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There’s beeen an increase in egg smuggling attempts across the border, says San Diego Customs

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CNN
 — 

High prices are driving an increase in attempts to bring eggs into the US from Mexico, according to border officials.

Officers at the San Diego Customs and Border Protection Office have seen an increase in the number of attempts to move eggs across the US-Mexico border, according to a tweet from director of field operations Jennifer De La O.

“The San Diego Field Office has recently noticed an increase in the number of eggs intercepted at our ports of entry,” wrote De La O in the Tuesday tweet. “As a reminder, uncooked eggs are prohibited entry from Mexico into the U.S. Failure to declare agriculture items can result in penalties of up to $10,000.”

Bringing uncooked eggs from Mexico into the US is illegal because of the risk of bird flu and Newcastle disease, a contagious virus that affects birds, according to Customs and Border Protection.

In a statement emailed to CNN, Customs and Border Protection public affairs specialist Gerrelaine Alcordo attributed the rise in attempted egg smuggling to the spiking cost of eggs in the US. A massive outbreak of deadly avian flu among American chicken flocks has caused egg prices to skyrocket, climbing 11.1% from November to December and 59.9% annually, according to the Bureau of Labor Statistics.

The increase has been reported at the Tijuana-San Diego crossing as well as “other southwest border locations,” Alcordo said.

For the most part, travelers bringing eggs have declared the eggs while crossing the border. “When that happens the person can abandon the product without consequence,” said Alcordo. “CBP agriculture specialists will collect and then then destroy the eggs (and other prohibited food/ag products) as is the routine course of action.”

In a few incidents, travelers did not declare their eggs and the products were discovered during inspection. In those cases, the eggs were seized and the travelers received a $300 penalties, Alcordo explained.

“Penalties can be higher for repeat offenders or commercial size imports,” he added.

Alcordo emphasized the importance of declaring all food and agricultural products when traveling.

“While many items may be permissible, it’s best to declare them to avoid possible fines and penalties if they are deemed prohibited,” he said. “If they are declared and deemed prohibited, they can be abandoned without consequence. If they are undeclared and then discovered during an exam the traveler will be subject to penalties.”



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CNN Exclusive: A single Iranian attack drone found to contain parts from more than a dozen US companies

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Washington
CNN
 — 

Parts made by more than a dozen US and Western companies were found inside a single Iranian drone downed in Ukraine last fall, according to a Ukrainian intelligence assessment obtained exclusively by CNN.

The assessment, which was shared with US government officials late last year, illustrates the extent of the problem facing the Biden administration, which has vowed to shut down Iran’s production of drones that Russia is launching by the hundreds into Ukraine.

CNN reported last month that the White House has created an administration-wide task force to investigate how US and Western-made technology – ranging from smaller equipment like semiconductors and GPS modules to larger parts like engines – has ended up in Iranian drones.

Of the 52 components Ukrainians removed from the Iranian Shahed-136 drone, 40 appear to have been manufactured by 13 different American companies, according to the assessment.

The remaining 12 components were manufactured by companies in Canada, Switzerland, Japan, Taiwan, and China, according to the assessment.

The options for combating the issue are limited. The US has for years imposed tough export control restrictions and sanctions to prevent Iran from obtaining high-end materials. Now US officials are looking at enhanced enforcement of those sanctions, encouraging companies to better monitor their own supply chains and, perhaps most importantly, trying to identify the third-party distributors taking these products and re-selling them to bad actors.

NSC spokesperson Adrienne Watson told CNN in a statement that “We are looking at ways to target Iranian UAV production through sanctions, export controls, and talking to private companies whose parts have been used in the production. We are assessing further steps we can take in terms of export controls to restrict Iran’s access to technologies used in drones.”

There is no evidence suggesting that any of those companies are running afoul of US sanctions laws and knowingly exporting their technology to be used in the drones. Even with many companies promising increased monitoring, controlling where these highly ubiquitous parts end up in the global market is often very difficult for manufacturers, experts told CNN. Companies may also not know what they are looking for if the US government has not caught up with and sanctioned the actors buying and selling the products for illicit purposes.

And the Ukrainian intelligence assessment is further proof that despite sanctions, Iran is still finding an abundance of commercially available technology. For example, the company that built the downed drone, Iran Aircraft Manufacturing Industries Corporation (HESA), has been under US sanctions since 2008.

One major issue is that it is far easier for Russian and Iranian officials to set up shell companies to use to purchase the equipment and evade sanctions than it is for Western governments to uncover those front companies, which can sometimes take years, experts said.

“This is a game of Whack-a-Mole. And the United States government needs to get incredibly good at Whack-a- Mole, period,” said former Pentagon official Gregory Allen, who now serves as Director of the Artificial Intelligence Governance Project at the Center for Strategic and International Studies. “This is a core competency of the US national security establishment – or it had better become one.”

Allen, who recently co-authored an investigation into the efficacy of US export controls, said ultimately, “there is no substitute for robust, in-house capabilities in the US government.”

He cautioned that it is not an easy job. The microelectronics industry relies heavily on third party distributors and resellers that are difficult to track, and the microchips and other small devices ending up in so many of the Iranian and Russian drones are not only inexpensive and widely available, they are also easily hidden.

“Why do smugglers like diamonds?” Allen said. “Because they’re small, lightweight, and worth a ton of money. And unfortunately, computer chips have similar properties.” Success won’t necessarily be measured in stopping 100% of transactions, he added, but rather in making it more difficult and expensive for bad actors to get what they need.

The rush to stop Iran from manufacturing the drones is growing more urgent as Russia continues to deploy them across Ukraine with relentless ferocity, targeting both civilian areas and key infrastructure. Russia is also preparing to establish its own factory to produce them with Iran’s help, according to US officials. On Monday, Ukrainian President Volodymyr Zelensky said that Ukrainian forces had shot down more than 80 Iranian drones in just two days.

Zelensky also said that Ukraine had intelligence that Russia “is planning a prolonged attack with Shaheds,” betting that it will lead to the “exhaustion of our people, our air defense, our energy sector.”

A separate probe of Iranian drones downed in Ukraine, conducted by the UK-based investigative firm Conflict Armament Research, found that 82% of the components had been manufactured by companies based in the US. 

Damien Spleeters, the Deputy Director of Operations at Conflict Armament Research, told CNN that sanctions will only be effective if governments continue to monitor what parts are being used and how they got there.

“Iran and Russia are going to try to go around those sanctions and will try to change their acquisition channels,” Spleeters said. “And that’s precisely what we want to focus on: getting in the field and opening up those systems, tracing the components, and monitoring for changes.”

Experts also told CNN that if the US government wants to beef up enforcement of the sanctions, it will need to devote more resources and hire more employees who can be on the ground to track the vendors and resellers of these products.

“Nobody has really thought about investing more in agencies like the Bureau of Industry Security, which were really sleepy parts of the DC national security establishment for a few decades,” Allen, of CSIS, said, referring to a branch of the Commerce Department that deals primarily with export controls enforcement. “And now, suddenly, they’re at the forefront of national security technology competition, and they’re not being resourced remotely in that vein.”

