Geopolitics is once again rightly in the financial headlines. The Middle-East is very close to triggering the first link in a chain that could lead to the regional war we flagged after the 7 October Hamas attack: Israel's Gaza ground offensive.
This weekend saw incoming exchange of fire from Hezbollah, the Iranian proxy in Lebanon, and Houthis in Yemen sent cruise missiles and drones towards Israel which were shot down by a US warship.
There have also been attacks on US forces in Iraq. Recognising these escalation risks, the US is shifting more missile defence systems to the region. Reportedly, in perhaps an important signal, the crew of the USS Ford, the super carrier in the East Med, were served lobster and steak on Saturday, something only done on holidays or before announcements negative for moral, such as extended stays at sea, or military action.
Meanwhile, Israel has vowed to cut off 'the head of the snake' and launch a military attack against Iran if Hezbollah joins the war with Hamas - the second and third links in the chain that may follow rapidly after the first.
This is as the West sees massive street demonstrations against Israel and fewer, smaller ones for it. There has also been a surge in anti-Semitic attacks, leading to worries about social stability and 'lone-wolf' terrorism (e.g., a progressive Rabbi was found stabbed to death outside her home in Detroit this weekend).
Both Al-Qaeda and ISIS have called on their remaining followers to attack Jewish and Western targets where they can, and the Dutch justice minister, a prospective future PM, has warned Europe is at risk from the war, which "will get translated to our societies". One such translation into Swiss-German may be the sharp swing to the right seen in weekend parliamentary elections.
However, the situation is even more concerning. We had already flagged that the risks of a Mid-East conflagration would suggest to some actors that the US would lose focus on the Indo-Pacific, and against that backdrop China and the Philippines are now in another tense stand-off in the South China Sea. The former is physically preventing the latter from resupplying one of its outposts in maritime territory both claim. Note that the US recently publicly underlined its bilateral defence treaty with the Philippines, and stated it would defend it against any attack. Is a geopolitical test being made of the US ability to afford a three-front global escalation, not just two?
As Axios notes: 'Behind the Curtain: Rattled U.S. government fears wars could spread'.
"Never before have we talked to so many top government officials who, in private, are so worried about so many overseas conflicts at once.
Why it matters: We don't like to sound dire. But to sound a siren of clinical, clear-eyed realism: U.S. officials say this confluence of crises poses epic concern and historic danger."
We underlined exactly this kind of deliberate test of US hegemony back in 2018's 'The Rise and Fall and Rise of the Great Powers (and Great Currencies)'. Here we are, five years later, perhaps for real.
Even the Federal Reserve now warns of growing geopolitical risks to the global financial system. And if they are finally prepared to talk about it, markets should be concerned.
This is going to be a very tense week. And, sadly, it's hard to see a realistic off-ramp. The confluence of risks in the Middle East threatens a geopolitical chain reaction that has the potential to make monetary reactions look like small beer by comparison.
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