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.”
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 — William Lai, a China skeptic with a track record supporting independence, won the Taiwanese presidential election on Saturday in a result that risks inflaming tensions between Beijing and Washington in the South China Sea.
The election has been billed as the first major global geopolitical watershed of 2024, pitting the U.S. against China in a battle for regional influence. Beijing cast the vote as a choice between war and peace, and stressed the inevitability of the democratic island reunifying with the Communist mainland.
Lai is currently the island’s vice-president and Saturday’s poll represents an unprecedented third successive time in power for the Democratic Progressive Party (DPP) — regarded as anathema by Beijing for its insistence upon Taiwan’s sovereign rights and its close relations with the U.S., Europe and other democratic forces. In terms of global security, the fear is Beijing could now ratchet up pressure on the island with warplanes and warships, as it did after then-U.S. House Speaker Nancy Pelosi made a whirlwind visit in 2022.
Well aware of speculation that his victory could trigger heightened tensions with China’s President Xi Jinping, Lai held out an olive branch in his victory address, delivering a measured and cautious call for “exchanges and cooperation with China” on the basis of “dignity and parity.” He vowed to “replace confrontation with dialogue.”
“As president I have an important responsibility to maintain peace and stability in the Taiwan Strait. I will act in accordance with the Republic of China’s constitutional order in a manner that is balanced and maintains the cross-strait status quo,” Lai said, using Taiwan’s official name to please the more China-friendly constituents wary of his nativist Taiwan stance. “At the same time we are also determined to safeguard Taiwan from continuing threats and intimidation from China.”
Beijing’s immediate reaction was dismissive. “The elections of China’s Taiwan region are local elections and China’s internal affairs. Regardless of the result, it will not change the the basic fact that Taiwan is part of China and there is only one China in the world,” said a spokesperson for the Chinese embassy in the U.K.
With almost all the votes counted, Lai won slightly more than 40percent of the vote. The election is a first-past-the-post contest.
Hou Yu-ih from the more China-friendly Kuomintang (KMT) won 33.5 percent of ballots cast. Ko Wen-je, of the Taiwan People’s Party, scored 26.5 percent.
Hou conceded defeat at a KMT rally, saying: “I’m sorry I’ve let you down.”
“I congratulate Lai and Hsiao, but I hope they won’t let the voters down,” he said, referring to Lai and his running mate Bi-khim Hsiao, the vice presidential candidate, who’s a famous figure in Washington, having served as Taiwan’s de facto ambassador to the U.S. “Taiwan needs to be united and cannot be divided.” Hou continued. “Facing the U.S.-China-Taiwan relations, we need to approach them seriously, and leave the people with a stable environment.”
The only good news for Beijing in the results is that the DPP has lost its parliamentary majority, with the KMT vying to take over the speakership. This makes it very hard for Lai, as president, to pass legislation through a hostile parliament, and would certainly clip his wings in terms of antagonism with China.
Taiwan has no formal diplomatic relations with any major power as Beijing treats it as renegade region with no claim to sovereignty. It wields genuine economic heft, however, producing some 90 percent of the world’s most advanced semiconductors.
The only good news for Beijing in the results is a possibility the DPP could lose its parliamentary majority | Yasuyoshi Chiba/AFP via Getty Images
The winner, expected to be formally announced later Saturday, will succeed outgoing Tsai Ing-wen on May 20, amid growing fears of an escalation of tensions between between China and Taiwan. Beijing has been heavily critical of Lai over recent years, as the DPP leader has associated himself with the Taiwanese independence movement.
Indeed Lai went so far as to call himself a “pragmatic worker for Taiwan independence” in 2017, although he has now cooled that language.
Lai is a 64-year-old Harvard graduate and hails from a humble background. His father died in a mining accident when he was not yet one year old; and he was among six children raised by his mother. Before he became vice president, he was mayor of Tainan city and later Taiwan’s premier.
During the campaign, Lai ruled out declaring independence during his tenure, in an apparent bid to reassure Washington, which — alongside European allies — prefers that neither Beijing nor Taipei change the status quo unilaterally.
U.S. President Joe Biden reacted to Lai’s victory with a blunt message on Saturday: “We do not support independence” for Taiwan. The Biden administration has clarified that while it does not back Taiwanese independence, it favors dialogue between Taipei and Beijing and expects differences to be resolved peacefully and without coercion.
However, analysts and diplomats believe Beijing will increase pressure on Taiwan between now and the mid-May inauguration.
Days before the election, Beijing again threatened Taiwan by calling Lai a warmonger. “Lai … will bring Taiwan farther and farther away from peace and prosperity, and closer and closer to war and decay,” Chen Binhua, spokesman for China’s Taiwan Affairs Office, said on Thursday.
Lai is a 64-year-old Harvard graduate and hails from a humble background | Alastair Pike/AFP via Getty Images
China and the U.S. have shown signs of trying to manage the tension ahead of the election. In Washington, U.S. Secretary of State Antony Blinken met the visiting Chinese Communist Party’s international department chief Liu Jianchao, a day before the Taiwanese vote.
The U.S. and China also held the first physical military dialogue in four years, with Beijing demanding that the U.S. stop arming Taiwan. The Pentagon’s readout made no mention of how the U.S. responded to that call.
After Saturday’s vote, the U.S. State Department congratulated Lai on his victory and “the Taiwan people for once again demonstrating the strength of their robust democratic system and electoral process,” according to a statement. “The United States is committed to maintaining cross-Strait peace and stability, and the peaceful resolution of differences, free from coercion and pressure,” it said.
U.S.-China relations have seen a relative calm following U.S. President Joe Biden’s summit with China’s Xi in San Francisco in November. Xi, who’s grappling with an ailing economy at home, reportedly told Biden he had no timeline for achieving the ultimate goal of unifying Taiwan — indirectly pushing back at U.S. and Taiwanese officials’ suggestion that an invasion could take place by 2027.
The Maersk Sentosa container ship sails southbound to exit the Suez Canal in Suez, Egypt, on Thursday, Dec. 21, 2023.
Stringer | Bloomberg | Getty Images
Danish shipping giant Maersk said Friday it would extend its diversion of vessels from the Red Sea for the “foreseeable future” due to safety concerns amid a spate of attacks by Houthi militants.
“The situation is constantly evolving and remains highly volatile, and all available intelligence at hand confirms that the security risk continues to be at a significantly elevated level,” Maersk said in a statement.
It added that it hoped to now bring customers “more consistency and predictability,” despite delays to deliveries.
The diversion means avoiding the quickest path between Europe and Asia through Egypt’s Suez Canal, and taking the longer Cape of Good Hope route around southern Africa.
Several European firms, including Sweden’s Ikea, British retailer Next and appliance firm Electrolux, have warned of delays on some products due to supply chain disruption.
Maersk had resumed travel through the Red Sea and Gulf of Aden after a December pause, but halted it again on Tuesday after one of its vessels was attacked.
Uncertainty for firms has not eased despite a U.S.-led multinational military operation in the region, which aims to provide a “persistent defensive presence in the Red Sea” and has fired on Houthi boats.
