Grey Zone SITREP: Strategic Shocks Have Local Impacts
Your always free and weekly digest covering the most important and underreported events to keep you ahead.
Evening all,
I hope you have all had a good week.
We are back with another instalment of the SITREP.
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It’s a journey that has only just started, and providing value through insights on geopolitical events that matter is what I’m passionate about. So again, thank you for your support.
For everyone new here, I thought I would take this opportunity to quickly introduce myself:
I’m Cole (known more commonly online as ALCON.S2), and I’m an ex-New Zealand army military intelligence specialist. I spent 15 years in the military, where I served operationally both domestically and abroad (Middle East, Pacific). While I am no longer involved in the military space, I draw purpose from continuing to provide insights on the Indo Pacific primarily concerning Grey Zone activities. I believe there are things happening in the Pacific, and further afield, that demand awareness as they are all indicators towards a likely event that will have an impact on you.
Strategic shocks have local impacts, is the term I like from Forward Observer.
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ALCON
DIPLOMATIC
Indo-Pacific Diplomacy Faces New Challenges and Opportunities
In recent weeks, China and Russia have reaffirmed their strong partnership, promising unwavering support for each other against what they perceive as US interference. This "no-limits" friendship was highlighted by a phone call between Chinese President Xi Jinping and Russian President Vladimir Putin on February 8, where they celebrated their deepening cooperation across various sectors.
Analyst Comment:
China's ambassador to Russia announced that Putin plans to visit China this year, with several meetings expected to take place. These developments have been interpreted by some as a strategic move to showcase their united front to the world, especially in light of pressures from the US.
With these developments in mind, the European Union is reportedly preparing to propose sanctions on Chinese and Hong Kong companies for supporting the Russian military. This move has sparked a strong response from China, which has criticized the sanctions as unacceptable and vowed to protect its enterprises' rights.
In the US, there's a push to counter China's influence in the Pacific. The Republican chairman of the US House of Representatives Foreign Affairs Committee expressed support for funding US-allied Pacific Island nations. This initiative aims to counter China's growing presence in the region, which continues to be a hot topic across the Pacific.
Analyst Comment:
The backdrop to these diplomatic maneuvers includes potential EU sanctions on Chinese firms, Chinese banks' cautious approach to dealing with Russian companies, and ongoing discussions about global politics.
The strategic dialogues between the US and China also continue. A recent meeting between the US Secretary of State and China's Foreign Minister discussed critical issues, including Taiwan and mutual respect principles. These talks highlight the ongoing effort to navigate the challenging dynamics of US-China relations, underscoring the importance of diplomacy in addressing global challenges.
MILITARY
NATO Secretary General Jens Stoltenberg, at the conclusion of a defense ministers' meeting, noted the absence of a new U.S. military aid package for Ukraine is impacting the conflict's dynamics. He mentioned that although the $60 billion aid package is currently stalled, there is anticipation that the U.S. Congress will approve it due to widespread support for Ukraine.
Stoltenberg also highlighted concerns about China's observation of the situation, drawing a comparison between the conflict in Ukraine and potential future scenarios in Taiwan. He suggested that the events in Ukraine could set a precedent for similar situations elsewhere, implying the importance of the international response to Ukraine for future geopolitical challenges.
Analyst Comment:
China has almost certainly studied the Ukraine conflict in depth, and drawn out multiple lessons from the conflict. From a military standpoint, these are probably the key lessons:
Dealing with Corruption: China has been actively working to remove corruption within its military, the People's Liberation Army (PLA), and its governing body, the Communist Party, since 2012. The issues seen in Russia, where corruption affected military effectiveness, likely make China more determined to fight corruption within its ranks. This is evidenced by the removal of high-ranking officials in the PLA due to corruption, indicating a serious approach to addressing these issues.
Using Conscript Soldiers: The text points out China's reliance on soldiers who are required to serve for a limited time, known as conscripts, for its military force. This is compared to Russia's use of similar soldiers in Ukraine, which revealed problems due to their lack of experience. Since PLA conscripts serve for only two years, this raises questions about their preparedness for intense military actions, such as a conflict involving Taiwan.
Expectations of Conflict Duration: The expectation of quick, decisive military victories is questioned. The prolonged conflict in Ukraine suggests that fast victories are uncertain. This realization may make China more cautious in its military strategies, recognizing that immediate and decisive outcomes are not guaranteed, especially in complex scenarios like an amphibious assault on Taiwan.
