Recommended Weekend Reading

January 26 - 28, 2024

Here are our recommended reads from reports and articles we read in the last week. We hope you find these useful and that you have a relaxing weekend.   And let us know if you or someone you know wants to be added to our distribution list. 

The Americas

• “2023: A Year of Mexican Oil to Cuba”  Center for Strategic and International Studies

  Cuba is in a deep energy crisis. A steep decline in tourism revenue following the Covid-19 pandemic, exacerbated by high global fuel prices caused by the war in Ukraine, has contributed to years of chronic fuel shortages, resulting in frequent blackouts and long queues at gasoline pumps in what analysts have described as “the worst financial position it has been in since the collapse of the Soviet Union.” Starting in February, the regime announced that gasoline prices will increase by over 500 percent due to the government’s inability to continue sales at current subsidized prices.  The functioning of the Cuban economy hinges on imported petroleum. In the 1980s, Cuba depended on the USSR to supply 98 percent of its crude oil needs. Following the end of Soviet subsidies, Cuba’s so-called Special Period—a decade of widespread food rationing, mass outward migration, and paralysis of the country’s industrial and agricultural sectors—ended only after Hugo Chávez’s Venezuela agreed to barter its crude oil in exchange for Cuban doctors, teachers, and military advisors in the early 2000s.

International Economics

•   “De-dollarization reshaping central bank reserves in 2024”   OMFIF Research

  De-dollarisation has grabbed headlines as the expanded Brics bloc plans for a common currency, reducing reliance on the dollar. Though a BRICS currency is unlikely to threaten the dollar's dominance soon, it signals geopolitics will increasingly shape reserve management.  Key findings from OMFIF's Global Public Investor report, based on a survey of 75 managers controlling nearly $5tn in reserves, include: 

  • Dollar's share of reserves is expected to gradually fall five percentage points but remain above 50%

  • Renminbi likely to rise from nearly 3% now to 6% of reserves in a decade

  • Sub-Saharan Africa and Asia Pacific central banks shifting from dollar to renminbi

• “How the Fed Should Deal with Forecasting Errors”  Peterson Institute for International Economics

  Like many other central banks around the world, including the Federal Reserve, the Bank of England failed to anticipate the inflation surge of 2021 and 2022. Now Ben S. Bernanke, former chair of the Federal Reserve, has been commissioned by the Bank of England to review the Bank’s “forecasting and related processes during times of significant uncertainty.” The Financial Times reports [paywall] that, unsurprisingly, the European Central Bank and the Fed have also undertaken similar, albeit less formal, retrospective looks at what went wrong and how they might do better. The Bank of England’s move to commission a formal report prompts an interesting thought experiment: If the Federal Reserve were to request a similar outside review of its forecasting operations, what should it say?

Indo-Pacific

• “Operationalising strategic risk reduction in the Asia-Pacific Region: An Australian Perspective”   European Leadership Network

  Australia is on track to spend a historic $A50 billion on defense expenditures in 2024. A new report from the European Leadership Network (ELN) and the Asia-Pacific Leadership Network(APLN) finds that Australia’s deterrence-heavy defense strategy may, in fact, heighten the risks of inadvertent escalation rather than mitigate them and, in doing so, is creating ripe conditions for conflict in the Asia-Pacific. 

The Middle East, Israel, and the Gaza War

• “US Aid to Israel in Four Charts”  Council on Foreign Relations

  Israel, the United States closely ally in the Middle East, has been the largest cumulative recipient of U.S. foreign aid since its founding, receiving about $300 billion (adjusted for inflation) in total economic and military assistance. The United States has also provided large foreign aid packages to other Middle Eastern countries, particularly Egypt and Iraq, but Israel stands apart.

• “Israel does not want a war with Iran”  Al-Monitor Pro Podcast

  The assassination of Hamas' number two man in Beirut has deepened concerns that the conflict in Gaza will engulf neighboring Lebanon. However, Esther Solomon, the editor-in-chief of Haaretz English, dismisses the idea that Israel wants to provoke a war with Iran that would drag on the United States.

• “Were the Saudis Right About the Houthis After All?   The Atlantic

  The Houthis are a potent Iranian proxy group, and their slogan, adapted from Iranian revolutionary propaganda, is being made manifest in action. They’ve attacked Red Sea shipping lanes more than 30 times since October 17, under the implausible pretext of aiding Hamas and protesting Israeli military actions in Gaza. Washington long-held, against Saudi protestations, that the Houthis didn’t or couldn’t possibly pose a significant threat beyond Yemen. Now the United States is leading a large coalition of countries determined to restore maritime security against Houthi piracy in the Red Sea. Surely those behind Washington’s efforts are asking themselves: Were the Saudis right about the Houthis all along?

Energy

• “Winter Reliability, A Growing Not Passing Problem”  The Power Line

  The nation’s electric power grids have emerged largely unscathed from a continent-spanning snap of cold weather and winter storms this winter. This outcome stands in stark contrast to previous bulk power system failures, with grid operators resorting to load shedding in December 2021 during Winter Storm Uri and in February 2022 during Winter Storm Elliot. Though this round avoided system failures, narrow margins of error were everywhere. Across the country, winter reliability scares have now emerged as an annual tradition, one that bodes ill for the nation’s energy systems and the economic engine they power.

Map of the Week

U.S. Bases in the Middle East

As tensions grow in the Middle East – the Houthi attacks on commercial shipping in the Red Sea, Iranian proxy militias attacking U.S. troops in Syria and Iraq – we have gotten a number of questions about the size of the U.S. military presence in the region.  The American Security Project offers an excellent map detailing where known U.S. military facilities are located in the region.  As of 2022, there are more than 170,000 U.S. troops stationed outside the United States, and as of June 2023, there are more than 30,000 US troops stationed in the Middle East alone.