The Houthis are a Yemen-based group backed by Iran. Its leadership has said it is targeting Israel-bound vessels in support of the Palestinian people amid the war in Gaza, but ships bound for multiple destinations have been attacked.
Traveling around Africa can add between two and four weeks to a ship’s transit time between Asia and Europe depending on the speed traveled, Maersk CEO Vincent Clerc told CNBC in a December interview.
Nearly 15% of global seaborne trade transits the Red Sea, according to the U.S. Analysts broadly do not see the current disruption as causing as much upheaval to supply chains as was seen during the coronavirus pandemic due to a sharp increase in supply capacity since 2021.
Maersk‘s Europe-listed shares were choppy after the announcement. It has been one of the top European performers of the new year, gaining more than 16% this week.
German shipping firm Hapag-Lloyd has also said it will continue to divert vessels away from the Red Sea amid Houthi attacks.
“What we can say for the moment [is] we don’t see the passage through the Red Sea and the Suez Canal as safe,” Nils Haupt, head of corporate communications at Hapag-Lloyd, told CNBC’s “Squawk Box Europe” on Friday.
“We had an attack in December, you can’t imagine how hard that was, not only for us as a company but especially for our crew. There were several attacks in the last days and as long as the passage through the Red Sea and Suez Canal is not safe, we won’t pass,” he added.
The Maersk Sentosa container ship sails southbound to exit the Suez Canal in Suez, Egypt, on Thursday, Dec. 21, 2023.
Stringer | Bloomberg | Getty Images
Attacks on ships in the Red Sea continue to push ocean freight rates higher, triggering warnings of inflation and delayed goods.
To avoid strikes by Iran-backed Houthi militants based in Yemen, carriers have already diverted more than $200 billion in trade over the past several weeks away from the crucial Middle East trade route, which, along with the Suez Canal, connects the Mediterranean Sea to the Indian Ocean.
This has created a multiple-front storm for global trade, according to logistics managers: Freight rates increasing daily, additional surcharges, longer shipping times, and the threat that spring and summer products will be late due to vessels arriving late in China as they travel the long way around South Africa’s Cape of Good Hope.
“The supply chain pressures that caused the ‘transitory’ part of inflation in 2022 may be about to return if the problems in the Red Sea and Indian Ocean continue,” said Larry Lindsey, chief executive of global economic advisory firm the Lindsey Group. “Neither the Fed nor the ECB can do anything about them and will likely ‘look through’ the inflation they cause, potentially leading to rate cuts despite somewhat heightened inflation pressures.”
The persistent violence against commercial ships drew a stern warning from the United States, Japan, the United Kingdom and nine other nations on Wednesday. “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 countries said in a joint statement.
In the meantime, about 20% of vessel capacity isn’t being used due to a massive drop in manufacturing orders, according to industry experts. Instead, ocean carriers continue to cut their sailings while tight capacity and longer travel times are fueling rate increases.
Rates for freight traveling from Asia to northern Europe more than doubled this week to above $4,000 per 40-foot-equivalent unit (container). Asia-Mediterranean prices climbed to $5,175 per container. Some carriers have announced rates above $6,000 per 40-foot container for Mediterranean shipments starting mid-month, with surcharges ranging from $500 to $2,700 per container.
A cargo ship crosses the Suez Canal, one of the most critical human-made waterways, in Ismailia, Egypt on December 29, 2023.
Fareed Kotb | Anadolu | Getty Images
“Given the sudden upward movement of ocean freight pricing, we should expect to see these higher costs trickle down the supply chain and impact consumers as we move through the first quarter,” said Alan Baer, CEO of shipping firm OL-USA. Companies, reflecting lessons they learned during the supply chain chaos of 2021-22, will adjust prices sooner rather than later, he added.
Rates from Asia to North America’s East Coast have risen by 55% to $3,900 per 40-foot container. West Coast prices climbed 63% to more than $2,700. More shippers are expected to start avoiding the East Coast and favor the West Coast ports. Likewise, rates are on track to rise again starting Jan. 15 due to previously announced increases.
“This is a big deal as it’s been mostly the fall in goods prices that have eased the inflation strain,” Peter Boockvar, investment chief at Bleakly Financial Group, told CNBC. “And while the battles going on in the Red Sea could end at any moment if the war in Gaza ends, it’s a reminder to the Fed that they can’t get complacent with their inflation fight if they don’t want to repeat the 1970s.”
Diversions from Egypt’s Suez Canal, which feeds into the Red Sea, are hurting capacity. Rerouting vessels around the Cape of Good Hope adds two to four weeks to a round-trip voyage, according to Honour Lane Shipping (HLS). Ocean alliances need more ships on each Asia-East Coast route to maintain an efficient network schedule.
“Some 25%-30% of global container shipping volumes pass through the Suez Canal (mainly on Asia-Europe trade), and it is estimated that widespread re-routing around Africa could reduce effective global container shipping capacity by 10%-15%,” said the note. “While the disruption continues, carriers may have to reduce the number of port calls to offset the impact of longer routes.”
A grab from handout footage released by Yemen’s Huthi Ansarullah Media Centre on November 19, 2023, reportedly shows members of the rebel group during the capture of an Israel-linked cargo vessel at an undefined location in the Red Sea. Israeli ships are a “legitimate target”, Yemen’s Huthi rebels warned on November 20, a day after their seizure of the Galaxy Leader and its 25 international crew following an earlier threat to target Israeli shipping over the Israel-Hamas war.
– | Afp | Getty Images
The longer travel time could also delay the arrival of spring goods that are traditionally picked up before the Chinese Lunar New Year, set for February, when factories close and employees go on vacation. Containers that were supposed to arrive on the East Coast in December are arriving now, according to logistics managers. Items include spring and summer clothing, pools, pool supplies, Easter products, patio furniture, and home and garden products.
North American East Coast ports in December, amid the Houthi attacks, “lost” several calls, which were instead pushed into January, according to data from maritime intelligence firm eeSEA. The vessels will instead arrive in January and February.
So vessels are not only late in dropping off their containers to their final destinations, they’re also late getting back to Asia to load containers. As a result, HLS is urging clients to book their container space four to five weeks in advance to secure a spot.
It’s reminiscent of what freight companies experienced during Covid’s earlier days.
“We used to book out four to six weeks out during Covid,” said OL-USA’s Baer. “During Covid, we had way too much cargo, and all the ships were full, so you have to forecast your bookings out. Now while there is vessel capacity, the vessels are late, so it’s a scramble to make sure you get your container on that vessel.”
Ocean carriers are also expanding land-freight services for those using West Coast ports intead of the East Coast. This is a similar strategy deployed by Hapag-Lloyd during Covid, when it offered clients service across land to the West Coast from the East Coast because it was faster.
These diversions in trade will create opportunities for West Coast railroad companies, Union Pacific and BNSF, a subsidiary of Berkshire Hathaway. The extra containers will also be a boost for trucking companies that also service those ports.