Will to Resist: The strong response of Ukraine against invasion challenges the assumption that Taiwan would easily capitulate in a conflict. This suggests that China may need to reconsider its expectations regarding the ease of achieving victory and the determination of populations to resist aggression, as seen in the increased resolve of Taiwan's population in the face of pressure.
While NATO starts to focus on China, the Royal Australian Navy's Anzac-class frigate, HMAS Warramunga, recently participated in a multilateral transit in the South China Sea alongside naval forces from the United States and Japan. This operation was part of a routine regional presence deployment.
Commodore Jonathan Ley, the Joint Force Maritime Component Commander, stated that such cooperative activities are integral to demonstrating the Australian Defence Force's continuous presence in the Indo-Pacific region and to deepen partnerships. He mentioned that Australia has been engaging with regional nations for decades, and these sea activities during routine deployments are key for enhancing mutual understanding and operational cooperation.
Analyst Comment:
HMAS Warramunga left Fleet Base East in Sydney in late January for its first regional presence deployment of 2024. The deployment includes training, exercises, and engagements with regional partners, both at sea and in port visits.
While these patrols were taking place, there was a display of a model of China's fifth-generation carrier-based fighter, the J-35, on its third aircraft carrier, Fujian, which is currently being completed in Shanghai.
But don’t worry, the Democratic People's Republic of Korea (DPRK) also conducted a test where a surface target was destroyed by the new Padasuri-6 anti-ship missile.
ECONOMIC
Recent Developments in the Energy Sector
Recent events in the energy sector have led to significant operational changes and strategic decisions by key players. Shell has ceased operations of its seven hydrogen refueling stations for passenger cars in California due to hydrogen supply issues and market factors, while continuing to operate truck refueling stations. This move is expected to decrease the number of operational hydrogen stations in California to 61, according to the California Energy Commission.
JPMorgan and State Street have exited Climate Action 100+, an investor-led initiative to encourage companies to address global warming. BlackRock has also scaled down its involvement. This withdrawal by major U.S. asset managers marks a step back from commitments to climate change initiatives.
The European Commission has reported a fivefold increase in delivery costs from Asia to Europe, primarily due to attacks on merchant vessels in the Red Sea. This has resulted in extended delivery times and the potential for increased goods prices, although it is not expected to directly fuel inflation within the European Union.
The Forum of Gas Exporting Countries has highlighted the potential disruptions caused by the extended suspension of permits for new LNG projects in the US, which could affect future capacities by up to 124 million tons. This suspension could continue until the upcoming US presidential election, with varied impacts on liquefaction projects based on their stages of implementation.
Lastly, the Panama Canal experienced minimal LNG traffic last year despite concerns of disruptions due to drought. Out of 12,600 passages, only 326 were for LNG, indicating that the anticipated impacts on fuel markets were overestimated.
Analysis
The closure of Shell's hydrogen refueling stations in California reflects broader challenges within the hydrogen supply chain, including increased feedstock costs partly due to geopolitical tensions, such as Russia's invasion of Ukraine, and operational issues. These closures signal the difficulties in maintaining hydrogen infrastructure in a volatile market and regulatory environment.
The withdrawal of major U.S. asset managers from Climate Action 100+ could indicate a cooling interest in aggressive climate advocacy within the financial sector. This retreat might slow down the momentum towards enforcing corporate actions against global warming, raising concerns about the commitment of the financial industry to climate change mitigation.
The surge in delivery costs from Asia to Europe highlights the vulnerability of global supply chains to external shocks, such as geopolitical conflicts and environmental factors. While the immediate inflationary effects in the EU might be limited, the broader implications for global commerce and consumer prices could be significant, leading to a ripple effect of regional disruptions.
The suspension of LNG project permits in the US illustrates the uncertainty facing the LNG sector, particularly regarding future capacity expansions. The FGEC's warning points to potential long-term challenges in meeting global LNG demand, which will likely impact consumers in the medium term.
The situation at the Panama Canal, where concerns about fuel market disruptions due to drought were mitigated by minimal LNG traffic, illustrates the complex dynamics of energy transportation and market resilience. Disruptions in the Panama Canal lead to disruptions in local energy sectors.