According to the Ukrainian assessment, among the US-made components found in the drone were nearly two dozen parts built by Texas Instruments, including microcontrollers, voltage regulators, and digital signal controllers; a GPS module by Hemisphere GNSS; a microprocessor by NXP USA Inc.; and circuit board components by Analog Devices and Onsemi. Also discovered were components built by International Rectifier – now owned by the German company Infineon – and the Swiss company U-Blox.

CNN sent emailed requests for comment last month to all the companies identified by the Ukrainians. The six that responded emphasized that they condemn any unauthorized use of their products, while noting that combating the diversion and misuse of their semiconductors and other microelectronics is an industry-wide challenge that they are working to confront.

“TI is not selling any products into Russia, Belarus or Iran,” Texas Instruments said in a statement. ” TI complies with applicable laws and regulations in the countries where we operate, and partners with law enforcement organizations as necessary and appropriate. Additionally, we do not support or condone the use of our products in applications they weren’t designed for.”

Gregor Rodehuser, a spokesperson for the German semiconductor manufacturer Infineon, told CNN that “our position is very clear: Infineon condemns the Russian aggression against Ukraine. It is a blatant violation of international law and an attack on the values of humanity.” He added that “apart from the direct business it proves difficult to control consecutive sales throughout the entire lifetime of a product. Nevertheless, we instruct our customers including distributors to only conduct consecutive sales in line with applicable rules.”

Analog Devices, a semiconductor company headquartered in Massachusetts, said in a statement that they are intensifying efforts “to identify and counter this activity, including implementing enhanced monitoring and audit processes, and taking enforcement action where appropriate…to help to reduce unauthorized resale, diversion, and unintended misuse of our products.”

Jacey Zuniga, director of corporate communications for the Austin, Texas-based semiconductor company NXP USA, said that the company “complies with all applicable export control restrictions and sanctions imposed by the countries in which we operate. Military applications are not a focus area for NXP. As a company, we are vehemently opposed to our products being used for human rights violations.”

Phoenix, Arizona-based semiconductor manufacturing company Onsemi also said it complies with “applicable export control and economic sanctions laws and regulations and does not sell directly or indirectly to Russia, Belarus or Iran nor to any foreign military organizations. We cooperate with law enforcement and government agencies as necessary and appropriate to demonstrate how Onsemi conducts business in accordance with all legal requirements and that we hold ourselves to the highest standards of ethical conduct.”

Swiss semiconductor manufacturer U-Blox also said in a statement that its products are for commercial use only, and that the use of its products for Russian military equipment “is in clear breach of u-blox’s conditions of sale applicable to customers and distributors alike.”

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Exclusive: Biden task force investigating how US tech ends up in Iranian attack drones used against Ukraine

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Washington
CNN
 — 

The Biden administration has launched an expansive task force to investigate how US and western components, including American-made microelectronics, are ending up in Iranian-made drones Russia is launching by the hundreds into Ukraine, multiple officials familiar with the effort tell CNN. 

The US has imposed tough export control restrictions and sanctions to prevent Iran from obtaining high-end materials, but evidence has emerged that suggests Iran is finding an abundance of commercially-available technology. 

Last month, the UK-based investigative organization  Conflict Armament Research examined  several drones that had been downed in Ukraine and found that 82% of their components were manufactured by companies based in the US. 

Among the components found in some of the drones are processors built by the Dallas-based technology company Texas Instruments, according to an investigation by the Ukrainian Armed Forces and a source familiar with the US inquiry, as well as an engine made by an Austrian firm owned by Canada’s Bombardier Recreational Products. Both companies have condemned any use of their technology for illicit purposes. 

Their apparently unintentional ensnarement in Iran’s drone manufacturing industry underscores how inexpensive products intended for civilian use can be easily retrofitted for military purposes, and often fall just outside the bounds of sanctions and export control regimes.  

Texas Instruments said in a statement to CNN that “TI is not selling any products into Russia, Belarus or Iran. TI complies with applicable laws and regulations in the countries where we operate, and partners with law enforcement organizations as necessary and appropriate. Additionally, we do not support or condone the use of our products in applications they weren’t designed for. ”

Bombardier Recreational Products  said in a statement that it was launching an investigation into how the engines ended up in the drones.

The investigation has intensified in recent weeks amid intelligence obtained by the US that the Kremlin is preparing to open its own factory for drone production inside Russia as part of a deal with Iran, the officials said. 

Iran has already begun transferring blueprints and components for the drones to Russia to help with production there, CNN has reported, in a dramatic expansion of the countries’ military partnership. 

Agencies across Washington are involved in the task force, including the departments of Defense, State, Justice, Commerce and Treasury, with one official describing the inquiry as an “all hands on deck” initiative. The effort is being overseen by the White House National Security Council as part of an even bigger, “holistic approach” to dealing with Iran, a senior administration official said, from its crackdown on protesters and its nuclear program to its deepening role in the war in Ukraine.

But the drone issue is particularly urgent given the sheer volume of US-made components, many of them manufactured in the last couple years, that have been found in the Iranian drones Russia has been deploying across Ukraine against civilians and critical infrastructure. 

Conflict Armament Research found that the Iranian drones they examined in Ukraine in November had “higher-end technological capabilities,” including tactical-grade sensors and semiconductors sourced outside of Iran, demonstrating that Tehran “has been able to circumvent current sanction regimes and has added more capabilities and resiliency to its weapons.”

National Security Council official John Kirby told reporters earlier this month that the US would be sanctioning three Russian companies involved in acquiring and using the Iranian drones, and is “assessing further steps we can take in terms of export controls to restrict Iran’s access to sensitive technologies.” 

Much of that work has fallen to the task force, officials said, and among its first tasks has been to notify all of the American companies whose components have been found in the drones. Congressional staffers briefed on the effort told CNN that they hope the task force provides lawmakers with a list of US companies whose equipment is being found in the drones in an effort to force greater accountability by urging the companies to monitor their supply chains more closely.

The task force is also having to coordinate with foreign allies, since the components being used in the drones are not limited to those produced by American companies.  Conflict Armament Research also found that “more than 70 manufacturers based in 13 different countries and territories” produced the components in the Iranian drones they examined.

In October, CNN obtained access to a drone that was downed in the Black Sea near Odesa and captured by Ukrainian forces. It was found to contain Japanese batteries, an Austrian engine and American processors. 

Iran may also be acquiring near-exact replicas of western components from China, according to a study published last month by the Washington-based Institute for Science and International Security. “China plays a larger role than previously assessed in enabling Iran to manufacture and supply drones to Russian forces,” the report found. “It appears that Chinese companies are supplying Iran with copies of Western commodities to produce UAV combat drones.”

The White House believes it is successfully driving home the scale of the issue with allies. The senior administration official told CNN that there was “growing broad and deep international consensus on Iran, from the EU to Canada to Australia and New Zealand, which is being led by US diplomacy.”

There is no evidence that any of the western companies are knowingly exporting their technology to be used in the drones, and that is partly why the task force’s job has been so difficult, officials said. 

