U.S.-Iran update. Over the weekend, a U.S. Central Command spokesperson said Iran was responsible for recent missile attacks on U.S. Reaper drones in the Gulf of Oman and Yemen. While most U.S. allies have backed Washington on this, Japan has reportedly asked for more evidence to support the U.S. claims, saying they’re not convincing enough. Tehran responded by suggesting the U.S. was behind last week’s attack on oil tankers in the Gulf of Oman. Secretary of State Mike Pompeo has also indicated that the U.S. is considering a range of options – including a military response – to deal with the rising tensions, even as it underscores a desire to avoid war. For its part, the United Kingdom announced that 100 Royal Marines will be deployed to a British naval base in Bahrain in the coming weeks. (The deployment was planned several weeks ago in response to rising tensions with Iran.) But the dispute doesn’t end there. The Atomic Energy Organization of Iran announced that Iran will reach its limit on enriched uranium of 300 kilograms (661 pounds), that it will continue to produce enriched uranium above 3.67 percent, and that it wants to enrich uranium to 20 percent – closer to weapons grade.

Meanwhile, the Iranian government is taking a mixed approach in renewing pressure on Europe to complete the Instrument in Support of Trade Exchanges, which would allow for trade between Iran and the European Union despite U.S. sanctions. The speaker of Iran’s parliament, Ali Larijani, accused France of falling short of its promises on INSTEX, and Deputy Foreign Minister Abbas Araghchi said the current INSTEX proposal from the EU needs to extend beyond essential food and medical items to include all non-sanctioned goods. President Hassan Rouhani later toned down the rhetoric, saying Iran still has friendly ties with France and inviting Paris to play a leading role in saving the Iran nuclear deal. 

Poland fortifies its border. Polish Defense Minister Mariusz Blaszczak announced that U.S. troops will be stationed at six points in Poland, many of them near its eastern border with Belarus. This comes days after the U.S. and Poland reached an agreement to deploy a squadron of U.S. MQ-9 drones and to increase the number of U.S. troops in Poland. Meanwhile, the Dragon-19 military exercise is underway in Poland, involving 18,000 soldiers and 2,500 units of military equipment from 12 NATO countries in the largest military drill in Poland this year. The maneuvers will traverse land, sea, air and cyberspace, with the intention of strengthening NATO’s eastern flank. Warsaw wants to send a message to any potential aggressors from the east that an attack on Poland is an attack on the NATO alliance. On the other side of the border, Belarus and Russia will hold their joint Union Shield 2019 drills on June 17-20 – exercises the Russian defense minister described as “solely of defensive nature.”

Huawei in trouble. On Monday, Ren Zhengfei, the founder of Chinese telecommunications titan Huawei, said he expects U.S. sanctions on the firm to wipe out some $30 billion in annual revenue over the next two years. Ren said the firm had underestimated the willingness of the U.S. to zero in on the company and Washington’s ability to impact Huawei supply chains and its participation in international organizations. The statement is a tacit admission that Huawei’s moonshot effort to wean itself off foreign-made critical components is likely to fall short, raising additional doubts about the company’s long-term viability. It hasn’t been all bad news for Huawei, though. On Saturday, Vodafone rolled out initial 5G services in 15 Spanish cities with infrastructure built partially with Huawei tech, dashing any remaining U.S. hopes that the firm would be fully denied a foothold in European Union states. And on Monday, Chile announced that it wouldn’t exclude Huawei from its list of potential service providers for its own 5G network. Meanwhile, there are reports that U.S. chipmakers like Qualcomm and Intel are lobbying the U.S. government to loosen restrictions on sales to Huawei.

Russian bankruptcies. Russia, still dependent as it is on raw materials, has been trying to diversify its economy by developing small and medium-sized businesses. But despite national efforts, recent statistics published by the Center for Macroeconomic Analysis and Short-term Forecasting show that it’s becoming more difficult for companies, especially small ones, to keep their doors open. In the first quarter of 2019, the number of corporate bankruptcies increased by 2.4 percent compared to the same period in 2018, and by 9.9 percent compared to the pre-crisis first quarter of 2014. The report recorded an increase in bankruptcies in most nonindustrial sectors, including construction, commerce, agriculture and machine building, with the highest concentration of bankruptcies in the Tyumen, Volgograd and Vologda regions.

More on the German economy. Germany’s Bundesbank anticipates that the country’s economic output will show a second-quarter decline. The bank attributed the economy’s 0.4 percent growth in the first quarter to unique factors whose positive effects on the economy have run their course, including a weather-related boom in construction activity and delivery of passenger vehicles that were backlogged in late 2018 due to regulatory changes. Bundesbank also pointed out that the basic economic trend remains weak; the continuing downturn in industry is somewhat offset only by buoyant activity from non-export-dependent sectors. Meanwhile, Deutsche Bank announced plans to create a “bad bank” to hold at least 30 billion euros ($33.7 billion) worth of risk-weighted assets. The bank labeled this its noncore asset unit and said it will consist primarily of long-dated derivatives. The final amount is still under discussion, with upper limits as high as 50 billion euros, as is the degree of reduction that will occur to the bank’s equity and rates trading businesses outside Europe. An official announcement on the bad bank creation is expected in late July.

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