“Coming out of the holiday break we are seeing significant volumes being routed from Asia to the U.S. West Coast and via the Panama Canal to the U.S. East Coast to avoid the Suez Canal,” said Paul Brashier, vice president of drayage and intermodal at ITS Logistics. “We are forecasting this activity to increase as we get closer to the Lunar New Year peak season.”
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
U.K. Finance Minister Jeremy Hunt says it is “impossible to underestimate” the potential of a new model of trade agreement signed by Britain and Switzerland. He adds that it could provide a “blueprint” for new post-Brexit deals.
An American destroyer intercepted four drones fired by Houthi militants into the busy shipping lanes of the Red Sea, as the escalating crisis saw two commercial tankers hit in one chaotic day.
In a statement issued Sunday, U.S. Central Command said its navy had “shot down four unmanned aerial drones originating from Houthi-controlled areas in Yemen that were inbound to the USS Laboon” the day before. The American destroyer had been patrolling the area as part of Operation Prosperity Guardian, the Washington-led mission to prevent violence spilling over into the strategic waterway.
On Saturday, the Pentagon announced that a Japanese-owned, Liberian-flagged chemical tanker, the Chem Pluto, had been struck by a drone in the Indian Ocean, stating that the attack was launched from Iran.
According to data from analytics platform Kpler, seen by POLITICO, the Chem Pluto had been carrying almost 43,000 barrels of highly-flammable benzene en route to the port of Mangaluru at the time, but no casualties have been reported. The attack was well outside the usual area of operation for Houthi drones, around 300 nautical miles from the coast of India and it is believed to be the first time the U.S. has accused Iran directly of targeting commercial shipping since the crisis began.
Washington has previously said intelligence revealed Iran was “deeply involved” in planning attacks on vessels, working closely with Yemen’s Houthi rebels to cause a crisis that experts fear is already threatening the world economy. Houthi forces say they are targeting vessels with links to Israel in retaliation for its war in Gaza.
On Saturday evening, two civilian ships in the Red Sea area sounded the alarm that they were under attack. The Blaamanen, a Norwegian-flagged vessel carrying a quarter of a million tons of sunflower oil, reported it had narrowly avoided an attack drone, while Indian-flagged crude oil tanker Saibaba confirmed it had taken a direct hit.
Close to the Suez Canal which links Europe to Asia, more than 10 percent of global trade passes through the Red Sea, with around 17,000 ships a year crossing between the Mediterranean and the Arabian Sea.
In his first interview since being appointed as U.K. foreign secretary, former British prime minister David Cameron, told The Telegraph on Friday that the West must send “an incredibly clear message that this escalation will not be tolerated” to Tehran. Along with France, Italy and Spain, the U.K. is one of a handful of countries joining forces with the U.S. as part of Operation Prosperity Guardian.
TAIPEI — 2024 will be a bumper year of elections around the world, but one of the first votes on the calendar will also be one of the most hotly contested and consequential: Taiwan, where there are vital strategic interests at play for both the U.S. and China on January 13.
If the campaign started with expectations in the U.S. that the ruling, pro-independence Democratic Progressive Party (DPP), whose top brass are frequent and welcome guests in Washington, would stroll to victory, the final stages of the presidential and legislative race have turned into a nail-biter.
Chinese President’s Xi Jinping’s Communist Party leadership, increasingly assertive in its claim that democratic Taiwan is part of China and keen to see the ruling party in Taipei ousted, is trying to swing the election through a disinformation campaign of hoaxes and outlandish claims on social media.
And the tactics may be working. The latest polls for the first-past-the-post presidential race on the My Formosa portal have DPP leader William Lai on 35.2 percent, only just keeping his nose out in front of his main challenger from the Beijing-friendly Kuomintang (KMT), Hou Yu-ih,on 30.6 percent. On Tuesday, the Beijing-leaning United Daily News put both candidates on 31 percent.
“This is not a walk in the park,” admitted Vincent Chao, a city councillor and prominent DPP personality, speaking to POLITICO’s Power Play podcast at a campaign event in New Taipei, a municipality surrounding the capital.
It could hardly be a more febrile period in terms of security fears over the Taiwan Strait, where insistent Chinese maneuvering has been matched by a high-stakes U.S.-backed boost to the island’s defenses. Only on December 15, the U.S. approved another $300 million of spending on defense kit, sparking a retort from China that the expenditure would harm “security interests and threaten peace and stability across the Taiwan Strait.”
Lai’s opponents are playing hard on these security implications of the vote, and are accusing him of bringing the island closer to conflict because of his past comments in favor of the island’s independence. China has, after all, continually warned that independence “means war” and Xi has said Beijing is willing to use “all necessary measures” to secure unification. Lai has hit back that his rivals “are parroting the [Chinese Communist Party line] as propaganda to score electoral benefits.”
For the global economy, open war over Taiwan would be a disaster, perhaps even outstripping the shock of Russia’s invasion of Ukraine, due in particular to the island’s critical role in microchip supplies.
Head-to-head race
The specter of a DPP defeat has raised the temperature of the fevered last few weeks of the campaign.
Chao, the DPP councillor and a former political secretary in Taiwan’s Washington representation, admitted that the DPP ends the year in “a head-to-head race” in the final stretch. “I mean, it’s democracy and the party has been in power for eight years. Anything could change,” he said.
Wearing a jaunty white and green “Team Taiwan” tracksuit, the party’s signature colors, he talks above the backstage din of an evening event, held among the tower block estates of New Taipei. Volunteers hand out pork dumplings, the outgoing president Tsai Ing-wen gives a rousing speech about freedom and security, and there are ballads of national loyalty and singalong love songs. It feels heartfelt, but also very Taiwanese in its orderliness, the crowd sitting on stools in the evening heat, waving small flags in unison.
Chao is candid about the scale of China’s social media offensive.
The specter of a DPP defeat has raised the temperature of the fevered last few weeks of the campaign | Annabelle Chih/Getty Images
“What we’re seeing is a much more sophisticated China,” Chao reflected. “They’ve grown much more confident in their abilities to influence our elections, not through military coercion or other overt means, but through disinformation, through influencing public opinion, through controlling the information that people see … through social media organizations like TikTok.”
One of the many unfounded stories that gained currency on social posts was a claim the U.S. had asked Taiwan to develop biological weapons research, a rumor aimed at raising anxiety about an arms race. Another accused the DPP of covert surveillance of its rivals.
Trade and business links are another lever. According to Japan’s Nikkei newspaper, some 300 executives from big Taiwanese businesses operating China were called to a meeting by by China’s Taiwan Affairs Office Director Song Tao, a close ally of China’s President Xi, in early December and roundly encouraged to fly home to Taiwan support a pro-Beijing outcome in January.
A third concern is an international system buckling under new conflicts and crises, with less time to devote to Taiwan’s freedoms, all compounded by an uncertain outcome in the upcoming U.S. election. In the wake of Beijing’s ’s clampdown on freedoms in Hong Kong and with the backwash of the Ukraine crisis, anxieties run high among DPP supporters about Taiwan’s outlook and the need for high levels of deterrence.
“We really do not want to be the next Ukraine,” Chao added, with feeling.
Bending with Beijing
Opinion is strongly divided about the smartest tactical response toward China’s muscle flexing.