The task force has its work cut out for it in tracing supply chains for the microelectronics industry, which relies heavily on third party distributors and resellers. The microchips and other small devices ending up in so many of the Iranian and Russian drones are not only inexpensive and widely available, they are also easily hidden. 

Iran also uses front companies to buy equipment from the US and EU that may have a dual use, like the Austrian engines, that Tehran can then use to build drones, according to the Treasury Department, which sanctioned several of those companies in September. 

 That makes supply chain monitoring a challenge, though experts say US and European companies could be doing a lot more to track where their products are going. 

“American companies should be doing a lot more to track their supply chains,” said Dmitri Alperovitch, the former chief technology officer at the cybersecurity firm CrowdStrike. 

Keeping better track of resellers is a first step, he said, but the task is admittedly difficult because so many of these companies’ products are so commoditized and available off-the-shelf and online for civil purposes. Ultimately, neutering some Iranian front companies with sanctions and cutting off their supply from some western companies will be akin to “a game of whack a mole,” Alperovitch said, noting that they “can easily find another supplier.”

He added that the real “weak underbelly” of US policy when it comes to export controls is enforcement—and prosecuting the specific individuals involved in the illicit transactions. 

“We have to beef up the resources for enforcement of our sanctions to achieve the desired effect,” Alperovitch said.

“You can put companies on the [sanctioned] entities list,” he added, “but if you don’t actually go after the people involved, it doesn’t mean a whole lot.” 

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When China and Saudi Arabia meet, nothing matters more than oil

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Hong Kong
CNN
 — 

Chinese leader Xi Jinping is visiting Saudi Arabia this week for the first time in nearly seven years, during which he signed a comprehensive strategic partnership with the world’s largest oil exporter and met leaders from across the Middle East.

The visit is a sign that China and the Gulf region are deepening their economic relations at a time when US-Saudi ties have crumbled over OPEC’s decision to slash crude oil supply. As Xi wrote in an article published in Saudi media, the trip was intended to strengthen China’s relations with the Arab world.

The partnership agreement signed by the two sides includes a number of deals and memoranda of understanding, such as on hydrogen energy and enhancing coordination between the kingdom’s Vision 2030 and China’s Belt and Road Initiative, according to the official Saudi Press Agency (SPA). It did not provide specific details.

China is Saudi Arabia’s biggest trading partner and a source of growing investment. It’s also the world’s biggest buyer of oil. Saudi Arabia is China’s largest trading partner in the Middle East and the top global supplier of crude oil.

“Energy cooperation will be at the center of all discussions between the Saudi-Chinese leadership,” said Ayham Kamel, head of Eurasia Group’s Middle East and North Africa research team. “There is great recognition of the need to build a framework to ensure that this interdependence is accommodated politically, especially given the scope of energy transition in the West.”

Governments around the world have committed to drastically cutting carbon emissions over the coming decades. Countries such as Canada and Germany have doubled down on renewable energy investments to expedite their transition to net-zero economies.

The United States has significantly increased domestic oil and gas output since the 2000s, while accelerating its transition to clean energy.

The Russian invasion of Ukraine in February has triggered a global energy crisis that has left all countries racing to shore up supplies. And the West has further scrambled the oil markets by slapping an embargo and price cap on the world’s second biggest exporter of crude.

Energy security has also increasingly become a key priority for China, which is facing significant challenges of its own.

Last year, bilateral trade between Saudi Arabia and China hit $87.3 billion, up 30% from 2020, according to Chinese customs figures.

Much of the trade was focused on oil. China’s crude imports from Saudi Arabia stood at $43.9 billion in 2021, accounting for 77% of its total goods imports from the kingdom. That amount also makes up more than a quarter of Saudi Arabia’s total crude exports.

“Stability of energy supplies, in terms of both prices and quantities, is a key priority for Xi Jinping as the Chinese economy remains heavily reliant on oil and natural gas imports,” said Eswar Prasad, a professor of trade policy at Cornell University.

The world’s second largest economy is heavily reliant on foreign oil and gas. 72% of its oil consumption was imported last year, according to official figures. 44% of natural gas demand was also from overseas.

At the 20th Party Congress in October, Xi stressed that ensuring energy security was a key priority. The comments came after a spate of severe power shortages and soaring global energy prices following Russia’s invasion of Ukraine.

As the West shunned Russian crude in the months that followed the invasion, China took advantage of Moscow’s desperate search for new buyers. Between May and July, Russia was China’s No. 1 oil supplier, until Saudi Arabia regained the top spot in August.

“Diversity is a key ingredient for China’s long-term energy security because it cannot afford to put all of its eggs in one basket and turn itself into a captive of another power’s energy and geostrategic interests,” said Ahmed Aboudouh, a nonresident fellow with the Middle East Programs at the Atlantic Council, a research institute based in DC.

“Although Russia is a source of cheaper supply chains, nobody can guarantee, with utmost certainty, that the China and Russia relationship will continue to shore up 50 years from now,” Aboudouh said.

The Saudi Press Agency cited Saudi energy minister Prince Abdulaziz bin Salman as saying Wednesday that the kingdom would remain China’s “credible and reliable partner in this field.”

Saudi Arabia also has strong motivations to deepen energy ties with China, according to Gal Luft, co-director of the Institute for the Analysis of Global Security.

“The Saudis are concerned about losing market share in China in the face of a tsunami of heavily discounted Russian and Iranian crude,” he said. “Their goal is to ensure China remains a loyal customer even when the competitors offer [a] cheaper product.”

Oil prices have fallen back to where they were before the Ukraine war on fears of a sharp global economic slowdown. The extent to which the Chinese economy can pick up pace next year will have a huge bearing on how bad that slump will be.

Beyond security of supply, Saudi Arabia could offer Beijing another prize with bigger geopolitical ramifications.

Riyadh has been in talks with Beijing to price some of its oil sales to China in the Chinese currency, the yuan, rather than the US dollar, according to a Wall Street Journal report. Such a deal could be a boost to Beijing’s ambitions to expand the Chinese currency’s global influence.

It would also hurt the long-standing agreement between Saudi Arabia and the United States that requires Saudi Arabia to sell its oil only for US dollars and to hold its reserves partly in US Treasuries, all in return for US security guarantees. The “petrodollar system” has helped preserve the dollar’s status as the top global reserve currency and payment medium for oil and other commodities.

Although Beijing and Riyadh never confirmed the reported talks, analysts said it was logical that the two sides would be exploring the possibility.

“In the near future, Saudi Arabia could sell some of its oil and receive revenues in Chinese yuan, which makes economic sense as China is the kingdom’s top trading partner,” said Naser Al Tamimi, senior associate research fellow at ISPI, an Italian think tank on international affairs.

Some believe it’s already happening, but that neither China nor the Saudis want to highlight it publicly.

“They know too well how sensitive this issue [is] for the United States,” said Luft. “Both parties are overexposed to the US currency and there is no reason for them to continue to conduct their bilateral trade in a third party’s currency, especially when this third party is no longer a friend of either.”

Xi’s visit could mark another step “in the erosion of the dollar’s status” as reserve currency, he added.

