China’s Energy Crisis And Global Supply Chains

As China’s power crisis becomes widespread and continues to slow Chinese producers, the situation there is fast becoming a major threat to global supply chains and markets. With over half of China’s provinces now conserving energy usage, factories are limiting production at a critical time. The holiday shopping season is approaching. Producers and shippers are frantically racing to meet demand for consumer products ranging from electronics to clothes. There has already been a steady stream of supply line-related disruptions recently, resulting in everything from shipping container shortages to significant delays at ports around the world. The energy issues in China threaten to add even more chaos and uncertainty to supply chains in coming months.

The extent of China’s current energy issues remains unknown, yet outside experts believe the problem is long term. One of the prime causes of this situation is a coal shortage. Stockpiles across the PRC are approaching critically low levels. China is the world’s largest consumer of coal, a nation that runs on the dirtiest of fossil fuels. On Monday, the China Electricity Council said in a statement that it will increase the purchase of coal from suppliers at “any price to ensure heating and power generation in winter.” This is a far cry from not very long ago when high coal prices kept Chinese buyers on the sidelines. The consensus at the time was that the existing inventories of coal would be sufficient to weather the storm. Things are different now and China is adjusting to meet the new realities.

Of course, China’s power crisis is not the only worry for global supply chains. The fuel shortage in Great Britain is spiraling out of control and there’s growing concern the effects of it could spread swiftly. We’ll discuss that tomorrow evening.  

Biden Arrives In Europe

US President Joe Biden has arrived in Europe today, kicking off the first overseas trip of his presidency. Before leaving, the ever-so-eloquent chief executive told reporters the goals for his trip to Europe will be “strengthening the alliance, making it clear to Putin and to China that Europe and the United States are tight.” Upon his arrival in Great Britain, Biden addressed US airmen at RAF Mildenhall and spoke further on the intended purpose of his European trip. Specifically with regards to Russia and his scheduled meeting with Vladimir Putin on 16 June in Geneva.

Before Geneva comes the G7 summit in Cornwall, England which will take place this coming weekend. The stated goal of the Biden administration has been to use the summit as a launching point to mend relations with European allies and roll back the rhetoric and actions of the Trump presidency that allegedly placed undue pressure on the US relationship with Europe. Climate change, creating a unified front in the face of China’s growing influence around the world, and the coming withdrawal of US and European troops from Afghanistan. The Nord Stream 2 natural gas pipeline will almost certainly come up in discussions. The US remains opposed to the pipeline in spite of Germany’s support for it. There is concern in Washington that the heavy German involvement in Nord Stream 2 can be used by Russia to drive a wedge into NATO in the event of a future crisis.

Between the G7 summit and Geneva, Biden will spend some time in Brussels at NATO headquarters. China and Russia will be discussed in deeper detail there, and the president is expected to press America’s NATO partners to contribute more to the common defense. This is hardly a new request and it is one that Biden’s predecessor addressed effectively. It will be interesting to see how NATO reacts to the new president and his somewhat recycled concepts and notions about NATO’s role in the future.

EU Recommends Member-States Halt UK travel Bans

The European Commission, executive branch of the European Union, is suggesting that EU member-states lift the travel bans many have recently put into effect against the United Kingdom. The EC recommendation is for member-states to allow people to travel to their country of residence providing they take a Covid-19 test or self-isolate. But it said non-essential travel should be discouraged. This development comes days after a new variant of the COVID-19 virus was discovered in the UK, which spurred a number of nations in Europe and around the world to impose travel bans on the UK. Now, with the Christmas season in full swing, and Brexit deal negotiations approaching the eleventh hour, the EC believes some EU members might’ve jumped the gun with their actions.

Despite the EC’s strong recommendation, it has little power to enforce or lighten border controls. EU member-states have the freedom to set their own rules on border controls and policies. Nearly every EU member is now banning travel to and from the UK. EU ambassadors are presently attempting to build an EU policy on travel links to and from Great Britain.

The EC is also recommending that transport personnel in Europe such as truck drivers should be exempt from travel restrictions. Commerce between the UK and the continent is also on hold for the moment as France and Britain try to reach a deal on reopening French ports to trade. Their present closure is creating a major backup of trucks loaded with goods at Dover, Calais and other ports on either side of the English Channel. The EC’s position is that cargo should be permitted to flow across borders uninterrupted. There are now over 3,000 trucks waiting on roadways in southeast England for a resolution.

The new variant of the COVID-19 virus remains largely a mystery. It is not believed to be deadlier than previous strains, however, virologists suspect it to be 70% more contagious. In any event, efforts to contain new variant cases to the UK could be in vain. As of this afternoon new variant cases have also cropped up in Denmark and also spread to Italy and the Netherlands as well.  

Theresa May Facing No Confidence Vote

Britain's Prime Minister Theresa May returns to Downing Street in London

The blowback from Theresa May’s decision to postpone a vote on the Brexit deal in the House of Commons might very well end up sweeping her from power. As the Prime Minister spent the day in Brussels attempting to gin up EU support for revisions to the deal, Tory MPs were busy in London laying the groundwork for a no confidence vote. The EU leaders who have met with May on her trip so far have not been receptive to the idea of modifying the deal in order to make it more acceptable to Britons, and help its pass through the House of Commons.

May appears to be fighting her war on the wrong front. Instead of looking to the continent for a lifeline of some kind, she need to be focused on the battle brewing in London. Monday’s postponement left a bad taste in the mouths of many MPs, most of whom were already souring on May’s leadership. Her motivation for postponing the vote was to avoid a humiliating defeat that might derail her politically. Unfortunately, May did not consider her dilemma from all angles. Even though she succeeded in delaying the vote on the deal, doing so sparked a mobilization of her opponents both within and outside of her party.

At Westminster tonight, there has been considerable speculation that the 48 letters required to trigger a no confidence vote have been received. If this proves to be true, Britain could find itself looking for a new PM by the end of the week.

Support For a Yemeni Ceasefire Increases

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The US government’s call for all parties involved in the Yemen Civil War to come to an agreement on a ceasefire within thirty days is starting to bear fruit. Great Britain plans to introduce a United Nations Security Council resolution next week aimed at supporting a cease fire. The details are sketchy, however, a colleague of mine in the British Foreign Office assured me the proposed resolution will call for a humanitarian cease fire, and safe passage of food, medical supplies, and other humanitarian materials. Great Britain, like the United States and much of the West, is hopeful a UN resolution will provide a nudge for all parties to engage the UN efforts towards an end to the fighting.

The United States is ramping up pressure on Saudi Arabia to agree to a ceasefire. With the Khashoggi drama still fresh in everyone’s mind it truly would be in the best interest of the Saudis to explore a ceasefire. US Secretary of State Mike Pompeo has urged Riyadh to end airstrikes against targets in populated areas. Many of the strikes have produced significant civilian casualties, or damaged a portion of Yemen’s already crumbling infrastructure.

The wildcard is Iran. Many of Iran’s foreign endeavors have soured over the last year. This fact, however, provides no guarantee that Tehran will push the Houthi rebels to attend ceasefire talks. In fact, Iranian support for the Houthis could increase if Iran’s leaders sense that Saudi resolve is weakening and an opportunity to perhaps end the war on favorable terms develops as a result.

The United States has to be cautious that its efforts to bring about a ceasefire do not inadvertently present Iran with such an opportunity. The Trump administration is being delicate with how it is dealing with Saudi Arabia at the moment, partially due to the current geopolitical picture in the Persian Gulf region. The US does not want to do anything that will ultimately give Iran a victory, real or imagined, that leads other nations reconsider their position on future US sanctions against Iran.