Opinion is strongly divided about the smartest tactical response toward China’s muscle flexing. | Annabelle Chih/Getty Images
Across town, at one of the opposition’s bases, where campaigners wear tracksuits in the white and blue of the Kuomintang party, International Relations Director Alexander Huang said his political troops were “within touching distance” of a possible victory.
Keen to shake off a reputation of being reflexively pro-China, as opposed to merely cautious about riling its powerful neighbour, the KMT hosted cocktails for foreign journalists in a trendy, Christmas-decorated bar, bringing together Chinese news-agency writers with Western reporters covering the election.
Huang, who hails from a military intelligence background and studied Chinese military and security doctrine in Washington, argued renewed Western support and commitments of defence expenditure by the U.S. administration increased the risk of something backfiring over Taiwan’s security. “We are under a great military threat [from China],” he told Power Play. “Our position is deterrence without provocation: assurance without appeasement.”
He also reckoned the current chilly relations between the governing DPP party and Beijing were widening distrust. “Our current government has no direct communication with the other side. If you are not able to communicate your view to your adversary, how can you change that?”
It’s less clear what reassurances the KMT expects from Beijing in return for a more accommodating relationship. Huang cites a possible decrease in trade tensions, which can hit Taiwanese agriculture and fishing when Beijing turns the screws, and further action on climate change and pollution (Taiwan is downwind of China’s emissions).
Colorful cast
The race certainly does not lack for colorful personalities.
The DPP’s presidential candidate, Lai, is a doctor and parliamentarian, while his KMT rival Hou is a former policeman and mayor in New Taipei. Mindful that the mood has become cynical about political elites, both sides have chosen frontmen who can claim humble roots: Hou hails from a family that scratched a living as food market traders, while Lai, the epitome of a slick Taiwanese professional, grew up with a widowed mother after his father died in a mining accident.
Hou is a former policeman and mayor in New Taipei | Annabelle Chih/Getty Images
The “Veep” contenders are flashier than the main candidates and more media-friendly. Hsiao Bi-khim, educated in the U.S. and until recently ambassador to Washington, is a pet-lover who styles herself as an agile “cat warrior” in stark contrast to China’s pugnacious “wolf-warrior” diplomats. Her KMT opponent is Jaw Shaw-kong, a formidable, populist-tinged debater and TV personality, who channels overt pro-Beijing sentiment, recently calling for more alignment in military planning with China’s leadership.
The billionaire Foxconn founder Terry Gou, who had run as a maverick, wafting pets as incentives to couples to have more babies to combat a worryingly low birthrate, quit the race after China’s tax authorities launched punitive investigations into his company, the builder of iPhones.
Russell Hsiao of the Global Taiwan Institute, a non-partisan research organization, reckoned that even if the DPP wins, its mandate will be less compelling than in the glory days of 2020, when it surged to a record level.
The guessing game of how likely an intervention — or even invasion — by China is helps explain the nervy tenor of this race.
The KMT’s Huang thought a “full-scale, kinetic invasion” is unlikely in the immediate future. How long does he think that guarantee would hold? “I would say not for the next five years, if we get our policy right.”
Hardly the most durable time-frame.
Taipei politics being a small world, Huang is a longstanding frenemy of the DPP’s Chao, who counters that Taiwan urgently needs to retain its defiant stance and deepen its strategic alliances with the West. They just disagree widely on the means to secure its future.
“The aim of [Beijing’s] engagements is unification … by force if necessary. Democracy, freedom, they are not just words. They represent what our people sincerely believe and hope to uphold.”
Stuart Lau contributed reporting.
Anne McElvoy is host of POLITICO’s weekly Power Play interview podcast, whose latest episode comes from the Taiwan election campaign.
The U.S. Navy destroyed three boats carrying Houthi rebels in the Red Sea on Sunday after fighters attempted to board a container ship in the second attack against the vessel this weekend.
Helicopters from two destroyers, the USS Eisenhower and USS Gravely, were dispatched after the Maersk Hangzhou issued a distress call at 6:30 a.m. Sunday morning, U.S. Central Command (CENTCOM) said on X, the ship’s second request for help in 24 hours.
Four small boats arriving from Yemen had got to within 20 meters of the Danish-owned vessel and attempted to board it, according to CENTCOM, and fired on U.S. helicopters as they approached. “The U.S. Navy helicopters returned fire in self-defense, sinking three of the four small boats, and killing the crews,” it said, adding that there was “no damage to U.S. personnel or equipment.”
On Saturday, Washington said it had shot down two anti-ship ballistic missiles after the Maersk Hangzhou issued its first distress call and reported being struck by a Houthi missile.
The United Kingdom Maritime Trade Operations organization said there were no casualties in the shipping vessel’s crew.
Maersk said on Sunday that it has paused all sailing through the Red Sea for 48 hours.
Since November, Iranian-backed Houthi rebels have launched over 20 attacks against ships in the Red Sea and the Bab el-Mandeb Strait, a crucial shipping lane between Europe and Asia where an estimated 15 percent of global trade passes. Several shipping lines and oil major BP have suspended operations in the area as a result.
U.K. Foreign Secretary David Cameron said he spoke with his Iranian counterpart, Hossein Amir-Abdollahian, on Sunday and stressed Tehran’s responsibility regarding the Houthi rebels.
“I made clear that Iran shares responsibility for preventing these attacks given their long-standing support to the Houthis,” Cameron said in a statement. The Houthi attacks in the Red Sea “threaten innocent lives and the global economy,” he added.
The Houthis have said the strikes are in support of Palestinians in Gaza, where Israel is carrying out large-scale bombardments with U.S. backing in response to Hamas militants’ deadly attack against civilians in early October. In response, the U.S. set up a multinational naval taskforce to protect the route, which has been joined by countries including Denmark, Greece, the Netherlands and the U.K.
Houthi military helicopter flies over the Galaxy Leader cargo ship in the Red Sea in this photo released on Nov. 20, 2023.
Houthi Military Media | Via Reuters
Drone and missile attacks by Yemen-based Houthi militants have upended shipping through the Red Sea and Suez Canal, a narrow waterway through which some 10% of the world’s trade sails.
U.S. Central Command over the weekend said it shot down “14 unmanned aerial systems launched as a drone wave from Houthi-controlled areas of Yemen.” A day later, oil major BP announced it would “temporarily pause” all transits through the Red Sea, following similar decisions by shipping giants Maersk, MSC, Hapag-Lloyd, and CMA CGM.
The Pentagon said Monday it was forming a maritime security coalition with allies to counter the threat and provide protection for shippers, who as of Tuesday had diverted more than $30 billion worth of cargo away from the Red Sea.
Many tankers and cargo ships that would normally transit via the Suez Canal to the Indian Ocean are instead being rerouted around the continent of Africa, which adds 14 to 15 days on average to sea voyages. International logistics firm DHL warned that “the diversion will significantly increase transit times between Asia and Europe and require shipping lines to increase planned capacity.”
The changes have already spiked insurance premiums on ships and contributed to a bump in oil prices. And U.S. military might in the area may not be enough to quell the disruptions.
