Israel Moves Ahead with its Plan to Annex the West Bank

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 look at:

• How Israel is moving ahead with its plan to annex the West Bank; where 3W explains why we believe the US will come to support this move
• The confirmation of 3W assessment yesterday, that Netanyahu has travelled to Washington DC to ensure the US attacks Iran
• The first signs the oil and gas industry is entering a recession
• How the EU’s geopolitical incompetence has destroyed its petrochemical industry
• The US government’s official decision to no longer consider climate change as a threat to humanity

Geopolitics

On Sunday, Israel’s cabinet approved a change to the legal status of the occupied West Bank, which clears the way for an expansion of the settler movement, writes The National. Energy Minister Eli Cohen said the measures amounted to Israel acquiring “de facto sovereignty” in the territory. The changes announced on Sunday have three core elements. The first is to make it possible for settlers to “almost without limitation” buy property throughout the West Bank, including in areas that the Palestinian Authority fully or partially administered under the Oslo Accords. The second element is to declassify land ownership registries, a move that would open the door for settlers to defraud, forge documents and blackmail Palestinian owners in pursuit of acquiring property to control larger parts of the West Bank. The third element is stripping Palestinian bodies of control at religious sites in Hebron and Bethlehem. 3W notes this is happening while the Gaza ceasefire agreement talks of the potential to look at a Palestinian State. In other words, Israel is acting now, in an accelerated manner, to ensure that in the future there will be nothing to talk about. Of course, the Israeli plan will involve removal of the Palestinians that presently remain on their land.

The official US position is that it is against the Israeli plan for the West Bank. “I am against annexation”, US president Trump told Axios. “We have enough things to think about now. We don’t need to be dealing with the West Bank,” Trump said. As to what this means, in the 3W view, we refer to the Biden administration’s position on what Israel should do in response to October 7. Israel ignored it, and over time won the US administration to make it follow its position. We have little doubt the same will happen here.

As to Iran, exactly as 3W forewarned yesterday, Israeli prime minister Benjamin Netanyahu intends to discuss military options against Iran with US president Donald Trump during his visit to Washington, writes CNN. Before departing for Washington, Netanyahu said Iran is the “first and foremost” issue on the agenda for his meeting with Trump today. “I will present the president with our views regarding the essential principles of the negotiations – principles that, in our eyes, are vital not only for Israel but for anyone in the world who desires peace and security in the Middle East,” Netanyahu said. Israel has been pushing the US to ensure that any deal with Iran include Tehran giving up its stockpile of enriched uranium, ceasing enrichment altogether, placing limits on its ballistic missile program and ending its support for regional proxies. The worst-case scenario for the Israeli prime minister is a narrow nuclear deal in which the US settles for restrictions on enrichment alone.

Meanwhile, the US military build-up in the Middle East continues, writes The War Zone, with US president Trump saying he is considering sending a second carrier strike group to the region to increase pressure on Iran. According to TWZ, and as 3W reported last week, at current levels even there is still not enough US tactical airpower in the region for a major sustained US military operation against Iran. A second carrier strike group would not fundamentally alter this equation, but entry of Israel’s military would. Reuters adds that US forces in Qatar’s al-Udeid airbase, the biggest US base in the Middle East, put missiles into truck launchers – Indicating preparations for an attack on Iran are seriously underway, in the 3W view.

Energy

BP has become the first oil major to suspend its share buyback programme, writes The Financial Times. European peers TotalEnergies and Equinor have signalled they will scale back their buyback plans. Europe’s oil majors have collectively spent roughly half their cash flow in recent years on share buybacks and dividends to support their stock. Investors often regard buybacks as a tax-efficient way of returning cash, since capital gains are typically taxed at a lower rate than dividends. Current prices and margins in the industry do not allow a continuation of this prioritization of shareholder returns – except if one is willing to borrow more to finance the programme, as Shell earlier said it would do.

Other

Paul Hodges of New Normal writes about the European chemicals industry’s annual Antwerp Summit. It is a good example of how geopolitics and the economy are interconnected – with the prior leading the latter. As a result of the EU’s geopolitical positioning over the past few years, its chemicals industry is now dying off. Energy costs are a critical issue, and they soared due to the EU’s response to Russia’s invasion of Ukraine. Today, the US level is at €13/MWh but Europe’s cost has doubled to €37/MWh. The resulting situation is made worse by the major capacity expansions that have taken place in the USA and China. US petrochemicals capacity was expanded to help dispose of by-product ethane from shale gas expansions. US President Trump’s trade wars led China to focus on self-sufficiency and exports, rather than importing. Europe’s chemicals industry cannot continue to operate with today’s massive cost disadvantage, and urgently needs major support from the EU. If it disappears, the whole European economy will be at risk, as Europe’s chemicals feed 96% of all other European industries.

The US’s Environmental Protection Agency (EPA) is set to formally withdraw its 2009 scientific report that concluded climate change is a threat to humanity, writes Axios. The move is the Trump administration’s most direct effort yet to rip out climate regulations root and branch — and make it harder for a successor to impose new ones.

Yesterday 3W discussed Stellanios’ massive write down of its EV business. There we mentioned it is, in our view, only partially due to the EV market. A bigger reason is the fact that established carmakers are struggling to compete with China’s newcomers. Today, Nikkei Asia writes that Ford’s CEO Jim Farley has sounded the alarm on the threat Chinese automakers pose to established players worldwide. According to Farley, China’s combination of heavily subsidized low-cost production and weak domestic demand is bound to increase the pressure from exports. “I think the real question I ask myself is how would the Chinese change the game … in terms of pricing power, given the overly competitive, subsidized reality,” Farley said. Mary Barra, CEO of Ford’s archrival GM, said in an annual earnings call last month that “stiff competition” was coming from Chinese automakers “that are heavily subsidized.” At 3W we are not convinced that “government support” is the reason why China is making life hard for the established carmakers. The US ”Big Three” themselves received massive government support, to the tune of $80 billion, back in 2008 and 2009, after all. The “China subsidies” in our view distracts from the fact that the established carmakers are stuck in the past, while their Chinese competitor are looking at building a new future for the industry.