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Business

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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Science

Boeing’s role in building NASA’s new rocket

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New York
CNN Business
 — 

In the fervor-filled days leading up to the November 16 launch of the long-awaited Artemis I mission, an uncrewed trip around the moon, some industry insiders admitted to having conflicting emotions about the event.

On one hand, there was the thrill of watching NASA take its first steps toward eventually getting humans back to the lunar surface; on the other, a shadow cast by the long and costly process it took to get there.

“I have mixed feelings, though I hope that we have a successful mission,” former NASA astronaut Leroy Chiao said in an opinion roundtable interview with The New York Times. “It is always exciting to see a new vehicle fly. For perspective, we went from creating NASA to landing humans on the moon in just under 11 years. This program has, in one version or another, been ongoing since 2004.”

There have been numerous delays with the development of the rocket at the center of the Artemis I mission: NASA’s Space Launch System (SLS), the most powerful rocket ever flown — and one of the most controversial. The towering launch vehicle was originally expected to take flight in 2016. And the decade-plus that the rocket was in development sparked years of blistering criticism targeted toward the space agency and Boeing, which holds the primary contract for the SLS rocket’s core.

NASA’s Office of Inspector General (OIG) repeatedly called out what it referred to as Boeing’s “poor performance,” as a contributing factor in the billions of dollars in cost overruns and schedule delays that plagued SLS.

“Cost increases and schedule delays of Core Stage development can be traced largely to management, technical, and infrastructure issues driven by Boeing’s poor performance,” one 2018 report from NASA’s OIG, the first in a series of audits the OIG completed surrounding NASA’s management of the SLS program, read. And a report in 2020 laid out similar grievances.

For its part, Boeing has pushed back on the criticism, pointing to rigorous testing requirements and the overall success of the program. The OIG report also included correspondence from NASA, which noted in 2018 that it “had already recognized the opportunity to improve contract performance management” and agreed with the report’s recommendations.

In various op-eds, the rocket has also been deemed “the result of unfortunate compromises and unholy politics,” a “colossal waste of money” and an “irredeemable mistake.”

Despite all the heated debate that has followed SLS, by all accounts, the rocket is here to stay. And officials at NASA and Boeing said its first launch two months ago was practically flawless.

“I worked over 50 Space Shuttle launches,” Boeing SLS program manager John Shannon told CNN by phone. “And I don’t ever remember a launch that was as clean as that one was, which for a first-time rocket — especially one that had been through as much as this one through all the testing — really put an exclamation point on how reliable and robust this vehicle really is.”

The Artemis program manager at NASA, Mike Sarafin, also said during a post-launch news conference that the rocket “performed spot-on.”

But with its complicated history and its hefty price tag, SLS could still face detractors in the years to come.

Many have questioned why SLS needs to exist at all. With the estimated cost per launch standing at more than $4 billion for the first four Artemis missions, it’s possible commercial rockets, like the massive Mars rocket SpaceX is building, could get the job done more efficiently, as the chief of space policy at the nonprofit exploration advocacy group Planetary Society, Casey Dreier, recently observed in an article laying out both sides of the SLS argument.

(NASA Administrator Bill Nelson noted that the $4 billion per-launch cost estimate includes development costs that the space agency hopes will be amortized over the course of 10 or more missions.)

Boeing was selected in 2012 to build SLS’s “core stage,” which is the hulking orange fuselage that houses most of the massive engines that give the rocket its first burst of power at liftoff.

Though more than 1,000 companies were involved with designing and building SLS, Boeing’s work involved the largest and most expensive portion of the rocket.

That process began over a decade ago, and when the Artemis program was established in 2019, it gave the rocket its purpose: return humans to the moon, establish a permanent lunar outpost, and, eventually, pave the path toward getting humans to Mars.

But the SLS is no longer the only rocket involved in the program. NASA gave SpaceX a significant role in 2021, giving the company a fixed-price contract for use of its Mars rocket as the vehicle that will ferry astronauts to the lunar surface after they leave Earth and travel to the moon’s orbit on SLS. SpaceX’s forthcoming rocket, called Starship, is also intended to be capable of completing a crewed mission to the moon or Mars on its own. (Starship, it should be noted, is still in the development phases and has not yet been tested in orbit.)

