Global
Russian gas dominance over Europe ends with termination of Ukrainian transit agreement
Russian gas exports via pipelines running through Ukraine halted on New Year's Day, marking the end of decades of Moscow's dominance over Europe's energy markets.
Our Take: The cutoff of gas via Ukraine has long been anticipated, giving recipient governments plenty of time to make alternative arrangements. That said, there will be some political fallout, mainly in Slovakia and Moldova, where the breakaway region of Transdniestra is dependent on free Russian gas to support its economy and by extension, its separatist policies. Slovakia will also face higher market costs for alternative supplies, leading the government to threaten retaliation against Ukrainian refugees living in the central European country. Ukraine will lose around $800 million a year in transit fees, a cost Kyiv is prepared to accept as it also cuts revenue to the Kremlin. Gazprom will lose around $5 billion in gas sales and does not have an alternative buyer. Although Russia would like to sell the gas to China, there are no pipelines connecting the gas fields to China, and China has shown no interest in building them.
Read More: Reuters [paywall], Reuters [paywall], Euronews, Brookings Institution
Europe
Austrian liberal party pulls out of coalition talks, increasing chances of far-right Freedom Party's entry into government
Small liberal party Neos pulled out of negotiations for a three-party coalition, citing lack of progress in talks that have dragged on since legislative elections last September.
Our Take: The Austrian political crisis has no clear path to resolution. The far-right Freedom Party (FPO) won the elections, but lacks a majority; no other political party has agreed to sit in a coalition with the FPO. New elections are one possibility, but with opinion polls showing that FPO support has grown over the past months, other political parties are likely to try to block this. Another possibility is for the two next largest parties to invite the Greens into coalition talks, but ideological differences with the Greens are even larger than with Neos. The two next largest parties could form a coalition but would lack sufficient seats to advance policies. Political disagreements center on how to manage the budget deficit, which is on track to reach 4.1% of GDP in 2025, significantly missing Maastricht targets of 3%.
Read More: Euronews, Yahoo Finance, ING Think
Middle East
European delegation meets with Syria's interim leader
Foreign ministers from France and Germany visited Damascus to meet with Syria's de facto leader, Ahmed al-Sharaa.
Our Take: The visit marks the highest-level visit by Western leaders since the fractious coalition of rebel groups nominally led by Hayat Tahrir al-Sham (HTS) toppled the Assad regime, ending a decade-old civil war. The European ministers touted the visit as an opportunity to make contact with Syria's interim leader and set conditions for formally opening relations with Europe, likely to include stipulations about governance and a pathway to democratic elections. The ministers also expressed significant skepticism about HTS' radical Islamist ideological background, but expressed optimism at HTS' stated desire for modernization and moderation; practically, the EU and other international players are invested in preventing Syria from spinning out into a refreshed civil war, which could further inflame ongoing regional conflict and provide further cover for ISIS to reconstitute.
Read More: Washington Post [paywall], The Economist [paywall], Politico
Americas
Mexico softens to third-country deportees
Mexican President Claudia Sheinbaum proposed the possibility of Mexico receiving non-Mexican deportees from the US under President Trump's ambitious proposed deportation plan.
Our Take: The announcement is a softening from Mexico, which has recently opposed receiving non-Mexican deportees due to concerns around logistics and cost, and a potential bid to kick off negotiations with the incoming President Trump. Mexico's northern cities already struggle to absorb high levels of migrants and deportees both heading to and leaving from the US, and Mexico has called on the US to limit third-country deportations or assist with logistics. Sheinbaum hinted that Mexico may still be seeking limits. While Mexico had initially hoped to cement a deal on these deportees prior to President Trump's inauguration, inking an agreement in the next two weeks now seems unlikely.
Read More: Associated Press, CNN
Asia-Pacific
South Korea's acting president commits to ongoing cooperation with US and Japan
South Korea's acting President Choi Sang-mok pledged to maintain strong trilateral cooperation with Japan and the US, emphasizing unwavering diplomacy amid an unprecedented political crisis in Seoul.
Our Take: Choi's pledge indicates South Korea's determination to stabilize its foreign policy amidst the political turmoil following President Yoon Suk Yeol's martial law declaration, ensuring continuity in trilateral coordination on key security and economic issues. However, uncertainty over the leadership transition in Seoul and anticipated policy shifts in Washington may complicate efforts to strengthen these alliances. These factors combined could strain trilateral cooperation, particularly as Washington, Seoul, and Tokyo navigate differing priorities in addressing North Korea, China's growing influence, and regional security concerns.
Read More: Reuters [paywall], Kyodo News, Center for Strategic and International Studies
Trade and Compliance
Biden halts $14 billion acquisition of US Steel by Japan's Nippon Steel
US President Joe Biden blocked Nippon Steel's nearly $15 billion bid to acquire US Steel, fulfilling his campaign promise to protect the Pittsburgh-based company, despite potential litigation from the Japanese firm.
Our Take: While the Biden administration's decision to block Nippon Steel's acquisition of US Steel underscores its prioritization of domestic industrial and labor concerns, it also raises significant questions about the scope of national security reviews for foreign investment. While intended to safeguard critical industries, the move risks straining Japan-US relations, complicating collaboration in countering Chinese dominance in steel production and other strategic sectors. This action could also deter future foreign investments from allied nations, potentially undermining US efforts to build resilient global supply chains.
Read More: Associated Press, New York Times [paywall], Atlantic Council
Disruptive Technology
IT outage leads to widespread disruption at German airports
A nationwide IT systems outage at German airports is causing federal police to manually process passengers arriving from outside the Schengen area.
Our Take: The recent IT outage at German airports exemplifies the critical resilience of modern border management systems on technology and the significant disruption caused when these systems fail. The cause of the outage was not revealed, and while the issue was resolved within hours, it resulted in substantial delays, particularly for passengers from non-Schengen countries, highlighting vulnerabilities in system resilience. The continuance of such incidents may prompt a reevaluation of contingency planning and infrastructure security at major international airports, with potential ripple effects on travel reliability and passenger trust.
Energy Transition
Biden Administration finalizes rules on hydrogen production tax credit
The US Treasury published its final rules on clean hydrogen production, determining the criteria that developers will have to meet in order to qualify for the clean hydrogen production tax credit of up to $3/kg.
Our Take: This final rule has been long awaited and adds criteria for nuclear and non-renewable power to qualify, in addition to an extra two years to begin hourly matching. The final rule is receiving mixed reception, with some criticizing it for creating loopholes for "dirty hydrogen" producers and greenwashing. Others are embracing the determination, for offering opportunity for natural gas when paired with carbon capture and storage to compete in new markets and meet growing demand. However, the matter could be moot, if the incoming administration selects a different approach on hydrogen, such as ending tax incentives or walking back the hydrogen hub program. Hydrogen hubs do enjoy bipartisan support in Congress, making changes to the current program a likely political football.
Read More: US Department of the Treasury, Hydrogen Insight
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