SYRIA UNRAVELS
The regime of Bashar al-Assad, for decades Syria’s brutal dictator, was toppled in less than two weeks. Rebels, led by an Islamist group called Hayat Tahrir al-Sham (HTS), began their offensive from Idlib Province in the north-west on November 27th. By December 8th they had reached Damascus, the capital. President Assad fled to Russia, ending more than 50 years of Alawite control of the country under the Asad family.
The rebels named Muhammad al-Bashir, its chief administrator in Idlib, as caretaker prime minister. But real power rests with Ahmad al-Sharaa, formerly known as Abu Muhammad al-Jolani, the leader of HTS. Some Syrians worry that the group might impose its vision of Islamic rule, but it has promised to respect minorities. Moreover, HTS has no experience of running a big, diverse country.
With erstwhile NATO ally Turkey clearly in the driver’s seat, the U.S. and other countries were left scrambling to determine who, if anyone, is on first. For the time-being, this appears to be HTS, the largest of the opposition factions supported by Turkey. With ISIS threatening to reassert itself and with the Kurds controlling, with U.S. support, key oil sites in the Eastern areas of the country, and already being targeted by Turkey which does not want any autonomous Kurdish zone in Eastern Syria bordering its own Kurdish population, the situation is rife for renewed civil strife which is in no one’s interests.
Arab governments, apart from Qatar, had welcomed Asad’s Syria back into the Arab League and were in the process of reestablishing their embassies in Damascus. Now, Egypt, the UAE, and Saudi Arabia – will have to eat some humble pie and work closely with the UN, Turkey, Europe, the U.S., Qatar and Oman to try to sort out an orderly return to civil, civilian governance in Syria as a whole. If not, another failed state is in the offing, something neither the world nor the Middle East can afford.
Israel is watching this closely and has taken steps to remove Syria as a strategic threat in the short to medium term to its security by seizing additional buffer zones in the Golan Heights and by destroying as much of Syria’s extensive weapons arsenal as possible. Its antipathy towards Asad was total but Israel had developed a modus vivendi with him. The new guys, wearing the colors of HTS are (at least in theory) more dangerous, given the similarity of their roots with those of Hamas and other Islamic radical groupings. Hopefully, Ahmad al-Sharaa will be mindful of where these policies led for the leaders of Hamas, Hizballah, and their ilk.
Comment: Thanks to our current Special Force deployment in eastern Syria, we were not taken completely by surprise by this sudden, historic development. SocoSIX sources tell us that we doubled our total to around 2000 personnel in the region mostly to keep the Islamic State (ISIS) from resurging and to instill additional backbone into the Kurdish separatists who maintain an uneasy control over 20,000 or more over captured ISIS prisoners and family members. These unrehabilitated terrorists are the reason why Presidents Trump and Biden have allowed our troops to remain in theatre long after the ISIS insurgency supposedly ended. Forging a new relationship with the Islamist group now vying for control in Damascus is one quandary the U.S. is poorly placed to tackle. Dealing with the potential maelstrom which might ensue depending on what happens to ISIS remnants both in captivity and at large is a second problem for which we have no apparent answers. We had better come up with one soon. One could hope that Erdogan’s latest efforts to broker a domestic pause in his war against the PKK within Turkey comes to fruition. This could ease possible solutions to the Kurdish Question in Syria, without which, renewal of serious conflict with its attendant death and destruction will almost certainly ensue. End Comment.
CHINA’S FIRES A SHOT ACROSS TRUMP’S BOW!
China spent last month flexing its muscles against U.S. trade restrictions — both from the outgoing administration of President Joe Biden and in anticipation of President-elect Donald Trump’s return. Its first target was those obscure metals – known as rare earths — essential to the making of everything from electric vehicles to quantum computers to smart phones.
Not only does China produce a majority of the world’s rare earth minerals, it also leads in processing them. It has huge mining operations in the DRC (the Congo), Angola, and elsewhere in Africa, Latin America, and Asia (including Afghanistan and Myanmar. In mid-December, Beijing countered Biden’s latest round of export controls of advanced microchips by banning outright the export of germanium, gallium and antimony to the U.S. Those three critical minerals are used in military equipment like night-vision goggles and by American chipmakers.
Through its actions, China is showing the incoming administration, with its threats to impose 60 percent tariffs on Chinese goods, that it can cause serious damage to the U.S. economy if it uses the powerful leverage it has through its control of most of the earth’s rare earth supplies. The pain would be considerable.
Comment: The years’-long effort by China to dominate the acquisition, mining, and processing of all these critical metals throughout the world – including in the U.S. — is one of the world’s worst kept secrets. Unfortunately, we probably do not have sufficient supplies of these minerals in our strategic reserve to prevent some significant problems for our economy if push comes to shove, and China bans exports of all of them. We are trying to play “catch-up:” Four recent Congressional measures target Chinese dominance and provide $2.5 to establish a strategic reserve. Idaho has received a permit to reopen an antimony mine, but it took ten years to secure this permission. This problem should be removed if the incoming Administration reforms the permitting process adequately and safely. We also need to coordinate an international approach to secure these supplies for ourselves and our allies. Canada is resource rich in many of these minerals, including lithium, graphite, and cobalt, but we are also threatening Canada with trade sanctions, so we really need to be careful not to throw the baby out with the bath water and retain the closest possible ties economically we can with our northern neighbor. End Comment.
BEIJING SMILES WHILE KOREA RIPS ITS DEMOCRACY APART
Beijing and Pyongyang are the two countries most pleased with the political drama which has been playing out in South Korea since the latter’s unpopular president, Yoon Suk Yeol, tried to enforce his declaration of martial law on December 3rd. President Yoon was promptly impeached and – surprisingly — so was his constitutional successor, