Musk & AI to the Moon

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 the merger between Elon Musk’s companies SpaceX and xAI.

There is little doubt, in our mind, that AI will indeed lead to a societal revolution, akin to the industrial revolution. What is interesting in the merger is that it reveals Elon Musk’s thinking about how this revolution will unfold – from an “AI supply” perspective.

The cloud will move into space, Musk believes, as on earth the cost of cooling will simply become too great. That is why his AI company is to merge with his rocket and satellite company.

Eventually Tesla, which is being repositioned to focus on AS semiconductors and robots, is to be joined as well, such that autonomous data centres can be operated in space.

Furthermore, we look at:

• The open letter by hundreds of former European Union diplomats to the institutions and representatives of the bloc, demanding they stop turning a blind eye to Israel’s crimes in Palestine
• Israel’s orchestrated campaign of violence against Lebanon, which now, in addition to missile attacks, includes the spraying of chemicals on Lebanese agricultural land
• The upcoming meeting between the US and Iran in Turkey, to find a way out of the current stalemate
• Why Vietnam believes the US might attack it again
• The US – India trade deal announced by US president Trump
• The US government’s plan to establish a “SPR” for critical minerals; and Europe’s failure in its efforts to become less reliant on China for rare earth minerals

Geopolitics

As to Gaza, more than 400 former senior European diplomats have sent a letter to EU institutions and representatives of the bloc’s 27 states in Brussels, urging them to pressure Israel to improve the situation in Gaza. The letter, viewed by The National, said that “continuing restrictions prevent the full and unhindered provision of humanitarian aid, including shelter and other winterisation support, to destitute and impoverished Palestinians in Gaza”. Former EU ambassador to the Palestinian territories Sven Kuhn von Burgsdorff told The National: “Despite the unremitting and continuing violations of international law by the Israeli authorities and IDF, even after the official proclamation of the ceasefire which has been broken hundreds of times by Israel, killing more than 500 Palestinians in Gaza, including more than 100 children, the EU was not able to hold Israel to account and take robust measures, including much warranted political and economic sanctions.” The letter called on member states to abide by International Court of Justice rulings and opinions on Gaza which effectively demand a ban on military support to Israel and trade with illegal settlements. So far only a handful of EU states, including recently Belgium, have implemented such bans.

As to Lebanon, one person was killed and eight wounded by Israeli strikes north and south of the Litani River on Monday, as Israeli hostilities against Lebanon intensify, writes Arab News. Israeli authorities claim the strikes targeted “Hezbollah military infrastructure,” but residential areas were also hit, causing damage to buildings and neighborhoods. The escalation is taking place as, according to UN Interim Force in Lebanon and the Lebanese Ministry of Environment, Israeli forces spread chemical substances on Lebanese agricultural land along the Blue Line that separates Lebanon from Israel.

As to Iran, US special envoy Steve Witkoff and Iranian Foreign Minister Abbas Araghchi are expected to meet on Friday in Istanbul, together with representatives of several Arab and Muslim countries, to discuss a possible nuclear deal, writes Axios. The Trump administration’s demand remains that Iran ends its nuclear program and conventional missile program, as well as its support for groups in the region such as the Houthi’s and Hezbollah. The Iranian position is that only the nuclear issue is on the table. In the 3W assessment, there is a real possibility that a diplomatic solution is found, though not a big one. The reason is that US president Trump is not in a strong domestic position at present. Consequently, he may reason that launching a war on Iran now would further weaken his position, as it would be seen – correctly! – as a “foreign military adventure on behalf of Israel”, which would go against his promises to his MAGA base. Alternatively, he could see a war as a great distraction from his domestic issues – and undoubtedly the “Israel Firsters” among his advisors and the wider political and economic elite of the US will be making this point.

Just to indicate the influence of Israel on the US’s policy decisions, ahead of the Istanbul meeting Witkoff along with US president Trump’s son-in-law Jared Kushner will first travel to Israel this week to meet Israeli prime minister Netanyahu and Israeli army chief of Staff general Eyal Zamir, writes Axios.

As to Syria, the re-integration of the country’s Kurdish area is progressing. Syrian government forces entered the ethnically mixed city of Hasakah on Monday and prepared to do the same in Kobani and Qamishli, writes The National. So far, the move has not been opposed by the army of the Kurds, the Syrian Defense Force (SDF).

As to the developing conflicts, Vietnam believes the US might attack it again. In 2024 the Vietnamese army began preparing for the possibility of a second war with the US, writes The Associated Press.  The original Vietnamese military document seen by AP, titled “The 2nd US Invasion Plan”, was completed by the Ministry of Defense in August 2024 and suggests that in seeking “its objective of strengthening deterrence against China, the US and its allies are ready to apply unconventional forms of warfare and military intervention and even conduct large-scale invasions against countries and territories that ‘deviate from its orbit’.” While noting that “currently there is little risk of a war against Vietnam,” the Vietnamese planners write that “due to the U.S.’s belligerent nature we need to be vigilant to prevent the U.S. and its allies from ‘creating a pretext’ to launch an invasion of our country.” The Vietnamese military analysts outline what they see as a progression over three American administrations — from Barack Obama, through Donald Trump’s first term, and into Joe Biden’s presidency — with Washington increasingly pursuing military and other relationships with Asian nations to “form a front against China.”

