Geopolitical Clashes All Round

Geopolitical Clashes All Round

The world this past week took a Dickensian turn- it was the best of times, it was the worst of times. Mere weeks after international cooperation at G20, it was a week of geopolitical clashes.

The most prominent clash was between India and Canada, where after having brought it up with PM, Modi at G20, Canadian PM Justin Trudeau stated that credible intelligence pointed towards India’s role in the assassination of Sikh-Canadian separatist Hardeep Singh Nijjar in June in Canada.

Trudeau seeks a dialogue around the claims with Modi, however having ruled them out as absurd, India has suspended visa services for Canadians, and both countries have suspended each other’s diplomats. Further deterioration of relations can affect the sizeable Sikh and Indian populations in both countries, flows of investment, and trade of over USD 8 billion in 2022-23. Moreover, it can complicate the US efforts to include India in its anti-China coalition since Canada is a key US ally.

On the other side, it was a week of progress in India whose negotiations with JPMorgan have concluded in its inclusion in benchmark emerging-market bond indices, expected to bring in billions of USD into the govt. debt market. For India, it is a milestone step into international markets. For investors, it is exposure to a large economy after the removal of Russia from the index and sluggish growth in China.

Another conflict erupted in the Caucuses in Nagorno-Karabakh, where Azerbaijan attempted to take control of the area in this third violent encounter with Armenia since the end of the Cold War. Officially recognised as part of Azerbaijan, its Armenian population declared independence after the Cold War. Russia had, in the past, acted as a guarantor of peace during Azerbaijan-Armenia disturbances. However, since the war in Ukraine, it appears diverted. Should the situation escalate, the entire region could be pushed into instability. Their combined exports of metals, diamonds, and especially energy could also come under pressure.

Energy markets continue to be volatile as Russian weaponization of energy resources continues with a ban on the export of diesel and gas except to four ex-USSR states. It has also exported $14.3m worth of coal produced in captured areas of Ukraine, to Turkey through this year. Its ability to manipulate prices and weaponise key resources is a reminder that Western sanctions and climate deals are not watertight in the face of geopolitics.

A few thousand kilometers away in the GCC, though, diplomatic pressures have a slightly weaker hold. The Gulf Railway project has been showing signs of gaining momentum with bilateral agreements and increased spending amongst the GCC governments and foreign investors. Enhanced logistics by way of rail development are likely to be smoothly implemented, however, fiscal implications related to fluctuations in oil prices would still need to be observed.

For now though, fiscal health seems to be in order, and notably so in the UAE where its first USD-denominated bond in more than a year was oversubscribed by domestic, regional, and international investors.


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