Boeing has repeatedly argued that SLS is essential and capable of performing tasks that other rockets cannot.

“The bottom line is there’s nothing else like the SLS because it was built from the ground up to be human rated,” Shannon said. “It is the only vehicle that can take the Orion spacecraft and the service module to the moon. And that’s the purpose-built design — to take large hardware and humans to cislunar space, and nothing else exists that can do that.”

Starship, meanwhile, is not tailored solely to NASA’s specific lunar goals. SpaceX CEO Elon Musk has talked for more than a decade about his desire to get humans to Mars. More recently, he has said Starship could also be used to house giant space telescopes.

Yet, another reason critics remain skeptical of SLS is because of its origins. The rocket’s conception can be traced back to NASA’s Constellation program, which was a plan to return to the moon mapped out under former President George W. Bush that was later canceled.

But the SLS has survived. Many observers have suggested a big reason was the desire to maintain space industry jobs in certain Congressional districts and to beef up aerospace supply chains.

Much of the criticism levied against SLS, however, has focused on the actual process of getting the rocket built.

At one point in 2019, former NASA administrator Jim Bridenstine considered sidelining the SLS rocket entirely, citing frustrations with the delays.

“At the end of the day, the contractors had an obligation to deliver what NASA had contracted for them to deliver,” Bridenstine told CNN by phone last month. “And I was frustrated like most of America.”

Still, Bridenstine said, when his office reviewed the matter, it found “there were no options that were going to cost less money or take less time than just finishing the SLS” — and the rocket was never ultimately sidelined. (Bridenstine noted he was also publicly critical of delayed projects led by SpaceX and others.)

NASA continued to stand by Boeing and the SLS rocket even as it became a political hot potato, with some in Congress both criticizing its costs and refusing to abandon the program.

The SLS rocket ended up flying its first launch more than six years later than originally intended. NASA had allocated $6.2 billion to the SLS program as of 2018, but that price tag more than tripled to $23 billion as of 2022, according to an analysis by the Planetary Society.

Those escalating costs can be traced back to the type of contracts that NASA signed with Boeing and its other major suppliers for SLS. It’s called cost-plus, which puts the financial burden on NASA when projects face cost overruns while still offering contractors extra payments, or award fees.

In testimony before the Senate Appropriations Subcommittee on Science last year, current NASA Administrator Bill Nelson criticized the cost-plus contracting method, calling it a “plague.”

More in vogue are “fixed-price” contracts, which have a firm price cap, like the kind NASA gave to Boeing and SpaceX for its Commercial Crew Program.

In an interview with CNN in December, however, Nelson stood by cost-plus contracting for SLS and Orion, the vehicle that is designed to carry astronauts and rides atop the rocket to space. He said that without that type of contract, in his view, NASA’s private-sector contractors simply wouldn’t be willing to take on a rocket designed for such a specific purpose and exploring deep space. Building a rocket as specific and technically complex as SLS isn’t a risk many private-sector companies are anxious to take on, he noted.

“You really have difficulty in the development of a new and very exquisite spacecraft … on a fixed-price contract,” he said.

“That industry is just not willing to accept that kind of thing, with the exception of the landers,” he added, referring to two other branches of the Artemis program: robotic landers that will deliver cargo to the moon’s surface and SpaceX’s $2.9 billion lunar lander contract. Both of those will use fixed-price — often referred to as “commercial” — contracts.

“And even there, they’re getting a considerable investment by the federal government,” Nelson said.

Still, government watchdogs have not pulled punches when assessing these cost-plus contracts and Boeing’s role.

“We did notice very poor contractor performance on Boeing’s part. There’s poor planning and poor execution,” NASA Inspector General Paul Martin said during testimony before the House’s Subcommittee on Space and Aeronautics last year. “We saw that the cost-plus contracts that NASA had been using…worked to the contractor’s — rather than NASA’s — advantage.”