Macroeconomics

US Trump has announced a trade deal with India, under which the US is to cut tariffs on India to 18% from 50%, in exchange for New Delhi halting Russian oil purchases and lowering trade barriers for US products, writes Reuters. Trump announced the deal on social media following a call with Indian Prime Minister Narendra Modi. Modi committed India to “BUY AMERICAN at a much higher level,” in addition to buying more than $500 billion worth of US energy, including coal, along with technology, agricultural and other products, Trump said. No information was released through formal channels in either the US or India, but Modi said in a social media post, “Wonderful to speak with my dear friend President Trump today. Delighted that Made in India products will now have a reduced tariff of 18%.”

Speaking to Reuters, and Indian government official, who did not want to be named, said India has agreed to buy US goods including petroleum, defence goods, aircraft, telecom and pharmaceuticals and offered market access for some agricultural products, as part of New Delhi’s commitments under the deal.

At 3W we note that in October 2025 Trump also claimed that Prime Minister Modi had assured him during a call that India “was not going to buy much oil from Russia”, and that never happened. As such, we will wait and see if this announcement is really based on fact, or again on hope and wishful thinking on the part of Trump and the US. The EU – India trade deal announced last week of course reduces the US leverage over India in the negotiations. As such, at 3W expects that if there really is a US – India trade deal now, the terms will be significantly more favorable to India than Trump originally demanded.

The US government will launch a $12bn critical minerals stockpile as part of its efforts to counter Chinese dominance over key metals, writes The Financial Times. The idea is for the stockpile to support domestic manufacturers during shortages and emergencies. The US Export-Import Bank (Exim) will provide $10bn in debt financing for the effort, named Project Vault, to build up domestic stores of “essential raw materials” across the US that can be tapped by manufacturers such as carmakers. An additional $2bn will come from private capital. More than a dozen companies including Lockheed Martin, General Motors, Alphabet’s Google and battery maker Clarios have already signed up to become Vault members. They will pay a fee that secures the right to withdraw minerals from the stockpile in emergency situations when they are struggling to source the materials on the open market.

Meanwhile, the EU’s push to reduce its reliance on China for a range of critical minerals is failing, writes The Financial Times. Brussels has signed strategic partnerships on raw materials with 14 countries, including Ukraine and Canada, between 2021 and June 2025. But trade data indicates that imports from those countries fell between 2020 and 2024 for 13 key raw materials, and only slightly rose for another 13 minerals.

Energy

Bloomberg columnist Javier Blas writes that India has become very optimistic about the crude oil market – from an Indian, that is “very large importer” perspective, that is. With a population of almost 1.5 billion, India is already the world’s third-largest energy consumer, behind the US and China. But look at its energy demand on a per capita basis and it ranks 110th among all countries, a sign of the enormous potential for consumption growth as it continues to urbanize and industrialize. Over the next 25 years, the country will account for a third of the increase in world energy consumption, the Indian government says. If that happens, it will increase its share of global demand to 11% from 7% now. Therefore, everything preconditions India to worry about future energy shortages. But, the country sees a looming abundance of energy. Indian officials are confident that oil prices will remain relative low for the foreseeable future. Any spike above $85 a barrel would prove short-lived as it would attract further drilling, notably in the US, they say. Likewise, they don’t see prices dropping much lower than $55 a barrel for long, as drilling would slow.

Technology

Elon Musk’s SpaceX has formally acquired xAI, another company in the Musk portfolio, writes Axios. SpaceX is Musk’s rocket and satellite company, while xAI leads his AI-development efforts. Musk’s Tesla, meanwhile, is pivoting away from cars to robotics. Last year Musk merged X (formerly Twitter) with xAI. This tie-up allowed the companies to integrate more closely, with xAI training its models on X data while xAI’s Grok chatbot has been added to the social media platform’s social feeds. As to the vision behind the merger, The Financial Times writes that Musk on Monday said “orbital data centres” will be essential to the future of AI technology. “Global electricity demand for AI simply cannot be met with terrestrial solutions, even in the near term, without imposing hardship on communities and the environment,” he wrote. “In the long term, space-based AI is obviously the only way to scale.” The merger of SpaceX and xAI not only brings two critical components needed for this vision together, but it also enables Musk to raise the valuation of his two companies ahead of a SpaceX IPO which is designed to enable it to invest in making the vision a reality. The deal valued the combined company at $1.25tn after Musk marked up the private valuation of SpaceX to $1tn. The planned partial IPO of SpaceX is now expected to raise as much as $50bn, which would make it the largest flotation of all time, exceeding the $29bn raised by Saudi Aramco in 2019.

FT adds that according to rumours, eventually Musk wants Tesla to combine with the newly created SpaceX and xAI. Last week, Tesla announced it had invested $2bn in xAI, and cut two EV models from the company’s line-up to enable a pivot towards AI chips and humanoid robots. In the grand vision, therefore, Tesla would make the chips and robotics, SpaceX would be responsible for launch and satellites, and xAI would build the models and agentic networks.