Saudi Arabia and its neighbours are the new power brokers

Today’s briefing is a ~5.1 min read:

• 🔌 Saudi Arabia and its neighbours are the new power brokers.
• ➕ Plus: The European Union cracks down on diesel, Kosovo won’t confiscate Serbian cars (yet), and financial markets don’t like Xi Jinping’s loyalist lineup.

📰 GLOBAL HEADLINES

Stories: The Times of India, The New Times, Bangkok Post, Le Monde, Clarin

🤿 DEEP DIVE

Are Gulf states the ‘diplomatic winners’ of the Russo-Ukraine War?

In brief:

• The global influence of Gulf states like Saudi Arabia is growing due to the Russo-Ukraine War.
• Russia needs help propping up its economy, and the West needs energy, leading each geopolitical camp to seek partners in the Gulf.

The belle of the ball

Gulf states are using the conflict in Europe to curry favour from both Western and non-Western partners.

• Russia and China share economic interests with the Gulf states, and want to take advantage of the West’s deteriorating stature in the region.
• Meanwhile, energy shortages in Europe have left Western states with few other choices but to work with countries like Saudi Arabia.

Toeing the line

Gulf countries see advantages in working with both camps.

1. 🛢️ The mutually beneficial axis of oil 

Russia and Saudi Arabia – the pre-eminent members of the oil price-setting cartel OPEC+ – benefit from oil money in different ways:

• For Russia, oil revenue fuels its war machine, although revenues recently hit their lowest mark since the start of the war.
• For Saudi Arabia and the United Arab Emirates, oil revenue pays for generous cash transfers and social benefits to ensure political stability and modernisation agendas (e.g. ‘NEOM’, the 170-kilometre-long indoor city in the Saudi desert).

When Europe announced a boycott of Russian oil, Saudi Arabia exported its own oil to the EU and imported Russian crude to meet its domestic needs. That sleight of hand has helped stabilise Russia’s economy.

2. 🐼 Saudi Arabia is growing closer to China, too

China is by far the Kingdom’s largest trade partner, and the pair share disdain for what they see as Western moral policing.

• Notably, Saudi Crown Prince Mohammed bin Salman has supported China’s treatment of Uighur Muslims.

3. 🤠 The West just can’t quit the Gulf

And that’s despite plenty of threats to isolate Saudi Arabia for human rights abuses.

• Europe needs to keep Gulf Cooperation Council (GCC) countries onside to make up for Russian oil and gas shortfalls.
• And the United States sees GCC members as valuable partners in its effort to counter Iranian influence in the region.

US President Joe Biden summed up the stakes of the contest for Gulf support in a Washington Post op-ed this summer:

The Gulf’s strong geopolitical position won’t last forever

The Russo-Ukraine War has accelerated the West’s green energy transition, meaning Europe and the US may require fewer fossil fuels in the future.

• Still, a fossil fuel-free world is a long way away, and the Gulf’s relative influence will likely grow in the meantime. As energy experts Meghan O’Sullivan and Jason Bordoff note:

It’s a good bet that the hotels in Riyadh’s ritzy Diplomatic Quarter will stay full for a while yet.

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🔦 REGIONAL SPOTLIGHT

Europe

🇧🇾 Belarus

The Belarussian government’s list of “extremist figures” has nearly doubled after officials added 625 names on Friday.

• Individuals on the list – which includes journalists, opposition activists, and business leaders – are barred from holding public office.
• Political freedom in Belarus has diminished since large-scale protests against President Aleksandr Lukashenko broke out in 2020.

🇪🇺 European Union

The European Union announced a plan on Thursday to outlaw combustion engine car sales starting in 2035.

• If successfully implemented, the plan would eliminate 100% of carbon emissions from the EU’s fifth-highest emitting sector.
• While lawmakers hope the announcement will spur innovation and bring down costs, some critics worry that electric cars will remain too expensive for most buyers.

🇫🇷 France

Freshly-minted UK Prime Minister Rishi Sunak held his first call with French President Emmanuel Macron on Friday.

• Analysts say cross-channel relations have soured in recent years over disagreements on Brexit, the AUKUS submarine deal, and migration policy.
• The pair vowed to strengthen ties and work together to deter deadly migrant crossings from France to the UK.

🇽🇰 Kosovo

Kosovo will delay its 1 November plan to confiscate cars from members of its ethnic Serbian minority who still use Serbian licence plates.

• Western officials worried the plan would complicate ongoing negotiations between Kosovo and Serbia to normalise diplomatic ties.
• 51.8% of UN members recognise Kosovar independence; the rest, including China, Russia, India, and five EU member states, do not.

🇷🇺 Russia

Russia is suspending its cooperation in the Ukraine grain deal, which had guaranteed safe passage for civilian ships transporting Ukrainian grain since the summer.

• If the deal ultimately collapses, it could threaten exports from one of the world’s largest grain producers and exacerbate the ongoing global food insecurity crisis.
• Officials from the UN and Turkey, who negotiated the deal in July, are continuing to coordinate with grain exporters passing through the humanitarian corridor.

📝 Correction: Last Tuesday’s ‘Regional Spotlight’ included a story on Germany’s first imports of ‘green hydrogen’ from the United Arab Emirates. These were actually shipments of ‘blue hydrogen’, which is produced using energy from fossil fuels. Thanks to everyone who wrote in to let us know!

🗞 IN OTHER NEWS…

The markets react to Xi’s consolidation of power

The news: The dust has finally settled on the Chinese Communist Party (CCP) 20th Congress, but international financial markets weren’t too happy about its outcomes.

• The renminbi (aka the Chinese yuan) hit its lowest level against the US dollar since 2007 as investors sold off $6 trillion worth of Chinese stocks.

Party > economy: Xi Jinping is just like us – party first, consequences later. Xi stacked the CCP’s highest decision-making body with loyalists that share his view that the CCP must be at the centre of everything.

• As China expert Guoguong Wu explains: “The [People’s Republic of China] that puts the economy first is no more, and it is a harbinger of greater changes to come.”

A couple of key new members of the CCP Standing Committee caught investors’ attention:

• 🙋🏻‍♂️ Li Qiang (pronounced ‘lee chee-ung’): As the top official in Shanghai, Li oversaw the strict two-month lockdown, which stunted the city’s economy and left many Shanghainese without food and medicine. Experts believe Xi will make Li his Prime Minister as a reward for his strict adherence to the zero-Covid policy.
• 💁🏻‍♂️ Wang Huning (pronounced ‘wung hoo-ning’): Wang (sometimes referred to as “China’s Kissinger”) is the intellectual leader of contemporary CCP ideology. According to Foreign Policy editor James Palmer:

The strong reaction of the financial markets might be the final nail in the Western dream of China’s liberalisation.

• Markets are now processing what Western analysts have suspected since 2017 – Xi Jinping’s brashly assertive, ideologically rigid, political-control-above-all-else vision of China in the 21st century isn’t going anywhere.

📊 CHART OF THE WEEK

Amazon deforestation was a wedge issue in this year’s Brazilian election

Between August 2020 and July 2021, deforestation of the Amazon rainforest reached its highest annual levels in more than a decade.

• Now-former President Jair Bolsonaro argued that the Amazon is Brazil’s sovereign territory and that repurposing it for agricultural use was critical to the country’s development.

• Conversely, President-elect Lula da Silva, who served as President from 2003-2010, views the Amazon as a global resource and promised to “fight for zero deforestation.”