“A dedicated naval task force will be able to more effectively intercept drone and missile attacks and prevent boarding operations, but the task force won’t be able to be everywhere all at once,” Ryan Bohl,senior Middle East and North Africa analyst at Rane, told CNBC.
“So long as there are significant numbers of civilian ships moving through this area, the Houthis will have plenty of targets to choose from.”
But who are the militants attacking the ships, and why are they doing it? And will a U.S.-led naval security coalition be effective enough to make the Red Sea trade routes safe for trade again?
The Houthis are a Shiite sect of Islam called Zaydi Muslims, a minority in mostly-Sunni Yemen whose roots there go back hundreds of years. They emerged as a political and militant organization in the 1990s, opposing the Yemeni government over issues like corruption, U.S. influence and perceived mistreatment of their group.
After carrying out insurgencies against the state from the early 2000s onward, the Houthis capitalized on the instability that followed the 2011 Arab Spring to increase their following. In 2003, influenced by the Lebanese Shiite militant organization Hezbollah, they adopted the official slogan: “God is the greatest, death to America, death to Israel, a curse upon the Jews, victory to Islam.”
Supporters of the Houthi movement shout slogans as they attend a rally to mark the 4th anniversary of the Saudi-led military intervention in Yemen’s war, in Sanaa, Yemen March 26, 2019.
Khaled Abdullah | Reuters
In 2014, Houthi rebels took over the capital Sanaa, setting off a war with the Saudi and Western-backed Yemeni government. A Saudi-led Arab coalition in 2015 launched an offensive against Yemen which went on to create what the U.N. called one of the worst humanitarian crises in the world.
The war continues to this day with limited cease-fires, and the Houthis have launched hundreds of drone and projectile attacks on Saudi Arabia since it began, with many of the weapons allegedly provided by Iran.
The Houthis now control most of Yemen, including Sanaa and the important Red Sea port of Hodeida, and their ranks have massively expanded along with their military capabilities, aided significantly by Iran.
Some call the group an Iranian proxy, but many Yemen experts say it is not a direct proxy of the Islamic Republic. Rather, the two have a mutually beneficial relationship but the Houthis pursue their own interests, which often align with Iran’s, and they enjoy Tehran’s military and financial support.
Yemen’s Houthis have made clear their intention of targeting Israeli ships and any ships headed to or from Israel, in retaliation for the country’s war in Gaza that has so far killed more than 20,000 people there and triggered a humanitarian catastrophe. Israel launched its offensive on Oct. 7, after the Palestinian militant group Hamas carried out a brutal terrorist attack that killed some 1,200 people in Israel’s south and took another 240 hostage.
Mock drones and missiles are displayed at a square on December 07, 2023 in Sana’a, Yemen.
Mohammed Hamoud | Getty Images
So far, the Houthis have deployed direct-attack drones, anti-ship missiles, and even physically seized a merchant ship via helicopter landing. And they don’t plan on stopping.
Mohammed al-Bukaiti, asenior Houthi political official, said during a news conference Tuesday: “Even if America succeeds in mobilizing the entire world, our military operations will not stop unless the genocide crimes in Gaza stop and allow food, medicine, and fuel to enter its besieged population, no matter the sacrifices it costs us.”
The U.S.-led naval coalition, which is still being formed, “is collectively capable of deploying a considerable maritime force in the Red Sea,” said Sidharth Kaushal, sea power research fellow at the London-based Royal United Services Institute. Other members of themultinational initiative include the U.K., Bahrain, Canada, France, Italy, the Netherlands, Norway, and Spain.
“As we have seen with the USS Carney’s recent activity in the region, modern vessels can provide considerable protection to both themselves and other ships in a theatre against air and missile threats,” Kaushal said, referencing the American guided-missile destroyer that shot down 14 drones on Saturday.
The Galaxy Leader, recently seized by Yemen, shown in close-up satellite imagery near Hodeida, Yemen.
Maxar | Getty Images
But the challenge remains, Kaushal said, because of the “relatively low cost of the drones and missiles” targeting shipping and the fact that naval ships still have to return to friendly ports to reload their air defense interceptors.
Another major risk is the threat of escalation. The most effective way to take out the Houthi threat is to attack their launch sites — which “would not automatically result in a regional conflagration, but could raise the risks of one,” Kaushal said, adding that “I don’t think that either the Houthis and Iran or the U.S. wants a wider escalation at this point in time.”
Corey Ranslem, CEO of maritime security firm Dryad Global, expects the threat to shipping “to continue for the foreseeable future as long as the conflict continues in Gaza,” he told CNBC.
“Depending on how the U.S.-led coalition comes together, we could also see the threat level against commercial shipping decline if their efforts are effective,” he said.
Ranslem predicts minimal economic impact in the short term. But each year there are “approximately 35,000 vessel movements … primarily trading between Europe, the Middle East and Asia” in the Red Sea region, accounting for roughly 10% of global GDP, he said.
That means that if the threats continue, countries in those regions could see significant economic impacts. Israel’s economy could be seriously affected as well if more shipping companies decline to take on cargo destined there; two companies have already done just that.
“For the Houthis, the challenge will be to present enough of a threat to deter shipping companies from passing through the Bab al-Mandab while avoiding actions that could trigger an overwhelming military response from the U.S.-led coalition,” said Torbjorn Soltvedt,principal MENA analyst at Verisk Maplecroft.
“The Houthis don’t need to physically prevent ships from passing through the Red Sea; they only need to cause enough disruption to make maritime insurance premiums prohibitive or compel most shipping liners to suspend activities there.”
When leaving a meeting at Prince George’s Community College on the night of Dec. 12, the Rev. Robert L. Screen and his wife were shocked when a car drove past them smelling so strongly of marijuana that they both noticed it even with their windows rolled up.
The couple had just left the MD Route 210 Traffic Safety Committee, an organization that Screen founded, when the car drove past. Screen carefully put some distance between him and the other car, as it sped off down the road.
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Winter can be long and there’s no better feeling than being curled up at home all comfy and cozy. Here are some great gift suggestions to combat cabin fever and make home truly where the heart is.
If you know someone who loves pizza, then they need the Cuisinart Indoor Pizza Oven. It will transform any kitchen into a pizzeria. It allows you to craft artisanal 12-inch pizzas in just five minutes or less. It reaches 700°F, which is the optimal temperature for achieving irresistibly crispy crusts and delicious melted cheese. It’s engineered with active cooling technology, making it ideal for indoor use.
For those who love to curl up with a great cup of coffee, consider Reunion Coffee Roasters. ReunionCoffee Roasters, a Canadian brand, is one of the original members of Fair Trade Canada. In addition to strict sustainability and ethical business practices, Reunion is proud to offer a selection of coffee beans that have been fair trade certified. For every bag of Privateer Holiday Giving Coffee sold, Reunion will plant a tree in Sub-Saharan Africa through our partnership with Trees for the Future. This coffee also provides clean drinking water through the Honduras Coffee Growers Clean Water Project.