Nonetheless, there are limits to the growing ties between Riyadh and Beijing.

“The Biden administration’s approach to the Middle East has concerned the Saudis, and they see a growing relationship with China as a hedge against potential US abandonment and a tool for leverage in negotiations with the United States,” said Jon B. Alterman, director of the Middle East Program at the Center for Strategic and International Studies, a Washington DC-based think tank.

The Biden administration has reoriented its policy priorities with a focus on countering China. At the same time, it has indicated its intention to downsize its own presence in the Middle East, sparking worries among allies there that the United States may not be as committed to the region as it used to be.

“All that being said, Chinese-Saudi ties pale in both depth and complexity to Saudi-US ties,” Alterman said. “The Chinese remain a novelty to most Saudis, and they are additive. The United States is foundational to how Saudis see the world, and how they have seen it for 75 years.”

Despite the possibility of shifting to yuan transactions, it’s too early to say Saudi Arabia would ditch the dollar in pricing its oil sales, analysts said.

Eurasia Group’s Kamal believes it’s “highly unlikely” that Saudi Arabia would take such a step, unless there is an implosion on the US-Saudi relationship.

“In essence there could be discussion on pricing of barrels to China in yuan, but this would be limited in size and probably only correspond to bilateral trade volumes,” he said.

Prasad from Cornell University said countries like China, Russia, and Saudi Arabia are all eager to reduce their dependence on the dollar for oil contracts and other cross-border transactions.

“However, in the absence of serious alternatives and with few international investors willing to place their trust in these countries’ financial markets and their governments, the dollar’s dominant role in global finance is hardly under serious threat,” he said.

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The West just scrambled the oil market. What happens next is up to Russia

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London
CNN Business
 — 

Most Russian crude oil exports to Europe are now banned, marking the boldest effort yet by the West to pile financial pressure on President Vladimir Putin as his brutal war in Ukraine enters its tenth month.

The oil embargo, which was agreed upon in late May, took effect in the European Union on Monday. It was accompanied by a new price cap on Russian crude set by G7 countries. That’s designed to limit the Kremlin’s revenues while allowing countries such as China and India to continue to buy Russian oil, provided they don’t pay more than $60 a barrel.

What happens next will likely hinge on the response from Moscow, which has vowed not to cooperate with the price cap and could slash its production, rattling global energy markets. Global crude prices were up 2.6% on Monday as investors watched nervously for the next move.

Here’s what you need to know about the oil embargo, the price cap and the potential impact.

The European Union now prohibits Russian crude oil imports by sea, setting up the bloc to have phased out 90% of oil imports from Russia. It’s a huge move given that Europe received roughly a third of its oil imports from Russia in 2021. More than half of Russia’s exports went to Europe 12 months ago.

There are a few exceptions. Bulgaria received a temporary carve-out. The embargo also doesn’t target imports via pipeline. That means the Druzhba pipeline can continue to supply Hungary, Slovakia and the Czech Republic. (Germany and Poland are working to end pipeline imports from Russia as soon as possible.)

But the embargo is significant. In 2021, the EU imported €48 billion ($50.7 billion) worth of crude oil and €23 billion ($24.3 billion) of refined oil products from Russia. Two-thirds of those imports arrived by sea.

A ban on Russian refined oil products, such as diesel fuel, imported by sea will launch in early February.

The European Union, plus the other members of the G7 — the United States, Canada, Japan and the United Kingdom — and Australia also agreed on Friday to cap the price of Russian crude oil at $60 a barrel, a policy aimed at Moscow’s other customers. This measure took effect Monday, too.

The price cap, which can be adjusted over time, is designed to be enforced by companies that provide shipping, insurance and other services for Russian oil. If a buyer pays more than the cap, they would withhold their services, in theory preventing the oil from being shipped. Most of these firms are based in Europe or the United Kingdom.

Despite unprecedented sanctions from the West, Russia’s economy and the government’s coffers have been padded by its lucrative position as the world’s second largest exporter of crude oil behind Saudi Arabia.

In October, Russia exported 7.7 million barrels of oil per day, just 400,000 barrels below pre-war levels, according to the International Energy Agency. Revenues from crude oil and refined products currently stand at $560 million per day.

By quickly phasing out imports, Europe hopes to limit inflows to Putin’s war chest, making it harder for him to continue his war in Ukraine.

But countries like China and India have stepped in buy surplus barrels. That’s where the price cap comes in.

G7 countries don’t want Russian oil taken off the market entirely, since that would push up global prices at a time when high inflation is hurting their economies. By enacting a price cap, they hope that can keep barrels flowing, but make the business less profitable for Moscow.

That’s far from certain. Countries like Poland and Estonia wanted a lower price cap, emphasizing that $60 is too close to the current market price for Russian oil. At the end of September, Russian Urals crude was trading just under $64 a barrel.

“Today’s oil price cap agreement is a step in right direction, but this is not enough,” Estonian foreign minister Urmas Reinsalu tweeted Friday. “Why are we still willing to finance Russia’s war machine?”

Enforcement could also prove difficult. Russia and its customers could start using more ships and insurance providers outside Europe and the United Kingdom to circumvent the rules, increasingly relying on what’s termed a “shadow fleet.”

“Capacity in that fleet has been growing, and it could probably handle Russian volumes for a while,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm.

Kremlin spokesperson Dmitry Peskov said Monday that Moscow will “not recognize any price caps.” Russian Deputy Prime Minister Alexander Novak said Sunday that Russia would not export oil to countries adhering to the cap, even if that will mean cutting production.

Oil prices have fallen sharply since the spring as fears about a global recession that may hit demand have come to the fore. Now, all eyes are on Russia’s response. Peskov said the price cap was a step towards “destabilizing the world energy markets.”

Moscow needs to find replacement customers for 1.1 million barrels per day of crude that had still been flowing to Europe, according to the IEA. That may not be easy, especially as coronavirus restrictions and a growth slowdown in China affect demand from the world’s second biggest economy.

The price cap adds to the uncertainty. Would-be customers may decide buying Russian cargoes has become too risky and complex, taking another batch of buyers off the market.

As the Kremlin has threatened, Russia may reduce its oil output as a result. The IEA has estimated Russia will slash output by an additional 1.4 million barrels per day by early 2023.

Other factors will dictate prices, too. Rare protests in China have raised questions about the country’s commitment to its “zero-Covid” policy, and demand could increase if its economy picks up pace.

The Organization of the Petroleum Exporting Countries, or OPEC, could also alter its output. The cartel on Sunday decided to stick with previously announced production cuts, giving it more time to assess the effects of the embargo and the price cap.

Europe’s embargo on refined oil products in February could also be a flash point for energy prices, since the region remains dependent on Russian diesel. Finding alternative sources in just two months may be tricky.

— Anna Chernova contributed reporting.



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Business

Russian oil sanctions are about to kick in. And they could disrupt markets in a big way

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European oil sanctions are due to kick in on December 5. The idea is to reduce oil revenues for Russia given its war in Ukraine.