Shannon, the Boeing executive, acknowledged in an interview that Boeing and SLS have faced loud detractors, but he said that the value of the drawn out development and testing program would become evident as SLS flies.

“I am extremely proud that NASA — even though there were significant schedule pressures — they could set up a test program that was incredibly comprehensive,” he said. “The Boeing team worked through that test process and hit every mark on it. And you see the results. You see a vehicle that is not just visually spectacular, but its performance was spectacular. And it really put us on the road to be able to do lunar exploration again, which is something that’s very important in this country.”

But the rocket is still facing criticism. During a Congressional hearing with the House’s Science, Space, and Technology Committee in March 2022, NASA’s Inspector General said that current cost estimates for SLS were “unsustainable,” gauging that the space agency will have spent $93 billion on the Artemis program from 2012 through September 2025.

Martin, the NASA inspector general, specifically pointed to Boeing as one of the contractors that would need to find “efficiencies” to bring down those costs as the Artemis program moves forward.

In a December 7 statement to CNN, Boeing once again defended SLS and its price point.

“Boeing is and has been committed to improving our processes — both while the program was in its developmental stage and now as it transitions to an operational phase,” the statement read, noting the company already implemented “lessons learned” from building the first rocket to “drive efficiencies from a cost and schedule perspective” for future SLS rockets.

“When adjusted for inflation, NASA has developed SLS for a quarter of the cost of the Saturn V and half the cost of the Space Shuttle,” the statement noted. “These programs have also been essential to investing in the NASA centers, workforce and test facilities that are used by a broad range of civil and commercial partners across NASA and industry.”

The successful launch of SLS was a welcome winning moment for Boeing. Over the past few years, the company has been mired in controversy, including ongoing delays and myriad issues with Starliner, a spacecraft built for NASA’s Commercial Crew Program, and scandal after scandal plaguing its airplane division.

Now that the Artemis I mission has returned safely home, NASA and Boeing can turn to preparing more of the gargantuan SLS rockets to launch even loftier missions.

SLS is slated to launch the Artemis II mission, which will take four astronauts on a journey around the moon, in 2024. From there, SLS will be the backbone of the Artemis III mission that will return humans to the lunar surface for the first time in five decades and a series of increasingly complex missions as NASA works to create its permanent lunar outpost.

Shannon, the Boeing SLS program manager, told CNN that construction of the next two SLS rocket cores is well underway, with the booster for Artemis II on track to be finished in April — more than a year before the mission is scheduled to take off. All of the “major components” for a third SLS rocket are also completed, Shannon added.

For the third SLS core and beyond, Boeing is also moving final assembly to new facilities Florida, freeing up space at its manufacturing facilities to increase production, which may help drive down costs.

Shannon declined to share a specific price point for the new rockets or share any internal pricing goals, though NASA is expected to sign new contracts for the rockets that will launch the Artemis V mission and beyond, which could significantly change the price per launch.

Nelson also told CNN in December that NASA “will be making improvements, and we will find cost savings where we can,” such as with the decision to use commercial contracts for other vehicles under the Artemis program umbrella.

How and whether those contracts bear out remain to be seen: SpaceX needs to get its Starship rocket flying, a massive space station called Gateway needs to come to fruition, and at least some of the robotic lunar landers designed to carry cargo to the moon will need to prove their effectiveness. It’s also not yet clear whether those contracts will result in enough cost savings for the critics of SLS, including NASA’s OIG, to consider the Artemis program sustainable.

As for SLS, Nelson also told reporters December 11, just after the conclusion of the Artemis I mission, that he had every reason to expect that lawmakers would continue to fund the rocket and NASA’s broader moon program.

“I’m not worried about the support from the Congress,” Nelson said.

And Bridenstine, Nelson’s predecessor who has been publicly critical SLS, said that he ultimately stands by SLS and points out that, controversies aside, it does have rare bipartisan support from its bankrollers.

“We are in a spot now where this is going to be successful,” Bridenstine said last month, recalling when he first realized the Artemis program had support from the right and left. “All of America is going to be proud of this program. And yes, there are going to be differences. People are gonna say well, you should go all commercial and drop SLS…but at the end of the day, what we have to do is we have to bring together all of the things that are the best programs that we can get for America and use them to go to the moon.”



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World

Post-zero-Covid: What the return of Chinese tourists means for the global economy

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Hong Kong
CNN
 — 

In the years before Covid, China was the world’s most important source of international travelers. Its 155 million tourists spent more than a quarter of a trillion dollars beyond its borders in 2019.

That largesse fell precipitously over the past three years as the country essentially closed its borders. But, as China prepares to reopen on Sunday, millions of tourists are poised to return to the world stage, raising hopes of a rebound for the global hospitality industry.

Although international travel may not return immediately to pre-pandemic levels, companies, industries and countries that rely on Chinese tourists will get a boost in 2023, according to analysts.

China averaged about 12 million outbound air passengers per month in 2019, but those numbers fell 95% during the Covid years, according to Steve Saxon, a partner in McKinsey’s Shenzhen office. He predicts that figure will recover to about 6 million per month by the summer, driven by the pent-up wanderlust of young, wealthy Chinese like Emmy Lu, who works for an advertising company in Beijing.

“I’m so happy [about the reopening]! ” Lu told CNN. “Because of the pandemic, I could only wander around the country for the past years. It was difficult.”

“It’s just that I’ve been stuck inside the country for a little too long. I’m really looking forward to the lifting of the restrictions, so that I can go somewhere for fun! ” the 30-year-old said, adding that she wanted to visit Japan and Europe the most.

As China announced last month it would no longer subject inbound travelers to quarantine starting January 8, including residents returning from trips abroad, searches for international flights and accommodations immediately hit a three-year high on Trip.com

(TCOM).

Bookings for overseas travel during the upcoming Lunar New Year holiday, which falls between January 21 and January 27 this year, have soared by 540% from a year ago, according to data from the Chinese travel site. Average spending per booking jumped 32%.

The top destinations are in the Asia Pacific region, including Australia, Thailand, Japan and Hong Kong. The United States and the United Kingdom also ranked among the top 10.

“The rapid buildup in … [bank] deposits over the past year suggests that households in China have accumulated significant cash holdings,” said Alex Loo, a macro strategist for TD Securities, adding that frequent lockdowns have likely led to restraints on household spending.

There could be “revenge spending” by Chinese consumers, mirroring what happened in many developed markets when they reopened early last year, he said.

That’s good news for many economies battered by the pandemic.

“We estimate that Hong Kong, Thailand, Vietnam and Singapore would benefit the most if China’s travel service imports were to return to 2019 levels,” said Goldman Sachs analysts。

Hong Kong — the world’s most visited city with just under 56 million arrivals in 2019, most of them from mainland China — could see an estimated 7.6% boost to its GDP as exports and tourism income increase, they said. Thailand’s GDP may be boosted by 2.9%, while Singapore would get a lift of 1.2%.

Elsewhere in the world, Cambodia, Mauritius, Malaysia, Taiwan, Myanmar, Sri Lanka, South Korea and Philippines are also likely to benefit from the return of Chinese tourists, according to research by Capital Economics.

Hong Kong has suffered particularly acutely from the closure of its border with mainland China. The city’s pillar industries of tourism and real estate have been hit hard. The financial hub expects GDP to have contracted by 3.2% in 2022.

The city government announced Thursday that up to 60,000 people would be allowed to cross the border daily each way, starting Sunday.

Several other Southeast Asian countries reliant on tourism have kept entry rules relatively relaxed for Chinese tourists, despite the record Covid-19 outbreak that has swept through China in recent weeks. They include Thailand, Indonesia, Singapore and the Philippines.

“This is one of the opportunities that we can accelerate economic recovery,” Thailand’s health minister said this week.

New Zealand has also waived testing requirements for Chinese visitors, who were the second largest source of tourist revenue for the country before the pandemic.

But other governments are more cautious. So far, nearly a dozen countries, including the United States, Germany, France, Canada, Japan, Australia and South Korea, have mandated testing.

