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Daily Memo: A Conversation on NATO, a Bubble in China, Oil in Russia

All the news worth knowing today.

GPF Staff |July 9, 2018

The politicking ahead of this week’s NATO summit shows what’s at stake. Two of the three Baltic countries are publicly expressing concern about Russia. Estonia’s foreign minister said that Russia is a threat and that anti-Americanism should be curbed, while its prime minister wrote an op-ed in which he made a case for more NATO troops in Eastern Europe. Lithuania’s defense minister took to the airwaves to emphasize the alliance’s commitment to collective defense. Meanwhile, the head of the Ukraine Permanent Mission to NATO said Ukraine and Georgia would both participate in the NATO summit – much to the chagrin of Hungary, which he admitted may block a post-summit communique. NATO is being pulled in several directions, but there is still a strong faction that sees the organization primarily as an anti-Russian military alliance and is shaping the conversation to reflect as much. Will it be enough?

An excellent article in the Financial Times highlights a development we missed earlier this month and could lead to a slowdown in China’s precarious residential property market. According to the article, an executive from the China Development Bank said the CDB would reduce a subsidy program for displaced urban residents as China redevelops city slums – a boon to real-estate speculators and property developers alike. The CDB reportedly denied that anyone was authorized to speak on this issue, so we should note whether a CDB executive is punished and whether the subsidies are actually withheld. If this drives down property prices, it could deflate the bubble we’ve long been concerned about. If it merely leads to reducing the money supply to poor Chinese city-dwellers who lost their homes, it could lead to social unrest – as was demonstrated by small-scale protests over evictions of migrant workers from squatter communities in Beijing in December. If the report is simply untrue, and if CDB is conducting business as usual, the bubble will just get bigger. Admittedly, there are a lot of “ifs” here, but none of the preliminary conclusions look good.

Russia’s Finance Ministry has issued a report sounding the alarm on oil prices. Considering how important oil is to the Russian economy, when Moscow gets nervous, we take note. Russia was caught flat-footed the last time oil prices collapsed – the government had planned its budget with oil at a minimum of $80 per barrel before prices plunged in 2014 – and this time it wants to be prepared. According to the report, market fundamentals suggest the price should be around $50 per barrel, but the current oil price is well above that. (Text from the report was published by Sputnik, which should always be taken with a grain of salt.) It goes on to predict a price collapse if current prices remain. The recent months’ bump in oil prices – bumps due in part to Venezuela’s perpetual downward spiral and the deterioration in U.S.-Iran relations – has relieved pressure on several countries, chief among them Russia, Iran and Saudi Arabia. A collapse in oil prices would put the pressure right back on.

A drive-by shooting in Saudi Arabia may suggest deeper problems. According to the Interior Ministry, three terrorists attacked a security checkpoint in Buraidah, a small city between Medina and Riyadh. A Saudi security officer and a Bangladeshi expat were killed, as were two of the terrorists. (The third assailant is injured and receiving medical attention at a Saudi hospital.) Incidents like this happen occasionally in Saudi Arabia, so we should be careful not to make more of this than there is. After all, this is a small-scale incident, and the terrorists were dealt with accordingly. Still, with the kingdom in a time of massive political and cultural change, such episodes could become more important than they first appear, and so they warrant closer observation.

Whither Kim Jong Un? Recently there have been hints that hard-liners in Pyongyang are unhappy with Kim’s pivot to improving relations with the United States. Now there are whispers that Kim has not been seen in public for a few days, not even at recent negotiations with U.S. Secretary of State Mike Pompeo and South Korea’s unification minister. To add more grist to the rumor mill, Kim’s plane was reportedly seen in the eastern Russian city of Vladivostok, though there’s been no evidence that he’s on board. Kim’s sister, Kim Yo Jong, also hasn’t been seen since Singapore. (Her pregnancy may have something to do with that, of course.) The snub of Pompeo could be a standard negotiating tactic, and not attending a unification basketball match or a memorial ceremony for Kim Il Sung might suggest little more than that Kim had other things to do. But then again, Kim is not one to shy away from the limelight.

Honorable Mentions

  • David Davis, the U.K.’s Brexit secretary, and Foreign Secretary Boris Johnson have resigned in protest of Theresa May’s plan for Brexit negotiations. The German government has disowned its own interior minister, Horst Seehofer, for his vision of tight security relations with the U.K. post-Brexit. This is a drama in infinite acts.
  • The Organization for Security and Co-operation in Europe will host a meeting in Brussels between the foreign ministers of Azerbaijan and Armenia. The two countries have been butting heads lately.
  • Israel attacked an air base in Syria again. It’s somewhat telling that Israeli operations there have gone from headline stories to business as usual, but we shouldn’t get lulled to sleep: The situation in southern Syria may get more complicated once anti-government rebels are neutralized.
  • Argentina’s military is unhappy with its wages. Argentine President Mauricio Macri is intervening directly to fix the “mistake.”