Andrey Rudakov | Bloomberg | Getty Images

Upcoming sanctions on Russian oil are set to be “really disruptive” for energy markets if European nations fail to set a cap on prices, analysts warned.

The 27 countries of the European Union agreed in June to ban the purchase of crude oil from Dec. 5. In practical terms, the EU — together with the United States, Japan, Canada and the U.K. — want to drastically cut Russia’s oil revenues in a bid to drain the Kremlin’s war chest following its invasion of Ukraine.

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However, concerns that a complete ban would send crude prices soaring led the G-7 to consider setting a cap on the amount it will pay for Russian oil.

An outright ban on Russian imports could be “really disruptive” to markets, according to Henning Gloystein, director of energy, climate and resources at political risk consultancy Eurasia Group.

The potential for rising oil prices is “why there’s pressure from the U.S.” to agree on a cap, Gloystein told CNBC Wednesday.

A price limit would see G-7 nations buy Russian oil at a lower price, in an effort to reduce Russia’s oil income without raising crude prices across the globe.

However, EU nations have been in dispute for several days over the right level to cap prices.

The right oil cap

A proposal discussed earlier this week suggested a limit of $62 a barrel, but Poland, Estonia and Lithuania refused to agree to it, arguing it was too high to dent Russia’s revenues. These nations have been among the most vocal in pushing for action against the Kremlin for its aggressions in Ukraine.

Speaking to CNBC’s Julianna Tatelbaum Wednesday, the Dutch energy minister said a cap on Russian oil prices was “a very important next step.”

“If you want effective sanctions that are really hurting the Russian regime, then we need this oil cap mechanism. So hopefully we can agree on it as soon as possible,” Rob Jetten said.

On Wednesday, Russian oil traded at about $66 a barrel. Officials at the Kremlin have repeatedly said that a price cap is anti-competitive and they will not sell their oil to countries that have implemented the cap.

They’re hoping that other major buyers — such as India and China — won’t agree to the limit and so will continue to purchase Russian oil.

China and India

G-7 nations agreed to impose a limit on Russian oil back in September, and have been working on the details ever since. At the time, the EU’s energy chief, Kadri Simson, told CNBC she was hoping China and India would support the price cap too.

Both nations stepped up their purchases of Russian oil following Moscow’s invasion of Ukraine, benefiting from discounted rates. Their participation is seen as essential if the restrictions on Russian oil are to work.

“China and India are crucial as they buy the bulk of Russian oil,” Jacob Kirkegaard, senior fellow at the Peterson Institute For International Economics, told CNBC.

“They won’t commit, however, for political reasons, as the cap is a U.S.-sponsored policy and [for] commercial reasons, as they already get a lot of cheap oil from Russia, so why jeopardize that? Thinking they would voluntarily join was always naive as Ukraine is not that important to them.”

India’s Petroleum Minister Shri Hardeep S Puri told CNBC in September he has a “moral duty” to his country’s consumers. “We will buy oil from Russia, we will buy from wherever,” he added.

As such, there are growing doubts about the true impact of the restrictions on Russia.

“Energy sanctions against Russia have come too late and are too timid,” Guntram Wolff, director at the German Council on Foreign Relations, said via email.

“This is just a continuation of an unfortunate series of timid decisions. The longer and later the sanctions come, the easier it will be for Russia to circumvent them.”

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World

South Korea’s booming arms industry rolls out the big guns in bid for global reach

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Changwon, South Korea
CNN
 — 

With a blinding yellow flash and a concussion that shakes bones, K9 self-propelled howitzers launch artillery shells onto a hill that’s just been hit by rockets fired from helicopters. Then K2 tanks roar in, speeding up roads and firing as they go.

This is part of DX Korea, a four-day South Korean defense expo held in September at a firing range in Pocheon, about 30 kilometers (18.6 miles) from the North Korean border.

The display – presented to a crowd of 2,000 people including military officials from more than two dozen countries – is one way South Korea sells weapons.

And President Yoon Suk Yeol wants to sell more of them – enough for Seoul to jump four places up the ranks to become the world’s fourth-biggest arms exporter.

“By entering the world’s top four defense exporters after the United States, Russia and France, the (South Korean) defense industry will become a strategic industrialization and a defense powerhouse,” Yoon said.

To do that, South Korea will have to outsell – in ascending order – the United Kingdom, Italy, Germany and finally China, which held 4.6% of the export market in the 2017-2021 period, according to the authoritative Stockholm International Peace Research Institute (SIPRI).

That’s no easy task, yet Seoul is already well on its way. From 2012 to 2016, it had just 1% of the global market. It more than doubled that in the following five-year period, capturing 2.8% – by far the largest increase among any of the world’s top 25 arms exporters.

In 2021, it sold $7 billion worth of weapons overseas, according to the Export-Import Bank of Korea.

And the South Korean defense industry believes it has the arsenal to grab an even bigger slice of the pie.

South Korea’s weapons exports have ballooned in recent years, but the country has been building its arms industry for decades, spurred on by its troubled relationship with its northern neighbor.

As of 2020, military expenditures represented 2.8% of South Korea’s gross domestic product, according to SIPRI, well above the 2% threshold considered a minimum by many US allies.

“The North Korean threat has given us a good reason, a motivation to make sure that our weapons are very good,” says Chun In-bum, a former lieutenant general in the South Korean Army.

Technically, the Korean War never ended, because the document that stopped the combat in 1953 was an armistice, not a peace treaty.

In the first decades after the fighting ended, South Korea’s defense was heavily dependent on American troops and weaponry.

Things began to change in the 1970s, when the US was distracted by the war in Vietnam and the Cold War with the Soviet Union.

South Korea began to take more responsibility for its own defense and invested $42 million in US military aid in factories to produce M-16 rifles, according to the Korea Development Institute (KDI).

By the end of the decade, Korean researchers under the direction of the country’s National Defense Science Institute had succeeded in making all basic weaponry, according to a 2014 KDI report.

With the ever-present threats from the North, Seoul initiated a National Defense Tax to pay for the development of a modern military, including the armored systems and other military equipment that Korean defense companies are marketing today.

Back on the hillside after the live-fire demonstration, prospective customers listened intently to the pitches of the South Korean representatives.

Delegations had arrived from as far afield as Mexico, Thailand, Nigeria and the Philippines. An Indian general asked for the ranges of a weapon on display. Qatari officers inspected a K2 up close.

Conspicuously, none of the potential customers were from Ukraine.

But that doesn’t mean South Korea’s arms industry isn’t seeing a role in Ukraine’s war with Russia.

A US defense official told CNN this month that Washington intends to buy 100,000 rounds of artillery ammunition from South Korean arms manufacturers to provide to Ukraine.

The rounds will be transferred to Ukraine via the US, allowing Seoul to stick to its public pledge that it would not send lethal aid to the war-torn country.

In a statement issued after the planned purchase was first revealed in The Wall Street Journal, the South Korean Defense Ministry said it had not changed its position on shipping weapons to Ukraine, and that it believed the “end user” of the ammunition was the US.