The European Union on Wednesday “strongly encouraged” its members states to require a negative Covid test for visitors from China before arrival.

There is clearly “conflict” between the tourism authorities and the political and health officials in some countries, said Saxon, who leads McKinsey’s travel practice in Asia.

Airlines and airports have already blasted the EU’s recommendations for testing requirements.

The International Air Transport Association, the airline industry’s global lobby group, together with airports represented by ACI Europe as well as Airlines for Europe, issued a joint statement on Thursday, calling the EU move “regrettable” and “a knee-jerk reaction.”

But they welcomed the additional recommendation to test wastewater as a way of identifying new variants of the disease, saying it should be an alternative to testing passengers.

Besides restrictions, it will take time for international travel to fully rebound because many Chinese must renew their passports and apply for visas again, according to analysts.

Lu from Beijing said she was still considering her travel plans, taking into consideration the various testing requirements and the high price of flying.

“The restrictions are normal, because everyone wants to protect people in their own country,” she said. “I’ll wait and see if some policies will be eased.”

Liu Chaonan, a 24-year-old in Shenzhen, said she had initially wanted to go to the Philippines to celebrate the Chinese New Year, but didn’t have time to apply for the visa. So she switched to Thailand, which offers quick and easy electronic permits.

“Time is short and I need to leave in about 10 days. People may choose some visa-friendly places and countries to travel to,” she said, adding that she plans to learn scuba diving and wants to buy cosmetics. Her total budget for the trip could exceed 10,000 yuan ($1,460).

Saxon said he expected China’s outbound international travel to fully recover by the year end.

“Generally, individuals are pragmatic and countries will welcome Chinese tourists due to their spending power,” he said, adding that countries may remove restrictions quickly when the Covid situation improves in China.

“It will take time for international tourism to get going, but it will come rushing back, when it happens.”

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World

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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World

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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Taiwan’s military has a problem: As China fears grow, recruitment pool shrinks

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Taipei, Taiwan
CNN
 — 

Taiwan has noticed a hole in its defense plans that is steadily getting bigger. And it’s not one easily plugged by boosting the budget or buying more weapons.

The island democracy of 23.5 million is facing an increasing challenge in recruiting enough young men to meet its military targets and its Interior Ministry has suggested the problem is – at least in part – due to its stubbornly low birth rate.

Taiwan’s population fell for the first time in 2020, according to the ministry, which warned earlier this year that the 2022 military intake would be the lowest in a decade and that a continued drop in the youth population would pose a “huge challenge” for the future.

That’s bad news at a time when Taiwan is trying to bolster its forces to deter any potential invasion by China, whose ruling Communist Party has been making increasingly belligerent noises about its determination to “reunify” with the self-governed island – which it has never controlled – by force if necessary.

And the outlook has darkened further with the release of a new report by Taiwan’s National Development Council projecting that by 2035 the island can expect roughly 20,000 fewer births per year than the 153,820 it recorded in 2021. By 2035, Taiwan will also overtake South Korea as the jurisdiction with the world’s lowest birth rate, the report added.

Such projections are feeding into a debate over whether the government should increase the period of mandatory military service that eligible young men must serve. Currently, the island has a professional military force made up of 162,000 (as of June this year) – 7,000 fewer than the target, according to a report by the Legislative Yuan. In addition to that number, all eligible men must serve four months of training as reservists.

Changing the mandatory service requirement would be a major U-turn for Taiwan, which had previously been trying to cut down on conscription and shortened the mandatory service from 12 months as recently as 2018. But on Wednesday, Taiwan’s Minister of National Defence Chiu Kuo-cheng said such plans would be made public before the end of the year.

That news has met with opposition among some young students in Taiwan, who have voiced their frustrations on PTT, Taiwan’s version of Reddit, even if there is support for the move among the wider public.

A poll by the Taiwanese Public Opinion Foundation in March this year found that most Taiwanese agreed with a proposal to lengthen the service period. It found that 75.9% of respondents thought it reasonable to extend it to a year; only 17.8% were opposed.