House of TL’s Hand Set Duo is a great luxe gift or great host/hostess gift that smells incredible. The brand, which got its start in luxury hotels and restaurants, is now widely available online. The winter gift set features a gorgeous and fragrant Castile Hand Wash and Hand & Body Cream in Houseblend (a spa-like fragrance that uses nine different essential oils). The brand is Canadian and full of natural, safe ingredients.
Kilne, a Canadian cookware company, recently announced their newest launch: The Everything Pot + Steamer Bundle (available in Peppercorn, Meringue, and Sage hues) and The Dinnerware Set (a new category for Kilne, with products available in Caviar and Salt).
The Salton Egg Bite Maker is ideal for busy households. The company partnered with Get Cracking (Egg Farmers of Canada) to create this amazing tool that makes the perfect egg bites. It’s ideal for little chefs to experiment with breakfast or make a fun snack.
The IKEA 2023 Holiday Gift Guide is specially curated with meaningful gift inspiration that spotlights their affordable must-haves for the season. The products range from new home smart products to design for décor lovers and so much more. A few favourites: BETTORP, which is two products in one and includes both an LED lamp and a wireless charging station; CHILIFRUKT, a sculptural vase which can also be used to water plants; and LINDSVÄRMARE, a cozy throw designed by social entrepreneurs.
Linen Chest has a wide range of festive items to brighten anyone’s holiday decor or tablescape. From ornaments, throw pillows, and an assortment of mugs, to the Maxwell & Williams Merry Berry Collection of dishes and servingware, there is something for everyone.
U.S. ports are receiving multimillion dollar grants to upgrade cargo handling infrastructure.
The grants are part of the Biden administration’s $21 billion commitment to modernize port infrastructure in the U.S.
Midsize port cities such as Baltimore are among the 2023 grant recipients. In November, the Port of Baltimore received a $47 million grant to kick-start an offshore wind manufacturing hub, among other improvements. For example, the funds will pay for a new berth, or dock, for rolling cargo. Baltimore is the top U.S. destination for rolling cargo imports, a category including farm machinery from John Deere and light-duty vehicles from BMW, according to the Maryland Port Administration.
More than $653 million in Port Infrastructure Development Program grants were awarded to U.S. ports in 2023 by the U.S. Department of Transportation, Maritime Administration. Other projects receiving federal funds include the Port of Tacoma Husky Terminal Expansion in Washington state ($54.2 million), and the North Harbor Transportation System Improvement Project in Long Beach, California ($52.6 million).
Baltimore isn’t the only city with a growing port according to maritime economists. Experts say gateways along the U.S. southeast coast are moving more cargo as major points of entry clog up with truck traffic.
“All of the ports on the East Coast are upgrading their infrastructure and capacity,” said Walter Kemmsies, managing partner at the Kemmsies Group, a maritime economics consulting firm currently working with the Port Authority of Georgia in Savannah. “What that does is it makes it more attractive to the ocean carriers. They like to be able to go in and out of a port very quickly, and they like to go to several ports.”
Ports America formed a public-private partnership with the state of Maryland to manage equipment and operations in sections of the Port of Baltimore. The group told CNBC that $550 million in upgrades have gone into Seagirt Marine Terminal alone for densification of the container yard since the partnership began in 2010.
These upgrades build on past plans to revive America’s declining industrial cities. In Baltimore, public officials are addressing bottlenecks along the supply chain beyond the Port. They believe that the Howard Street Tunnel expansion project will increase double-stack rail capacity out of Baltimore, which could help the companies working at the port move goods to and from points in the Midwest.
Watch the video above to see more of the upgrades coming to the Port of Baltimore.
The Hamburg flag flies in front of Hapag-Lloyd containers on the Hapag-Lloyd containership “Berlin Express” at Burchardkai in the Port of Hamburg.
Marcus Brandt | Picture Alliance | Getty Images
Two shipping giants, Hapag-Lloyd and Maersk, are pausing their travel through the Red Sea and the Bab el-Mandeb Strait in the Middle East following a series of attacks on their vessels by Iranian-backed Houthi militants from Yemen.
Maersk, the world’s second largest container shipping company, moves 14.8% of the world’s trade. It said it would divert ships away from the Red Sea. The Houthi group backs Hamas, the Palestinian militant group, and has said it is targeting vessels headed for Israel.
In an email to CNBC, a Maersk spokesman said the Danish company is deeply concerned about the highly escalated security situation in the southern Red Sea and Gulf of Aden. The recent attacks on commercial vessels in the area are alarming and pose a significant threat to the safety and security of seafarers, the spokesman added, saying that employees’ safety is the company’s top priority.
“Following the near-miss incident involving Maersk Gibraltar yesterday and yet another attack on a container vessel today, we have instructed all Maersk vessels in the area bound to pass through the Bab al-Mandab Strait to pause their journey until further notice,” the representative said.
Maersk said it would release more details about potential next steps in the coming days.
Hapag-Lloyd, which controls about 7% of the global container ship fleet, told CNBC in an email, that it will “pause all container ship traffic through the Red Sea until Monday. Then we will decide for the period thereafter.”
The Bab el-Mandeb Strait is between the Horn of Africa and the Middle East. It connects the Red Sea to the Gulf of Aden and the Arabian Sea, which feed into the Indian Ocean. This waterway is used by container ships and exports of petroleum and natural gas from the Persian Gulf.
Approximately 12% of the world’s trade, which includes 30% of all global containers, move through the Suez Canal. That then feeds through the Red Sea and Bab el-Mandeb. The significance of the Suez Canal was thrust into the spotlight in March 2021, when container ship the Ever Given was stuck for six days.
A boat of the Lower Saxony water police sails along in front of the container ship “Morten Maersk” of the Danish shipping company Maersk Line, which is moored at a quay wall at the container terminal JadeWeserPort.
Picture Alliance | Getty Images
Israel based ocean carrier ZIM has re-routed vessels to avoid the Arabian and Red Seas to safeguard their vessels and crew amid the threats by the Houthis. The vessels are traveling around the Cape of Good Hope in South Africa. This alternative route to the Indian Ocean adds 10 to 14 days of travel time to a vessel’s journey. The long way around Africa also incurs higher fuel costs because of the longer travel distance.
Since Houthi militants threatened Saturday to attack any vessels that have ownership ties to Israel, or does business in the country, there have been as many as seven incidents. Overall, 13 vessels have been attacked since the Israel-Hamas war began in early October.
In response to Friday’s attacks, in which three vessels were attacked, the World Shipping Council said it is deeply alarmed and concerned about the escalating crisis, and that it’s calling for decisive action to protect seafarers.
“The right of freedom of navigation stands as a fundamental right under international law, and must be safeguarded,” the council said. “The time for resolute international engagement is now.”
The U.S. government has been in discussions with countries of the 39-member Combined Maritime Forces to form a maritime task force to “ensure safe passage” of ships in the Red Sea.
U.S. Central Command, which oversees America’s military interests in the Middle East, has told CNBC discussions are ongoing.
This holiday season, help everyone on your gift-buying list put their best faces forward with these great ideas.