Russian President Vladimir Putin had said late last month that South Korea had decided to send “arms and ammunition” to Kyiv, which would “ruin our relations” with them – a claim denied a day later by President Yoon.

A South Korean presidential decree that enforces the country’s Foreign Trade Act says its exports can only be used for “peaceful purposes” and “shall not affect international peace, safety maintenance, and national security.”

South Korea is also a signatory to the United Nations’ Arms Trade Treaty, ratified in 2014 with the intention of keeping close control on who gets weapons and under what conditions they can be used. Ukraine is a signatory but hasn’t ratified it.

But the planned US ammunition transfer isn’t the only way the influence of South Korea’s arms industry will be felt in Ukraine.

In September, South Korea signed a deal with Poland for its biggest arms sale ever, in which it will supply Warsaw with almost 1,000 of Hyundai Rotem’s K2 tanks, more than 600 of Hanwha’s K9s, and dozens of fighter jets from Korean Aerospace Industries.

The deal will enable Poland to replace many of the weapons that Warsaw has sent to Kyiv.

“Poland needed weapons to defend themselves, and that’s exactly what we’re providing,” Chun says. “We Koreans understand that without weapons to defend yourself, the end result is a tragedy.”

The constant threat of a North Korean attack is one reason military production lines were established in the southern port city of Changwon, the cradle of South Korea’s modern arms industry.

The city is in a natural basin, surrounded by mountains on all sides, making it easier to defend. The city’s main road, Changwon-daero, has a 14.9-kilometer (9.25-mile) stretch that can double as a runway in times of national emergency.

At its southern end is the Changwon National Industrial Complex, established in the 1970s and home to the Hanwha Defense and Hyundai Rotem factories, where artillery pieces and tanks trundle off the assembly lines.

Overseas orders are rolling in this year, notably the landmark deal with Poland which the Korea Defense Industry Association estimates to be worth $15.3 billion.

Hanwha puts its share of that agreement at $2.4 billion, its largest contract for the K9.

Poland is one of nine countries – alongside South Korea, Turkey, Finland, India, Norway, Estonia, Australia and Egypt – to buy the howitzer from Hanwha.

Lee Boo-hwan, an executive vice president of Hanwha Defense’s overseas business division, says the company wants to be a long-term partner to countries that buy its weapons. To that end, it is setting up new manufacturing facilities in Australia, Egypt and Poland.

“My workers are very happy to share our technology,” Lee says. “It is our main strategic focus to enter (new) markets.”

It’s also about continuously updating and improving the product, he says, and that’s happening inside South Korea.

The company has already prototyped the K9A2 tank, which situates the crew outside the turret to make them less vulnerable to attack, and is developing “a more futuristic, next generation version,” Lee says.

“It is fully automated operation, unmanned platform,” with artificial intelligence to let it learn on the battlefield, he says.

At a sprawling, modern complex in Changwon, Hanwha’s robots churn out the artillery pieces for K9s at the rate of one unit every three to five days.

A combination of robots and humans combine on a seven-station assembly line to put together what will eventually be 47 metric tons of steel, machinery and electronics.

One robot, more than two stories high, welds the turrets, the brightness of the white-hot procedure lighting up the cavernous assembly building.

Further down the line, another robot bores holes in the green-painted steel, switching bits automatically as it goes about its work with an accuracy of 1/100th of a millimeter, thinner than a human hair, according to a Hanwha Defense official.

Once the robots are done, it is the turn of Hanwha’s workers. Each hull as it goes along the line bears the pictures of 11 of them.

“We provide excellence by name,” says Lee, the Hanwha executive vice president.

At each assembly station, there’s a “tollgate,” with green, yellow and red lights. Any worker can stop the line with a red light and summon engineers if they spot a problem.

At the final stop is the bore sighting, where the accuracy of the K9’s gun is tested on a target at the far end of the workspace.

The completed units then go outside for performance testing, causing the ground to vibrate as they roar along a paved road near their top speed of 67 kilometers per hour (42 mph).

Test drivers spin the tracked howitzer one way then the other, the rubber pads on the tracks leaving donuts on the concrete.

As the drivers put the units through their paces, Lee explains how Hanwha customizes K9s for its overseas customers: those bound for northern climates like Norway get extra heat sources for the crew; those made for hotter places like India or Egypt get more air conditioning. Some of the factory’s K9s are headed for Poland this year.

Jack Watling, senior research fellow for land warfare at the Royal United Services Institute in London, says South Korea is the perfect testing ground.

Its seasons range from deep-freeze winters to monsoons and summer heat of 30 degrees Celsius or higher – and it has both flat and mountainous terrain.

“That is a pretty unique set of complex variables in terms of having a vehicle that’s reliable across climatic conditions,” Watling says.

And that’s attracted foreign buyers, he says.

Just a few miles from where the K9 artillery pieces are being tested, the K2 tanks at the Hyundai Rotem factory are being put through their paces.

Again, the latest customer is Poland.

“This is our first time directly exporting our (K2),” says Kim, the Hyundai Rotem VP.

Orders from South Korea’s military keep the K2 assembly line busy enough – but the Polish order means Hyundai Rotem can add capacity.

This is essentially like buying a new car off the lot. In the tank world, you can’t quite drive your new K2 home that day, but you get the idea.

“The most important thing is that it is currently being produced,” Kim says.

Hanwha Defense has its eyes on one market in particular – the United States, the world’s largest defense market.

“We want to enter the US market with support from a US local company and also, we want to contribute to the US Army and the US local defense industry,” says Lee, the Hanwha VP.

In 2021, US military spending was $801 billion. But South Korean weapons and ammunition exports to the US accounted for only $95 million, according to the US Commerce Department.

Overall, US military spending was more than the next nine countries combined, according to SIPRI. South Korea ranked 10th.

But the South Korean defense industry should be seen as a partner that complements its American counterpart, rather than competes with it, Chun says.

That massive US military budget includes huge expenditure on top-shelf items. That’s not what Seoul is selling, he points out.

“There are portions of a spectrum of weapons that the United States does not make, because they feel they don’t need to. It doesn’t make a profit for their industry. That’s what we’re targeting. The systems that we have sold to Poland are exactly those kind of systems,” he says.

“I’m hoping that the United States understands that this is a partnership,” Chun adds.

“The United States makes the greatest and best weapons in the world,” he says, “but they don’t make all of them.”

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World

Wave of Russian missiles hit Ukraine after Zelensky outlines conditions for peace at G20 summit

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Kyiv, Ukraine
CNN
 — 

Russia launched its biggest wave of missile attacks on Ukrainian cities in more than a month on Tuesday – hours after Ukrainian President Volodymr Zelensky proposed a peace plan in front of world leaders at the G20 summit in Indonesia.

Air raid sirens sounded out across Ukraine shortly after its leader outlined a 10-point plan including the withdrawal of Russian troops and the restoration of Ukraine’s territorial integrity.

The strikes targeted power infrastructure in several regions of the country, leaving more than seven million Ukrainians without power and the supply of electricity in a critical condition, according to senior Ukrainian officials.