Many experts argue there is simply no other option.

Su Tzu-yun, a director of Taiwan’s Institute for National Defense and Security Research, said that before 2016, the pool of men eligible to join the military – either as career soldiers or as reservists – was about 110,000. Since then, he said, the number had declined every year and the pool would likely be as low as 74,000 by 2025.

And within the next decade, Su said, the number of young adults available for recruitment by the Taiwanese military could drop by as much as a third.

“This is a national security issue for us,” he said. “The population pool is decreasing, so we are actively considering whether to resume conscription to meet our military needs.

“We are now facing an increasing threat (from China), and we need to have more firepower and manpower.”

Taiwan’s low birth rate – 0.98 – is far below the 2.1 needed to maintain a stable population, but it is no outlier in East Asia.

In November, South Korea broke its own world record when its birth rate dropped to 0.79, while Japan’s fell to 1.3 and mainland China hit 1.15.

Even so, experts say the trend poses a unique problem for Taiwan’s military, given the relative size of the island and the threats it faces.

China has been making increasingly aggressive noises toward the island since August, when then-US House Speaker Nancy Pelosi controversially visited Taipei. Not long after she landed in Taiwan, Beijing also launched a series of unprecedented military exercises around the island.

Since then, the temperature has remained high – particularly as Chinese leader Xi Jinping told a key Communist Party meeting in October that “reunification” was inevitable and that he reserves the option of taking “all measures necessary.”

Chang Yan-ting, a former deputy commander of Taiwan’s air force, said that while low birth rates were common across East Asia, “the situation in Taiwan is very different” as the island was facing “more and more pressure (from China) and the situation will become more acute.”

“The United States has military bases in Japan and South Korea, while Singapore does not face an acute military threat from its neighbors. Taiwan faces the greatest threat and declining birth rate will make the situation even more serious,” he added.

Roy Lee, a deputy executive director at Taiwan’s Chung-hua Institution for Economic Research, agreed that the security threats facing Taiwan were greater than those in the rest of the region.

“The situation is more challenging for Taiwan, because our population base is smaller than other countries facing similar problems,” he added.

Taiwan’s population is 23.5 million, compared to South Korea’s 52 million, Japan’s 126 million and China’s 1.4 billion.

Besides the shrinking recruitment pool, the decline in the youth population could also threaten the long-term performance of Taiwan’s economy – which is itself a pillar of the island’s defense.

Taiwan is the world’s 21st largest economy, according to the London-based Centre for Economics and Business Research, and had a GDP of $668.51 billion last year.

Much of its economic heft comes from its leading role in the supply of semiconductor chips, which play an indispensable role in everything from smartphones to computers.

Taiwan’s homegrown semiconductor giant TSMC is perceived as being so valuable to the global economy – as well as to China – that it is sometimes referred to as forming part of a “silicon shield” against a potential military invasion by Beijing, as its presence would give a strong incentive to the West to intervene.

Lee noted that population levels are closely intertwined with gross domestic product, a broad measure of economic activity. A population decline of 200,000 people could result in a 0.4% decline in GDP, all else being equal, he said.

“It is very difficult to increase GDP by 0.4%, and would require a lot of effort. So the fact that a declining population can take away that much growth is big,” he said.

Taiwan’s government has brought in a series of measures aimed at encouraging people to have babies, but with limited success.

It pays parents a monthly stipend of 5,000 Taiwan dollars (US$161) for their first baby, and a higher amount for each additional one.

Since last year, pregnant women have been eligible for seven days of leave for obstetrics checks prior to giving birth.

Outside the military, in the wider economy, the island has been encouraging migrant workers to fill job vacancies.

Statistics from the National Development Council showed that about 670,000 migrant workers were in Taiwan at the end of last year – comprising about 3% of the population.

Most of the migrant workers are employed in the manufacturing sector, the council said, the vast majority of them from Vietnam, Indonesia, Thailand and the Philippines.

Lee said in the long term the Taiwanese government would likely have to reform its immigration policies to bring in more migrant workers.

Still, there are those who say Taiwan’s low birth rate is no reason to panic, just yet.