From the Immortelle Divine Collection for your mom to the Grooming Collection for your favourite brother, L’Occitane has something for everyone. Even for your kids’ teachers, indeed we are sure they will like the Hand Cream Holiday Classics or the Travel Sets. They’re pretty much ready-to-go presents for everybody to enjoy and pamper themselves.
Know someone who colours their hair? Then get them Function of Beauty PRO’s patented Adaptive f3 Bonding Complex. The changing of seasons is a favourite excuse for a fresh look, but less loved is the damage that comes with the new ‘do. This product offers healthy and on-trend hair that targets hair’s unique damage to relink broken hair bonds (with damage resulting from hair colouring included!).
BKIND recently launched two limited-edition holiday nail polish sets. These collections contain festive and trendy colors for the holiday season: the Festives – Nail Polish Collection offers a beautiful selection of three festive and glamorous colours. You will find En Beau Fusil, a rich and velvety forest green, French Beige, a soft and delicate beige, and 24K, a transparent polish filled with golden shimmers. The Holiday Essentials – Nail Polish Collection is made up of three classic colours for the holiday season. In this set, you will find Bichon, an opaque white, pure as snow, Glacial, a silvery gray, and Leo, a classic rich red.
When you don’t know what to get the beauty lover in your life, wrap up Slipssy, a pillow cover system made with GlideTex technology that helps prevent sleep wrinkles, bedhead, and hair loss, releasing up to 80% of facial tensions. With its double layer system, the Slipssy fits perfectly under a regular pillowcase, elevating their nightly routine with a touch of elegance, simplicity and comfort.
There’s a flavour for absolutely everyone with Hooker Lips glosses and balms. Think: buttercream frosting, fried bacon, dill pickle (one of their best sellers!), and so many more. All ingredients in Hooker Lips are paraben-free, petroleum-free, and BHA-free.
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The Holiday Limited Edition Sky High Mascara Makeup Gift Set from Maybelline is the perfect gift for the lash enthusiast on your list. From volumizing wonders to lengthening miracles, Maybelline New York’s Sky High Mascara and Primer will ensure lashes are the star of every holiday gathering. It’s the ideal present for the beauty lover in your life, or perhaps a little indulgence to keep for yourself and make your lashes the talk of the town.
The Makeup Essentials Gift Set from L’Oreal features the Le Khôl Eyeliner that can be easily applied with its pencil tip, the Voluminous Mascara for a lash look with classic volume, and the Colour Riche Lipstick in share Fairest Nude. These gift sets are so good that you’ll be stocking up on two of each — one for you and one for your best friend, of course!
Beauty lovers will rejoice over the gift sets from the clinical skincare brand Peter Thomas Roth. The Gift of Bright Eyes is a limited-edition three-piece kit of full-size bestselling Hydra-Gel Eye Patches helps lift, firm, and hydrate the look of the face and eye area. It includes 24K Gold Pure Luxury Lift & Firm Hydra-Gel Patches, FIRMx® Collagen Hydra-Gel Face & Eye Patches, and Water Drench® Hyaluronic Cloud Hydra-Gel Eye Patches.
NYX makes it easy to sleigh the holidays with the NYX Professional Makeup Holiday gift sets. Their wide range of holiday gift sets includes everything from primer sets to lip sets, with year-round favourites along with special holiday items and even a few surprises.
For the ultimate beauty destination, get a gift certificate to MAKA. All MAKA beauty, aromatherapy, and perfume products are formulated and manufactured on-site in the workshop adjoining the boutique. MAKA offers high-quality and innovative vegan products, while being respectful of the planet.
If you’re buying for someone who has a penchant for skincare, then get them a gift set from The Ordinary. They have a wide range of collections for skincare, haircare, and more, all beautifully packaged and ready to give.
Burt’s Bees puts soft skin first, and this holiday season, they have slews of festive gift sets, like their Mistletoe Kiss gift set, the Hand Cream Trio Holiday Gift Set, and lots of others. Get one for everyone on your list.
There is no hassle to replenish skincare products with Blair + Jack! Blair + Jack offer a subscription service so there’s no worrying about running out of skincare products. On a monthly basis, Blair + Jack will send all the products needed to keep your skin looking its best. There’s also a 10% discount by signing up for the Subscription Service at checkout.
The Body Shop makes holiday gifting a breeze with gift sets for everyone on your list. The Body Shop Cherries and Cheer Gift sets are packed with The Body Shop limited edition warm and juicy body care. The Unwind and Rest Sleep Intro Gift set is crafted with a blend of lavender and vetiver essential oils to relax the body and mind before bedtime. Finally, The Body Shop’s Slather and Lather Body Butter Gift Set has five of their bestselling body butters.
LONDON — President Joe Biden has quietly shelved plans for a “foundational” trade agreement with the U.K. ahead of the 2024 election — following Senate opposition and disagreements over the scope of the deal.
A draft outline of the pact and its 11 proposed chapters, prepared by the United States Trade Representative’s (USTR) office earlier this year, indicated negotiations would begin before the end of 2023.
But after facing multiple headwinds, the deal is not expected to go ahead, two people briefed by the British and U.S. governments respectively told POLITICO.Both were granted anonymity to speak on a sensitive matter.
“I don’t think we’re going to see that re-emerge,” said one of the people briefed on the proposed negotiations.
The proposal’s timeline for talks — which would not consider market access or meet the World Trade Organization’s definition of a free trade agreement — set out that negotiations would wrap up ahead of elections in Britain and the U.S. next year.
The deal was closer in substance to the U.S.-led Indo-Pacific Economic Framework for Prosperity (IPEF) — which tackles regulation and non-tariff barriers — than a full trade agreement.
But last month IPEF talks fell apart after senior Democrats criticized the Biden administration’s negotiation of trade provisions that did not contain enforceable labor standards.
The British government has long coveted a trade agreement with the U.S. as a significant post-Brexit prize.
The draft was considered a road map to eventually securing a full-fledged, comprehensive deal. Business and Trade Secretary Kemi Badenoch pitched the IPEF-style deal in April during Biden’s visit to Belfast, Bloomberg reported, to reinvigorate talks first started under the Trump administration.
Congressional oversight
Key voices in the U.S. have expressed concern about the nature of a pact with the U.K.
“Trade negotiations should be driven by substance,” said a spokesperson for Democratic Senator Ron Wyden, chairman of the powerful Senate Finance Committee, which provides congressional oversight for trade.
“It is Senator Wyden’s view that the United States and United Kingdom should not make announcements until a deal that benefits Americans is achievable,” the spokesperson added.
When POLITICO first reported on proposed talks in October, Wyden said it was “extremely disappointing” the Biden administration was attempting to proceed “with a ‘trade agreement’ that will neither benefit the American public, nor respect the role of Congress in international trade.”
Wyden’s spokesperson said Congress “must have a clear role in approving any future trade agreements” and that the senior Democrat “believes it is important for USTR to be significantly more engaged with Congress on any future negotiations.”
‘The vibes were quite tough’
USTR has gone back to Congress to ask for its input on a potential U.K. trade deal. But major outstanding issues between the U.S. and U.K. remain, including agriculture and whether any agreement would benefit American workers.