The deputy head of the Ukrainian Presidential Office, Kyrylo Tymoshenko, said that 15 facilities of Ukraine’s energy infrastructure had been damaged during the Russian missile strikes, but Ukrainian air defenses had shot down 70 of more than 90 missiles fired at Ukraine.

Two missiles or rockets also reportedly hit a farm in Poland near the border with Ukraine, killing two people, according to Polish media. It is unclear where the projectiles came from, but they landed roughly the same time as a Russian missile attack on western Ukraine.

Two projectiles reportedly hit Poland around the same time as the Russian onslaught in Ukraine, with Polish media showing an image of a deep impact and upturned farm vehicle at the site, near the town of Przewodow.

A government spokesman said that Prime Minister Mateusz Morawiecki has convened the Committee of the Council of Ministers for National Security and Defense Affairs.

Poland is a NATO member state, and the defense alliance is looking into the matter, a NATO official told CNN.

Fellow NATO members the United States and the United Kingdom remained circumspect in their statements about the incident.

A senior White House official said they do not have confirmation of any rocket or missile strike in Poland, but that US officials are currently working to try and figure out exactly what has happened.

Zelensky in contrast blamed Russia for incident, which was echoed by NATO member Latvia. “The terror is not limited to our national borders,” Zelensky said in his daily address.

Amid speculation over the projectiles’ origin, Russia’s Defense Ministry denied responsibility, saying there were “no strikes made on targets near the Ukrainian-Polish state border.” Polish authorities also have not confirmed that Russian missiles landed in their territory.

At least a dozen cities and districts in Ukraine were targeted by Rusisan strikes, according to a CNN analysis of the missile strikes. The wave of strikes appears to be the largest since October 10, when Russia stepped up its campaign to destroy electricity, water and gas infrastructure across Ukraine.

In a video message posted to Telegram on Tuesday evening local time, Zelensky said that 85 missile strikes had been launched against Ukraine so far, and warned there may be more to come.

“We can see what the enemy wants, they will not succeed,” he said. “We may yet have 20 more strikes, please look after yourselves, stay in shelter for some time.”

In the capital, Kyiv, the city military administration said that one person had been killed. Two explosions had been heard, it added, instructing residents to remain in shelters. It said four missiles had been shot down.

Kyiv mayor Vitaliy Klitschko then said there had been a third strike. “Another hit in Pechersk district of Kyiv city. A high-rise building,” Klitschko said.

Power supplies were disrupted to several Ukrainian regions as a result of the missile strikes.

State power supplier Ukrenergo said the Russians were “trying to turn off the lights in the country again.”

“The attack is still ongoing, we cannot yet estimate the full extent of the damage, there are strikes on our infrastructure in all regions of the country, but the most difficult situation is in the northern and central regions,” it added.

In his video message, Zelensky said that authorities are working to restore power. “We will withstand,” he said.

In addition the country “is currently experiencing a major internet disruption,” according to Netblocks, which tracks cybersecurity and connectivity around the world, with connectivity at 67% of previous levels.

Neighboring Moldova also suffered power cuts following the Russian strikes on Ukraine, Moldovan Deputy Prime Minister and Infrastructure Minister Andrei Spinu said on Tuesday.

Spinu said in a post on his Telegram account that “following Russia’s bombardment of the Ukrainian power system,” one of the power lines carrying electricity to Moldova has been disconnected. Authorities are working to restore the connection to the line, which was not damaged but was disconnected as a safety measure, he added.

Earlier on Tuesday, Zelensky set out a proposal for ending the Russian invasion, according to a transcript shared by the Embassy of Ukraine in Indonesia on Tuesday.

The president’s peace plan has 10 steps including a path to nuclear safety, food security, a Special Tribunal for Russian war crimes, and a final peace treaty with Russia, according to the speech transcript.

He urged G20 leaders to use all of their power to “make Russia abandon nuclear threats” and implement a price cap on energy imported from Moscow.

Zelensky also called on Russia to stop bombing Ukraine’s energy infrastructure as winter approaches.

“Let Russia prove by its rejection of terror that it is really interested in the restoration of peace,” he said.

Moscow has been isolated at this year’s G20 summit as multiple Western leaders vowed not to have any contact with its Foreign Minister Sergey Lavrov, who is in attendance on behalf of the Kremlin.

World leaders condemned Tuesday’s strikes. At the summit, British Foreign Secretary James Cleverly said in a tweet that the attacks targeting Ukrainian cities “shows only Putin’s weakness,” who “is losing on the battlefield and – as we saw today at the G20 – diplomatically too.”

German Foreign Minister Annalena Baerbock said “at the moment we are hearing again of brutal Russian missile attacks on Kyiv, Kharkiv and Lviv and other places, and especially again on civilian infrastructure,” during remarks on Tuesday with the International Atomic Energy Agency (IAEA) chief Rafael Grossi in Berlin.

She added that the attack “is also an unprecedented attack on nuclear safety and nuclear security.”

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Business

Japan’s economy shrinks for first time in a year

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Japan’s economy unexpectedly shrank for the first time in a year in the third quarter, stoking further uncertainty about the outlook as global recession risks, a weak yen and higher import costs took a toll on household consumption and businesses.

The world’s third biggest economy has struggled to motor on despite the recent lifting of Covid curbs, and has faced intensifying pressure from red-hot global inflation, sweeping interest rate increases worldwide and the Ukraine war.

Gross domestic product fell an annualized 1.2% in July-September, official data showed, compared with economists’ median estimate for a 1.1% expansion and a revised 4.6% rise in the second quarter.

It translated into a quarterly decline of 0.3%, versus a forecast 0.3% growth.

On top of being squeezed by a global slowdown and soaring inflation, Japan has been dealing with the challenge of the yen’s slide to 32-year lows against the dollar, which has magnified cost-of-living strains by further lifting the price of everything from fuel to food items.

“The contraction was unexpected,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute, adding that the biggest aberration were the larger-than-expected imports.

“But the three key pillars of demand – consumption, capital expenditure and exports – remained in positive territory, if not robust, so demand is not as weak as the headline figure shows.”

However, the risks to Japan’s outlook have risen as the global economy teeters on the brink of recession.

Economy Minister Shigeyuki Goto said a global recession could hit households and businesses.

At home, policymakers and citizens are bracing for a potential eighth wave of the Covid pandemic, adding to the gloom for private consumption which makes up more than half of the Japanese economy.

In the third quarter, private consumption grew 0.3%, a touch above consensus estimate for 0.2% growth but slowing sharply from the second quarter’s 1.2% gain.

“Growth should turn positive in Q4, amid a rebound in inbound tourism and a smaller trade deficit, but the eighth virus wave and rising inflation will limit the recovery,” said Darren Tay, Japan Economist at Capital Economics.

Tay noted that non-residential investment increased by 1.5% quarter-on-quarter, below consensus of a 2.1% rise and Capital Economics’ own estimate for a strong 3% growth rate.

Exports grew by 1.9% but were overwhelmed by hefty gains in imports, meaning external demand subtracted 0.7 percentage points from GDP.

