Welcome to The Geopolity’s What We’re Watching (3W), our daily look at the interconnected worlds of Geopolitics, Economics and Energy. Curated from the world’s leading sources of information, our analysis and commentary is designed to help you make sense of the events driving the major developments in the world.
In this roundup, we take a closer look at Europe’s role in the new world order.
It is abundantly clear that the US is tearing apart the (western) world order it created, and 3W discusses today why it chose to do that. It is not because Trump is irrational, crazy. It is because the world now is fundamentally different from the one that the US faced when it found itself able to design the (western) world’s order.
Europe can respond in three ways. It can choose to do nothing, and thereby remain a group of independent countries when it comes security and foreign policy matters. In this case it becomes irrelevant on the world stage, which will have severe economic consequences for the Europeans.
It can also choose transform the EU into an entity that manages security and foreign policy matters for the continent. In this case, Europe becomes a global power that competes with the US and China.
Or, some of the European countries can try to lead the other European countries, in which case the ground will be laid for another era of devastating wars on the continent.
Furthermore, we look at:
- The US pressure on Pakistan to use the Pakistani army to do the “dirty work” in Gaza during the next phase of the peace plan
- The step up the escalation ladder by the US in its conflict with Venezuela, the effective imposition of a sea blockade on the country; where 3W notes the US behaviour is similar to Russia’s vis-à-vis Ukraine
- McKinsey plans to thousands of job cuts over the next 18 to 24 months; where 3W asks the question whether this is a response to new tools such as AI, that can do many of the things consulting firms traditionally hired people for, or whether this is an early sign of recession in the global economy
- Why the Ukraine peace negotiations pushed crude oil prices to their lowest level in almost five years
- Shell’s decision not to buy BP
- Ford Motors’ strategic shift away from EVs; and Europe’s decision to cancel its planned ban on the sale of internal combustion engine vehicles as of 2035; where 3W explains its stance on what this means for the electrification of transport
Geopolitics
As to Gaza, the US is pushing Pakistan to provide soldiers for the US – Israel Alliance envisioned “stabilization force”, writes Reuters. Pakistan’s field marshal Asim Munir is expected to fly to Washington to meet President Donald Trump in the coming weeks for a third meeting in six months that will likely focus on the Gaza force. Over the past few weeks, Munir has already met military and civilian leaders from countries such as Indonesia, Malaysia, Saudi Arabia, Turkey, Jordan, Egypt and Qatar, according to the military’s statements, which appeared to be consultations on the Gaza force. 3W notes that according to our analysis, the main task of the stabilization force will be providing security to Israel, not protecting the Palestinian people in Gaza. A related sub-task will be managing the disarming of Hamas on behalf of the Alliance.
As to Venezuela, after hijacking a crude oil carrier that it had previously sanctioned, the US yesterday took another step up the escalation ladder by announcing that it has imposed what is effectively a complete blockade of Venezuela. The Financial Times writes US president Trump has ordered “a total and complete blockade” of sanctioned oil tankers travelling to and from Venezuela, in order to increase the US’s financial pressure on the government of Nicolás Maduro. “Venezuela is completely surrounded by the largest Armada ever assembled in the History of South America,” Trump wrote in a social media post on Tuesday, referring to the US military forces in the Caribbean. “I am ordering A TOTAL AND COMPLETE BLOCKADE OF ALL SANCTIONED OIL TANKERS going into, and out of, Venezuela,” he added. 3W notes that the FT article talks of Madura as a “strongman” rather than president, and about “regime” rather than government. This is quite clear “framing” to justify the US military operation in the Caribbean that cannot be justified by the standards of international law. Furthermore, 3W asks the question, how is the US behavior vis-à-vis Venezuela different from Russia’s behavior vis-à-vis Ukraine? Isn’t the US also threatening a military invasion if Venezuela does not submit itself to the regional power?
As to US – Europe relations, George Friedman over at Geopolitical Futures provides deep insight into US strategic reasoning when it comes to its relations with Europe, and how this reasoning has changed. The US joined WW2 to prevent Germany from becoming a dominating force in the Atlantic. and post WW2 it created the current (and crumbling) security infrastructure to ensure it dominated western Europe, to prevent the Soviet Union from becoming a threat in the Atlantic. Hence the North Atlantic Treaty Organization, NATO. Friedman argues that the war in Ukraine has convinced US geopolitical strategists that Russia is no longer a military threat, and that the current security structure in Europe is no longer needed. So the US now no longer wants to take an active role in European defense matters. It wants Europe to organize its own defense, under US guidance and leadership. For Europe this is unnerving. For one, because it is radical break with the period in which all European leaders grew up and matured. For another, because there really isn’t a “Europe”. There are only European nation states, all of which are too small individually to fill the void left by the US, while the European Union was not designed to unify Europe in matters of security and foreign policy. Friedman says this leaves Europe with a choice. If it chooses to remain as it is, it will become irrelevant, dominated by the world’s great powers. 3W notes this would of course have major economic implications for the continent, as can already been seen. The other option is for Europe to respond by further the continent’s integration, and from that build a unified security and foreign policy position. This would give Europe the chance to become a great power itself, competing with the US and China. A third option 3W sees is that Europe does no unify, but individual European countries – Germany, France – attempt to unify Europe behind themselves. This, in our view, would lay the ground for another era of European wars such as WW1 and WW2.
The second option, Europe truly uniting in order to become a competitor to the US, is of course what the US does not want to see happen. That is the reason the US is actively supporting right-wing, nationalist parties across Europe, as noted by The Financial Times.
Macroeconomics
McKinsey plans to cut thousands of job over the next 18 to 24 months, writes Bloomberg. McKinsey is navigating a challenging period for the industry as clients turn more cost-conscious, forcing the company to contend with a slowdown in demand for its traditional services. The firm’s leadership has discussed with managers in non-client-facing departments the need to cut about 10% of headcount across their business. The firm’s revenue growth has flatlined in the last five years, leading to a reset after rapid hiring over the prior decade. From 2012 to 2022, the firm’s employee count climbed from 17,000 to as high as 45,000. Since then, it has slid to around 40,000. Firmwide revenue has hovered around $15 billion to $16 billion in the last five years. 3W wonders whether this is a response to new tools such as AI, that can do many of the things consulting firms traditionally hired people for, or whether this is an early sign of recession in the global economy
Energy
Oil prices settled at their lowest level in almost five years on Tuesday, writes The Financial Times. The price of Brent crude settled nearly 3 per cent lower at $58.92 a barrel, its lowest level since February 2021 during the height of the Covid-19 pandemic, which crushed demand. West Texas Intermediate, the US benchmark, fell $1.55, or about 2.7 per cent, to $55.27 a barrel, also its lowest since early 2021. The decline followed an statement by US president Trump, who said on Monday that a deal to end the war in Ukraine was “closer now than we have ever been”. This, of course, would lead to a removal of US sanctions on Russian energy, which would bring Russian crude oil to the market again.
Over the summer, Shell denied rumours that it was considering a bid for BP. Now, The Financial Times writes that Shell’s chief of mergers Greg Gut has departed from the company following the blocking of his proposal to acquire rival oil and gas major. CEO Wael Sawan and his top lieutenant rejected the acquisition plan.
Other
Ford Motors is making another strategic shift, writes Bloomberg. This time, it is away from electric vehicles. Ford has struggled to profitably make and sell EVs, and the policy changes under US president Trump, as well as China’s rapid advancement of battery and EV technologies, are likely to make this even harder. In response, Ford will dissolve its batteries joint-venture with SK On Co. Ltd., end production of the F-150 Lightning battery EV and cancel development of three new battery EVs. Instead, it will pivot hard to hybrid and extended-range EV powertrains — or EREVs, which use a small onboard engine to recharge the battery. Ford will also repurpose battery-making capacity in Kentucky and Michigan to serve grid-storage applications. The strategic pivot comes with a $19.5 billion write down of past investments in the battery and EV business – a huge impairment by any measure, more than the company’s reported operating income for the past three years.
Meanwhile, the European Commission unveiled a plan on Tuesday to drop the EU’s effective ban on new combustion-engine cars from 2035 after pressure from the region’s auto sector, writes Reuters. The move, which still needs approval from EU governments and the European Parliament, would allow continued sales of some non-electric vehicles. Carmakers in regional industrial powerhouse Germany and in Italy had sought easing of the rules.
Bloomberg writes the above is evidence that the electrification of transport is heading a dead end. 3W does not agree. If anything, China has accelerated the transition, rapidly lowering the costs if batteries and raising the overall quality of electric vehicles. This technological advancement will not be halted by geopolitics. The US and Europe will push back because they cannot compete, but history teaches that no country or region can hold back technology indefinitely, only temporarily.
The European Union will expand its Carbon Border Adjustment Mechanism to cover downstream products that use a high share of steel and aluminium, including construction products, power grid components and machinery, writes Reuters. The new proposals also aim to tighten loopholes that the Commission worries could allow foreign firms to dodge the fee it charges on imports of high-emission goods. The EU also plans to clamp down on foreign companies if there is evidence they are under-reporting their emissions to dodge the levy.