In a recent meeting with U.S. diplomats “the vibes were quite tough,” said the second person briefed on the proposed negotiations cited earlier. “They just doubled down on ‘you guys really need to lean into the worker-centric trade policy’ and ‘put yourself in the shoes of somebody in Pennsylvania.’”
The message, the person added, was “does this improve the lot of the farmers in Iowa? Does this help the U.S. economy? And if it doesn’t, they’re not going to do it.”
The U.S. approach “seems to be very focused on labor standards, on environmental issues on these very worthy things,” said the first person briefed on the proposed negotiations quoted at the top of this story.
Prime Minister Rishi Sunak’s Cabinet also pushed back on a chapter dealing with agriculture regulations in the draft after the British leader told a food summit earlier this year that he would not allow chemical washes or hormone-injected beef imports like those from the U.S. into Britain.
Scottish ministers meanwhile complained they hadn’t been consulted. Agriculture regulations are a devolved issue in Scotland.
In the meantime, the focus of the U.K.-U.S. trade relationship is predominantly on securing a critical minerals agreement that would allow British automotive firms to tap into electric vehicle rebates offered in the Biden administration’s Inflation Reduction Act.
“The U.K. and U.S. are rapidly expanding co-operation on a range of vital economic and trade issues building on the Atlantic Declaration announced earlier this year,” said a U.K. government spokesperson.
Some in the U.K. are taking a philosophical view on whether a wider ranging trade deal with the U.S. is really needed. Michael Mainelli, who, as lord mayor of the City of London, opened a new outpost for the U.K.’s powerhouse financial district in New York City on Monday said: “The trade has been going on fine without it. It might go a bit better with it.”
The latest numbers show total two-way trade between the nations grew 23.8 percent in the year to the end of Q2 2023.
But in the U.S. a trade deal with the U.K. is just “not that high on the list,” Mainelli said.
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.
It’s been a tough year and many families are feeling the pinch. Why not gift something to someone that makes a bigger impact? Here are some unique ways to give back to others this holiday season.
For 23 years now, the Montreal Science Centre’s Foundation’s mission has been crucial: to help future generations discover, understand, and appropriate science and technology to build their future. To continue its work, the Foundation relies on donations from both companies and individuals alike. Over 90% of the funds raised annually by the Foundation are reinvested in the financing and development of permanent exhibitions and school programs at the Montréal Science Centre. They offer free tickets to school groups and organizations in underprivileged areas. For the 2023-24 school year, over 4,000 tickets have already been distributed, allowing more than 1,000 special needs students to experience their Science Centre on the Road program in their classrooms.
As the holiday season approaches, the Montreal SPCA has gift ideas on the shared theme of solidarity with animals. You can help animals in need by purchasing children’s books, a calendar for the whole family, and clothing featuring their star rescue dog, Angie. Your donation could also be matched, in honour of a loved one. “2023 has been a busy year!” said Laurence Massé, executive director of the Montreal SPCA, in a media release. “We rescued animals affected by forest fires, found creative ways of responding to rising numbers of abandoned animals and conducted large-scale public awareness campaigns. From January through October, 12,070 animals came through our shelter and benefited from one of our programs.”
This year’s Collectible Starlight Bear comes just in time for the giving season. In partnership with Toys”R”Us Canada, Starlight Children’s Foundation Canada recently introduced Speedy, the 15th Anniversary Collectible Starlight Bear, which was designed, from the ears to the paws, by 6-year-old Christopher, who was born with arthrogryposis multiplex congenita (AMC). Speedy was inspired by Christopher’s love for race cars and Drive For Smiles – one of his favourite Starlight Canada events where he rides in super cool cars! Knowing that strength can be found in our uniqueness, the rainbow tie represents acceptance of all. Speedy’s dangly limbs symbolize Christopher’s own arms and leg being stuck in extension at birth, while the bright blue eyes are representative of AMC awareness. Proceeds from the sale of Speedy will help Starlight Canada continue to brighten the lives of seriously ill children and their families, just like Christopher’s. You can purchase Speedy at any Toys”R”Us Canada or Babies”R”Us Canada store or online at toysrus.ca.
As the holiday season approaches, Breakfast Club of Canada is launching its new Fuelling The Future with a nutritious breakfast campaign to highlight the importance of nourishing the potential of tomorrow’s adults, especially in a difficult current economic context. The campaign, which will also be broadcast across Rogers Sports & Media’s platforms as part of the ALL IN program, will run until December 31st. With the year drawing to a close, in Canada, one in three children is still at risk of going to school hungry. Demand and need for breakfast programs continue to grow, but for the time being, the Club will have to continue supporting existing programs due to the rising cost of food. To find out more about the campaign and donate, click here.
YANTAI, CHINA – DECEMBER 5, 2023 – A large number of Chinese-made cars are ready to be loaded for export at Yantai Port in Yantai, Shandong province, China, Dec 5, 2023. (Photo credit should read CFOTO/Future Publishing via Getty Images)
BEIJING — China’s exports unexpectedly ticked higher in November, while imports fell slightly from a year ago, according to customs agency data released Thursday.
Exports in U.S. dollar terms rose by 0.5% from a year ago, contrary to expectations for a 1.1% decline, according to analysts polled by Reuters.
Imports fell in U.S. dollar terms by 0.6%, missing the Reuters’ forecast for a 3.3% increase from a year ago.
The muted change in trade did little to offset an overall decline by about 5% to 6% for China’s exports and imports for the first 11 months of 2023.
Bruce Pang, chief economist and head of research for Greater China at JLL, attributed the uptick in exports to businesses’ strategy of cutting prices to boost volume in recent months.
“External demand is still relatively weak, and holiday orders are lower than expected,” Pang said in Chinese, translated by CNBC.
“In general, the data show there are great challenges in both domestic and overseas demand, and policy support that only focuses on the supply side will not be able to achieve lasting results,” he said.
The value of China’s exports to the U.S. rose by 7% in November from a year ago, according to CNBC calculations of official data.
In contrast, China’s exports to the European Union fell by 14.5% year-on-year in November and those to the Association of Southeast Asian Nations fell by 7%, the analysis showed.
Overall, China’s exports of toys and electronics ticked higher, while that of cars maintained recent double-digit increases in November from a year ago. Clothes, shoes and furniture saw a drop in exports from a year ago.
On imports, China bought less from the U.S. and Southeast Asia in November than a year ago, while purchases of goods from the EU rose slightly, the data showed.
Last month, China bought less crude oil, and imports dropped in both price and volume. However, China’s imports of rare earths in November roughly doubled from a year ago.
In October, China’s imports unexpectedly rose from a year ago in U.S. dollar terms, according to customs data released last week. In contrast, exports fell by a greater-than-expected 6.4% during that time, the data showed.
A monthly Caixin survey of manufacturers, known as the purchasing managers index, rose to a three-month high in November of 50.7.
However, Caixin Insight Group senior economist Wang Zhe said in a report that “overseas demand remained sluggish, with the measure for new export orders staying in contraction for the fifth straight month.”
