Global: Russia rules out nuclear testing as long as the US reciprocates
Russian Deputy Foreign Minister Ryabkov affirms that the Kremlin will not resume nuclear testing as long as the US refrains from such steps.
Our Take: After President Putin rescinded Russia's ratification of the Comprehensive Test Ban Treaty (CTBT), and with arms control talks between the US and Russia non-existent, uncertainty has clouded Russia's nuclear posture. The Kremlin's announcement that it will adhere to the ban will ease Washington's heightened risk assessment, but monitoring activities of Russian nuclear forces and programs will continue, as trust is at a nadir and cooperative verification no longer on the table. While the US Congress has never ratified the CTBT, the US has not carried out a nuclear test since 1992. The last Russian test was in 1990. Only North Korea continues to carry out nuclear tests. With Russia's withdrawal, the CTBT has been ratified by 35 of the required 44 countries.
Read More: Reuters, Lieber Institute West Point, Center for Strategic and International Studies
Europe: Far-right election gains in eastern Germany increase economic risks
The far-right AfD party followed up its strong election showing in Thuringia and Saxony with a second-place win in Brandenburg over the weekend, causing economists and business leaders to warn of potential negative impact on the economy in the eastern region.
Our Take: The rise of the far-right AfD presents risks for governance as well as business in the eastern region of Germany. AfD now has a blocking minority in Thuringia and Brandenburg, which means that governing actions that require two-thirds majority will require support by the AfD to pass. The rules requiring super majorities differ from state to state, but include modifying the constitution or making appointments to key positions related to security and the judiciary. In practice, this means that the AfD will have new leverage to advance its political agenda. Businesses are concerned that AfD's anti-migrant stance will have a negative effect on the region's attractiveness to skilled labor, where there is already a shortage. AfD leaders have already announced they will use their blocking minority to defeat attempts by other parties to freeze the party out of power. While state legislatures have limited impact on foreign policy, there will likely be impact on national domestic policy, and the ability of the current coalition government to deliver on their policy priorities.
Read More: Deutsche Welle, Reuters, Atlantic Council
Middle East: Israel-Hizballah conflict slides towards all-out war
The Israel-Hizballah conflict saw its deadliest day yet on Monday after Israel launched extensive strikes on southern Lebanon and killed an estimated 492.
Our Take: Following last week's attack that detonated thousands of pagers and walkie-talkies used by the militant group, and nightly airstrikes since, the bombardment represents another step towards all-out war between Israel and Hizballah. Israel has led the escalation in recent weeks, promising to allow Israeli citizens who have fled the north to return home, while Hizballah has reportedly been on the back foot following the pager attack. The conflict is not yet a full-fledged war, but could become one, as Israel is reportedly planning a ground invasion into southern Hizballah and political considerations in Israel – namely Prime Minister Netanyahu's desire to claim a win on one front – could drive further escalation, despite calls from within the defense ministry to slow-roll escalation in hopes Hizballah backs down.
Read More: Washington Post [paywall], The Economist [paywall]
Asia-Pacific: Anti-establishment leftist candidate wins Sri Lanka's presidential election
Marxist lawmaker Anura Kumara Dissanayake on Sunday won Sri Lanka's presidential election, propelled by voters looking for an alternative to the South Asian country's political old guard.
Our Take: Dissanayake's victory in Sri Lanka's presidential marks a significant shift away from the entrenched political elite that many people blame for the nation's dire economic crisis. His rise, fueled by widespread public discontent and a desire for systemic change, reflects a broader rejection of past governance styles, particularly that of former President Rajapaksa. As Dissanayake takes office, his challenge will be to navigate the complex realities of ongoing economic recovery efforts, especially regarding negotiations with the IMF, while maintaining the support of a populace eager for reform. At the same time, this political realignment could reshape Sri Lanka's economic policies and governance structures, making it a focal point for regional stability and reform-oriented governance in South Asia.
Read More: Associated Press, Nikkei Asia [paywall], Lowy Institute
Africa: Somalia and Ethiopia clash over arms surge
Somalia on Tuesday accused Ethiopia of smuggling weapons, a day after an Egyptian warship delivered heavy weaponry to Somalia's capital of Mogadishu, the second shipment since Cairo and Mogadishu signed a security pact in August.
Our Take: The growing tensions between Somalia and Ethiopia, now exacerbated by accusations of arms smuggling and disputes over the Somaliland port deal, present a new array of risks in the Horn of Africa. Somalia's deepening alliance with Egypt is heightening Ethiopia's concerns, particularly given the backdrop of their long-standing conflict over the Grand Ethiopian Renaissance Dam (GERD). The potential for weapons falling into the hands of Islamist militants like Al-Shabaab threatens to escalate regional insecurity, with the possibility of further destabilizing Somalia's fragile security situation. These tensions may also drive proxy conflicts, increasing risk for regional actors and international stakeholders operating in the area.
Read More: Reuters, Al Jazeera, Atlantic Council
Trade & Compliance: China to probe Calvin Klein and Tommy Hilfiger parent firm over Xinjiang cotton dispute
China launched an investigation into PVH Group, the parent company of clothing brands Calvin Klein and Tommy Hilfiger, alleging "discriminatory measures" against products from its far western Xinjiang Uyghur Autonomous Region.
Our Take: China's investigation into PVH Group under its Unreliable Entity List (UEL) adds a layer of complexity to already strained Sino-US trade relations, particularly in the wake of Western boycotts of products of Xinjiang due to alleged forced. Demonstrating Beijing's willingness to expand its use of the UEL beyond defense companies, this action signals heightened enforcement against firms viewed as undermining China's economic or sovereignty interests. Should PVH face penalties or restrictions, it may deter multinational companies from taking similar stances on Xinjiang, intensifying the decoupling risks between Western and Chinese markets.
Read More: South China Morning Post [paywall], New York Times [paywall], Council on Foreign Relations
Energy Transition: New International Energy Agency report judges that goal of tripling global renewable energy by 2030 is attainable, with caveats
A goal to triple global renewable energy capacity by 2030 and cut fossil fuel use is within reach, the International Energy Agency said in a report on Tuesday, but will require a huge push to unlock bottlenecks such as permitting and grid connections.
Our Take: This week, many new assessments on climate change and energy transition will be released, timed for "Climate Week" held on the margins of the UN General Assembly. Amid many warnings that investment in renewable energy is falling short, many promising green technologies are not yet producing at scale and sales in EVs are contracting, The IAE's report infuses some optimism. Yet, the caveat on needing to resolve the daunting bottlenecks in permitting and grid connections is no small measure. With any major transition, it is normal for constituent parts to move at different rates, and expectations for a smooth transition risks undermining the political, commercial and societal will be needed to persevere through the market ups and downs.
Read More: Reuters, Wall Street Journal [paywall], Wall Street Journal [paywall]
ESG: ECB announces fines for banks not complying with climate requirements
The European Central Bank has begun issuing fine notices to banks not meeting requirements to disclose and manage climate risk, the head of the ECB climate change center told Reuters.
Our Take: The ECB has long complained that banks are not meeting expectations on climate issues, and had warned in the early summer that it could apply fines. The ECB requires banks to assess their material climate risk, and reflect that risk in capital reserves. While banks have time to comply before fines are levied, the ECB once previewed that fines could constitute 5% of a bank's daily turnover until the issue is resolved, or up to six months. For larger banks, this could amount to hundreds of thousands per day.
Read More: Reuters, Green Central Banking
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