Prime Minister Fumio Kishida’s government is stepping up support for households to try to ease the effects of inflation, with 29 trillion yen ($206.45 billion) in extra spending in the budget. The Bank of Japan has also maintained its ultra-loose monetary stimulus program to help revive the economy.

Capital Economics’ Tay sees a tough 2023 for Japan.

“As for 2023, Japan will be dragged into a mild recession in H1 by a global downturn that will weigh on exports and business investment.”

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World

Biden aims to assert American leadership abroad at UN climate summit and G20

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Sharm El Sheikh, Egypt
CNN
 — 

It’s a story President Joe Biden tells at nearly every opportunity: last year, meeting his new counterparts at his first international summit, he proudly informed them, “America is back.”

“For how long?” one of them asked.

As Biden departs this week for a weeklong around-the-world trip, the question still resonates.

“They’re very concerned that we are still the open democracy we’ve been and that we have rules and the institutions matter,” Biden said Wednesday during a news conference.

Biden hopes his stops at a climate meeting here on the Red Sea, a gathering of Southeast Asian nations in Cambodia and a high-stakes Group of 20 summit on the Indonesian island of Bali will assert American leadership in areas former President Donald Trump either ignored or actively shunned.

“If the United States tomorrow were to, quote, withdraw from the world, a lot of things would change around the world. A whole lot would change,” Biden said ahead of his trip.

He and his advisers believe they are entering the series of high-stakes meetings with a solid argument his version of the US role in the world will endure. He resisted historical and political headwinds in this year’s midterm elections while many of Trump’s handpicked candidates lost. And over the past year, he secured passage of a major climate investment and rallied the world behind efforts to support Ukraine and isolate Russia.

Yet the anxieties of American allies persist over the future of US commitments – to Ukraine, to fighting climate change, to treaty partners and, perhaps most urgently, to upholding Democratic norms. Foreign diplomats have watched intently as the midterm political season played out, searching for clues at how the American electorate was judging Biden’s first two years in office and reporting back to their capitals on voter dissatisfaction that could fuel Trump’s return to office.

Republicans appeared to be moving toward gaining control of the House of Representatives as of Wednesday night. And Trump is readying a third presidential bid, potentially to be announced while Biden is on the opposite side of the planet.

White House aides have not voiced concern at the potential split-screen, believing foreign policy to be among the president’s strengths, particularly when compared to Trump’s chaotic style of diplomacy.

“We just have to demonstrate that he will not take power,” Biden said Wednesday. “If he does run, making sure he, under legitimate efforts of our Constitution, does not become the next president again.”

Presidents have often turned to foreign policy, where they can act with relatively few congressional restraints, at moments of domestic political turmoil. President Barack Obama launched a similar tour of Asia after his self-described “shellacking” in the 2010 midterms.

Four defining global threats will loom over Biden’s trip: Russia’s war in Ukraine, escalating tensions with China, the existential problem of climate change and the potential for a global recession in the coming months. Other flashpoints, like North Korea’s rapidly accelerating provocations and uncertainty over Iran’s nuclear program, will also factor in.

Of those, defending Ukraine and combating climate change could be the most impacted by results from this week’s election.

At the G20 summit, Biden hopes to rally leaders from the world’s developed economies behind his 10-month effort to isolate and punish Russia for its invasion of Ukraine. He isn’t planning to meet Russian President Vladimir Putin, who won’t be attending the meeting in person and is considering whether to participate virtually.

Global economic headwinds have tested international resolve for the pressure campaign, however, and world leaders have worked with varying levels of intensity toward finding a diplomatic end to the conflict.

Some Trump-aligned House Republicans have called for cutting funding to Ukraine, though other GOP defense hawks have vowed not to abandon the country amid its war with Russia.

House Republican Leader McCarthy, in an interview with CNN this week, attempted to reaffirm his support for Ukraine while saying they would not automatically rubber stamp any additional requests for aid.

“I’m very supportive of Ukraine,” McCarthy said. “I think there has to be accountability going forward. … You always need, not a blank check, but make sure the resources are going to where it is needed. And make sure Congress, and the Senate, have the ability to debate it openly.”

At the United Nations climate summit in Egypt, Biden arrives having signed the largest US investment in fighting climate change ever, a dramatically different scenario from previous international meetings – including last year’s gathering in Scotland – where American commitments to carbon reduction weren’t backed by law.

“We’ve seen the United States go from a global laggard to a global leader in less than 18 months,” a senior administration official said this week.

The $375 billion commitment will provide Biden leverage as he works to convince other countries to step up their own efforts to reduce greenhouse gas emissions, all with the goal of limiting global warming to 1.5 degrees Celsius.

In his speech, Biden will call on nations to “really keep their eyes on the ball when it comes to accelerating ambitious action to reduce emissions,” the official said. And he will highlight his administration’s intent to propose a rule this week requiring large federal contractors to develop carbon reduction targets and disclose their greenhouse gas emissions, leveraging the federal government’s purchasing power to combat climate change in the private sector and bolster vulnerable supply chains.

But Republicans have said they will work to repeal parts of the law, and have accused Biden of contributing to rising energy prices by blocking the extraction of fossil fuels, which contribute to climate change.

When Trump was president, he withdrew the US altogether from the Paris Climate Accord, the agreement leaders are meeting to discuss the week.

Even absent the American political uncertainty, there are concerns rising energy costs and a looming recession could dampen resolve toward transitioning to cleaner energy. US officials have moderated expectations for this year’s summit, which Biden is only expected to attend for a few hours.

In Congress, Biden has achieved more bipartisan success in his efforts to counter China, the other major issue he will confront this week. A recently passed law meant to bolster the American semiconductor industry earned Republican and Democratic votes, partly because it promised to wean the US off its dependence on Chinese products.

Biden’s aides worked over the past month to arrange his first face-to-face meeting with Chinese President Xi Jinping since taking office, even as tensions simmer between Washington and Beijing. The meeting will take place on Monday at the G20 in Indonesia. House Speaker Nancy Pelosi’s visit in August to self-governing Taiwan enraged Chinese leaders and led to a near-shutoff of communication with the US.

Biden said Wednesday he and Xi would lay out “what each of our red lines are” and discuss issues they each believe are in their own “critical national interests” during the meeting.

In his recently released National Security Strategy, Biden identified China as “America’s most consequential geopolitical challenge,” and he hopes an in-person meeting with Xi – who has just resumed international travel following the Covid-19 pandemic – can help establish lines of communication.

Xi arrives at the G20 fresh from an historic Communist Party conference that elevated him to an unprecedented third term – a sharp contrast to Biden’s current political situation.

It’s not yet clear how that disparity will manifest in Bali.

“The big question is are the two leaders going to come in a sort of more conciliatory mode or sort of a more defiant one,” said Matthew Goodman, senior vice president at the Center for Strategic and International Studies in Washington.

“They’ve both gotten through their political events of the year and they might come in a little more liberated for one reason or another to try to reach out and find common ground,” Goodman said. “There are the kind of global challenges that really affect both the US and China – whether it’s growth, or pandemics, or climate change. And so there’s possibility of some kind of conciliatory approach from both sides.”

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