Europe may be souring on Iran. On Monday, EU foreign ministers signaled support for EU-wide sanctions on Iranian intelligence officials following failed assassination attempts against Iranian exiles in France and Denmark earlier this year. This doesn’t mean that the EU will throw its support behind the broad U.S. oil sanctions on Iran, but it would be a notable show of European unity. (Just last March, the United Kingdom, France and Germany failed to gain unanimous backing for sanctions aimed at curbing Iran’s ballistic missile program.) And it could halt the progress the European Union has made on designing bartering mechanisms that would allow European firms to circumvent U.S. sanctions. Energy markets are already behaving as if this move will bolster the U.S. effort to choke off Iranian crude exports, with WTI and Brent futures jumping Monday, ending more than a month of price declines. (Reports that the U.S. is preparing to designate Venezuela as a state sponsor of terrorism will likely add to the effect.) And if Europe stops serving as a lifeline for Iran, it would increase the likelihood that Tehran pulls out of the 2015 nuclear deal, by which Iran continues to abide, according to an IAEA report from last week.
China’s financial crackdown may be working too well. According to Rong360 data, yields on wealth management products issued by Chinese banks during the second week of November dropped to 4.36 percent, the lowest level in more than a year and a half. The drop is due to regulations issued in April meant to convince investors, once and for all, that the government will not rescue the risky funds should they go belly up. Meanwhile, according to China’s banking regulator, growth in bank assets continued to slow in the third quarter to 6.96 percent, compared with 8.68 percent a year ago. These are just the latest signs that Beijing’s war on reckless lending and speculative investment are working as intended. But the measures, which officials said Tuesday will continue, have produced unintended consequences. The banking sector, for example, is still struggling to get liquidity to the private sector, which receives just around 25 percent of bank loans, even though it makes up more than 60 percent of the Chinese economy. Short of reinstituting massive the stimulus measures that followed the 2008 financial crisis, Beijing is unsure how to proceed, so it’s experimenting to see what works. On Monday, Beijing announced new measures to support private sector bond issuances, and state media reported that more than 300 billion yuan in new bailout funds have entered the market. As we’ve said before, Beijing’s financial crackdown is a far bigger drag on growth than U.S. tariffs. The trade war is a side show next to China’s war on its internal dysfunction.
The China-Philippines alliance may have been over-hyped. Chinese President Xi Jinping is in Manila for his first state visit since Rodrigo Duterte became president and promptly said his country would abandon the U.S. for China. The alliance, of course, has failed to materialize. The Philippines is in no position to turn its back on U.S. military support, and Beijing has failed to deliver all the aid and investment it pledged to Manila. Take any good news announced during Xi’s current trip to the Philippines with a grain of salt. Particularly dubious is a memorandum of understanding on joint energy development in disputed parts of the South China Sea announced Tuesday. The issue isn’t the oil itself, but rather the implications for the territorial dispute. It’s not clear that a deal can be constructed that doesn’t implicitly cede sovereignty over the waters to one side or the other. The memorandum signed avoids the issues they don’t agree on.
- Fighting resumed in the Yemeni port city of Hodeida shortly after Iran-backed Houthi rebels said they would stop conducting drone and missile attacks against Saudi Arabia.
- India is reportedly finalizing a deal to buy two Russian frigates and Russian man-portable air defense missile systems.
- The Pentagon will begin drawing down troops from the U.S.-Mexico border as soon as this week.
- Russian President Vladimir Putin said Moscow would retaliate if the U.S. withdrew from 1987 Intermediate-Range Nuclear Forces Treaty.
- The Syrian military said it had reclaimed the Tulul al-Safa heights, a plateau in the southeast, from the Islamic State following a three-month offensive. The Iraqi air force launched new attacks against Islamic State positions in Syria’s Deir al-Zour province.