Good Afternoon everyone!
Today is a morning edition as the news has been coming in quick this morning, which will make this a long and interesting issue of "Geopolitics Today" along with an update to my Algerian-Libya write up I published two weeks ago.
England Signs its First Post-Brexit Trade Deal: A Small One with Japan
Today the UK and Japanese officials signed the "Comprehensive Economic Partnership Agreement," marking the first comprehensive post-Brexit trade deal. However, the economic impact will be microscopic as the UK economy's expected benefit is an additional 0.07% boost to GDP over 15 years. However, it remains a political win as the nation's first successful deal as the EU Brexit negotiation head towards a likely "Hard Brexit" outcome. This is also seen as a precursor to the UK's entry, supported by Japan, to the 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Second Wave of Coronavirus Crashes Europe's Recovery
As we head into the fall and winter months, the second wave has already shown signs of reappearing in Europe and France, Spain, and Italy in particular. Germany has seen a rise in cases but not at a pace seen by their neighbors and will likely clamp down as hard and effectively as the first time around. However, the massive spike in cases in Europe's most fragile economies is a sign of worse economic data to come, and likely future demands for another major EU assistance package as Spain and Italy see their economies shrink to the late 90s size.
The flash composite purchasing managers index fell from 50.4 in September to 49.4 this month, with most businesses reporting shrinking activity; however, there is a widening gap between the service sector and manufacturing as social distancing regulations stay-at-home orders hit sectors differently. This divide has resulted in France's composite PMI falling to a five-month low while Germany's heavily leaning industrial economy keeps chugging along.
Argentina to Subsidize Shale Oil & Gas Field Development: Interesting Opportunity
Argentine Energy Secretary Dario Martinez announced that the government would create a $5.1 billion subsidy program to support drilling and extraction at the Vaca Muerta shale gas field. These funds will be dispersed from 2021 through 2024 in four tranches of $1.27 billion. Secretary Martinez has stated that this move was to provide the Argentine people an alternative to expensive LNG imports.
Argentina has the same Shale Field play that the United States saw pan out in 2011-2012 with the same potential effects on the market. However, the problems facing this development are very much Argentine as it all has to do with the lack of capital and liquidity. While this a step in the right direction for another major player in Shale, they will need to partner with the American oil majors to get the technology transfer and access to cheap capital they need. As the United States starts to refocus on South America, expect trade deals to be made and financing agreements to be the top priority as the US seeks to create a regional power on the contentment that can keep the rest of it stable.
The Australian Navy withdraws from the Middle East
Officials of the Royal Australian Navy announced today that they would be winding down their naval presence in the Strait of Hormuz as part of the US-led coalition to protect oil tanker traffic in and out of the region. The Australians joined this coalition to demonstrate continued loyalty to the United States as the nation is largely energy independent, and what oil is imported can be sourced from Indonesia or by the deployment of new offshore rigs and shale fields within Australia itself.
The withdraw of the Aussies from the coalition is a sign of the rising tensions between China and Australia as they seek to deploy their navy to areas closer to home. This also lines up with the Morrison governments focusing on increased Naval shipbuilding to increase their navy size and replace the problem-plagued Collins Class attack submarines. While a lot is remaining to be seen concerning the ongoing developments in Australia, the one certain thing is that they will start to shoulder the muscle more in the region as nations in the Asian Rim look for allies.
Algerian Constitution Reform Opens the Door to Algerian Military Intervention in Libya
As part of the constitutional reform, the government has proposed to appease protesters' demands for improved economic conditions and increased democratization; they have provided a mixed bag that provides some relief but mostly undoes most of the Government's mistakes regretted making on the current constitution.
For example, the current Algerian constitution prevents the government from deploying the military in international operations. Now they have bent the rules as far as they can go with some special operations missions to rescue hostages in Libya and Mali, but anything more would have triggered a constitutional crisis. This restraint on the military prevented their possible intervention during the 2011 Libyan Civil war, ensuring a messy NATO intervention would occur.
This, as I pointed out in my publication, this created the problem of fixed defense spending in a stagnating/shrinking economy that would be normally cut to stabilize social payments to large portions of the Algerian polity. While intervening militarily would result in more defense spending in the short term, a swift conclusion in the conflict would allow them to cut defense spending and stabilize it at a lower level in the long term.
While I believe it's unlikely that an Algerian intervention is unlikely as long as the Turks continue to support their expeditionary force in western Libya, I believe the odds increase if they were to pull out.