Pletenchuk told POLITICO.
Ukraine unleashed a series of carefully planned attacks against the fleet and parts of its crucial infrastructure in recent weeks — destroying key air defense systems, landing commandos on Crimea, and pounding the fleet’s base in Sevastopol in an attack that heavily damaged a submarine and a missile carrier and put the fleet’s dry dock out of commission.
The coup de grâce was a missile attack on the fleet’s headquarters in downtown Sevastopol.
Ukrainian forces also control drilling rigs in the Black Sea as well as Zmiiniy Island — the famous island where Ukrainian forces said: “Russian warship, go fuck yourself” in the early days of the war.
That’s made naval operations in the western part of the Black Sea perilous for Russia, allowing grain ships to dock at Ukrainian ports with much less fear of being stopped and boarded by the Russians.
“Now ships and boats of the Black Sea fleet of the Russian Federation do not actually sail in the direction of the territorial sea of Ukraine. From time to time, they appear on the coast of Crimea, but not closer. They do not dare to go beyond the Tarkhankut Peninsula,” Natalia Humeniuk of Ukraine’s Army Operational Command South, told Ukrainian television on Wednesday, referring to the point that marks the westernmost extremity of Crimea into the Black Sea.
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She said Russian warships had been pushed back at least 100 nautical miles from the coast controlled by Ukraine.
That’s allowed Kyiv to restart grain exports from three Black Sea ports — reopening a route that the Kremlin had tried to throttle after pulling out of the U.N.-negotiated grain deal in July.
An official with the Ukrainian Armed Forces Command South, who was granted anonymity due to the sensitivity of the issue, said the Ukrainian military counted at least 10 Russian Black Sea fleet vessels that used to be based in Crimea and have now shifted east to the Russian port of Novorossiysk.
“They stopped being there all the time,” Pletenchuk said.
While cargo ships are again sailing to Ukrainian ports, Humeniuk warned that the threat isn’t over.
The Black Sea fleet has been a bone contention between Ukraine and Russia since the collapse of the Soviet Union | AFP via Getty Images
Although Russian warships have made themselves scarce, Russian planes are still flying over the sea. Russian forces frequently bomb Zmiiniy Island and attack cities and towns on the Black Sea coast of Ukraine with drones.
There is also the danger that Russia may lay mines to block sea routes, British intelligence said on Wednesday.
But for the moment, the situation on the Black Sea is a huge embarrassment for the Kremlin, as its second-largest naval force has been humbled by a country with almost no navy.
The Black Sea fleet has been a bone contention between Ukraine and Russia since the collapse of the Soviet Union. Moscow had a special arrangement with Kyiv to keep basing the fleet in Sevastopol, and concern over those basing rights was one of the reasons Russian President Vladimir Putin gave for his illegal annexation of Crimea in 2014.
The challenge to the fleet also endangers Russia’s hold on Crimea, said Volodymyr Zablotskiy, a Ukrainian military and naval expert.
“Without Crimea, this expansion fleet will not be viable, and the capabilities of the Kremlin and the region will be limited. These are the strategic consequences of our future de-occupation of the peninsula,” he said. “It is the fleet that enables the logistics of the Russian forces in this direction. And the key to it is the possession of Sevastopol.”
Western efforts to undermine the Kremlin’s war in Ukraine through a price cap on Russia’s all-important oil income are falling short. Hopes that Moscow could run out of cash for weapons and soldiers’ salaries are fading, industry insiders warn, as Russia sells its oil exports well above a $60-per-barrel price cap imposed by the G7+ nations, boosted by strong Chinese and Indian demand.
Russia’s main crude blend, Urals, broke through the cap imposed by G7+ countries on the open market in June, and has since pushed above $80 per barrel last month. It is currently trading at around $75 a barrel.
That means Russian President Vladimir Putin can keep the war going for longer: Strong oil revenues allow Moscow to purchase more arms and bolster the civilian economy. Isolating Russia from global markets has been a key pillar of the U.S. and EU strategy to counter the invasion, along with supplying weapons to Ukraine. Russian spending plans reveal that it will allocate a third of its annual budget to defense next year, indicating its top brass are confident they can outlast and outspend the West.
Besides higher prices, Russia is also selling more crude by volume, with seaborne exports rising 10 percent last month to 3.37 million barrels a day — well above the pre-war average of 3.1 million, according to data from commodities giant S&P.
“The price cap has absolutely failed,” Fotios Katsoulas, lead analyst for tanker shipping at S&P, told POLITICO from London. “Across the market we expect that all of the cargoes of Russian barrels are now trading above the price cap.”
The high prices are driven by a strong global market, he said, with benchmark Brent crude flirting with $100 a barrel in recent weeks. With benchmarks so high, Russian crude offers a tempting discount even at $80 or more.
Russia has been working to actively subvert the sanctions, taking advantage of a “shadow fleet” of aging tankers willing to carry oil in violation of the sanctions — often obscuring their ownership and even hiding the true origin of their cargo.
“New companies have been established in the [United Arab] Emirates, India, China and so on, increasing the tonnage they control, buying older vessels, not operating under Western insurance providers,” said Katsoulas, arguing the move means they’re effectively immune to the consequences of violating the price cap. China and India are now the largest destinations for Russian seaborne crude, followed by Turkey.
A senior economist at one major trading firm, granted anonymity to speak frankly on sensitive regulatory issues, warned there is little Western policymakers can do to enforce the rules without overheating an already frothy market.
“The U.S. administration probably will prefer to not penalize freight and insurance companies involved in breaking the $60 limit because that would risk even higher crude oil prices,” the trader said.
You can leave your cap on
A spokesperson for the European Commission acknowledged that there had been “recent fluctuations in oil prices above the G7+ price cap level,” but insisted “this does not mean that the price cap is not working.”
“To continue the successful enforcement of the oil price caps across the international coalition, it is indeed vital to counter Russian attempts to undermine its functioning,” the official added, pointing out that the bloc has sought to target rogue ship operators in its 11th package of sanctions against Moscow in May.
Strong oil revenues allow Moscow to purchase more arms and bolster the civilian economy | Matthew Stockman/Getty Images
Maria Shagina, a sanctions researcher at the International Institute for Strategic Studies, cautioned against giving up on the price cap. Instead, “we now need to make sure the cap is watertight, that the mechanism is more robust than it is now.”
“Tighter enforcement would make a difference to the Russian budget — when there was more compliance from January through to August we saw Russian revenues drop 50 percent year on year and they struggled to cope with social spending and war-related spending,” Shagina said. “Now the cap is failing, but it hasn’t ultimately failed. If we tighten the screws we can bring it back to life.”
That could be difficult without the U.S. Last month, five diplomats from EU countries told POLITICO that despite growing awareness that the restrictions aren’t functioning properly, there is little appetite among the bloc’s governments to change it. “The Americans have said from their point of view that it’s working,” said one envoy, with another pointing out that little would change without U.S. support for tighter rules.
Ukrainian President Volodymyr Zelenskyy’s top economic adviser, Oleg Ustenko, used an interview with POLITICO in August to urge the West to both tighten the cap to just $30, and to close a “loophole” that allows countries like India, Turkey and China to export fuel refined from Russian crude to the global market without restrictions.
Responding to a request for comment, the U.S. State Department said that “the coalition continues to watch market conditions closely” and argued that current measures have already “rendered the Russian military-industrial complex unable to produce and maintain critical equipment for operations in Ukraine.”