Alice Cheng, an associate professor in sociology at Taiwan’s Academia Sinica, cautioned against reading too much into population trends as they were affected by so many factors.

She pointed out that just a few decades ago, many demographers were warning of food shortages caused by a population explosion.

And even if the low birth rate endured, that might be no bad thing if it were a reflection of an improvement in women’s rights, she said.

“The educational expansion that took place in the 70s and 80s in East Asia dramatically changed women’s status. It really pushed women out of their homes because they had knowledge, education and career prospects,” she said.

“The next thing you see globally is that once women’s education level improved, fertility rates started declining.”

“All these East Asian countries are really scratching their head and trying to think about policies and interventions to boost fertility rates,” she added.

“But if that’s something that really, (women) don’t want, can you push them to do that?”

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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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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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Entertainment

Taylor Swift ticket snafu caused by Ticketmaster abusing its market power, Senate antitrust chair says

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New York
CNN Business
 — 

Senator Amy Klobuchar criticized Ticketmaster in an open letter to its CEO, saying she has “serious concerns” about the company’s operations following a service meltdown Tuesday that left Taylor Swift fans irate.

In the letter to CEO Michael Rapino, the Democrat from Minnesota and chair of the Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights, wrote that complaints from Swift fans unable to buy tickets for her upcoming tour, in addition to criticism about high fees, suggests that the company “continues to abuse its market positions.”

“Ticketmaster’s power in the primary ticket market insulates it from the competitive pressures that typically push companies to innovate and improve their services. That can result in the types of dramatic service failures we saw this week, where consumers are the ones that pay the price,” Klobuchar wrote.

Ticketmaster and Live Nation, the country’s largest concert promoter, merged about a decade ago. Klobuchar noted that the company at the time pledged to “develop an easy-access, one-stop platform” for ticket delivery. On Thursday, the senator told Rapino that it “appears that your confidence was misplaced.”

“When Ticketmaster merged with Live Nation in 2010, it was subject to an antitrust consent decree that prohibited it from abusing its market position,” Klobuchar wrote. “Nonetheless, there have been numerous complaints about your company’s compliance with that decree.”

The letter includes a list of questions for Rapino to answer by next week. Ticketmaster did not immediately respond to a request for comment from CNN Business.

On Tuesday, the company said “there has been historically unprecedented demand with millions showing up” to buy tickets for Swift’s tour and thanked fans for their “patience.”

Klobuchar is the latest high-profile politician to openly criticize Ticketmaster for the ticketing disaster that left bad blood between Swift fans and the company.

“@Ticketmaster’s excessive wait times and fees are completely unacceptable, as seen with today’s @taylorswift13 tickets, and are a symptom of a larger problem. It’s no secret that Live Nation-Ticketmaster is an unchecked monopoly,” Rep. David Cicilline, currently the chairman of the Antitrust Subcommittee, tweeted on Tuesday.

“Daily reminder that Ticketmaster is a monopoly, its merger with LiveNation should never have been approved, and they need to be reined in,” tweeted Rep. Alexandria Ocasio-Cortez.

Complaints about the company’s monopoly power go back long, long before Tuesday’s ticket problems, when the platform appeared to crash or freeze during presale purchases for Swift’s latest tour.

In 1994, when Taylor Swift was only four years old and ticket purchase queues were in person or on the phone, not online, the rock group Pearl Jam filed a complaint with the Justice Department’s antitrust division asserting that Ticketmaster has a “virtually absolute monopoly on the distribution of tickets to concerts.” It tried to book its tour only at venues that didn’t use Ticketmaster.

The Justice Department and many state attorneys general have made similar complaints over the years.

Despite those concerns, Ticketmaster continued to grow more dominant. Pearl Jam’s complaint was quietly dismissed. The Justice Department and states allowed the Live Nation Ticketmaster merger to go through despite a 2010 court filing in the case raising objections to the merger. In the filing, the Justice Department said that Ticketmaster’s share among major concert venues exceeded 80%.

– CNN Business’ Chris Isidore contributed to this report.

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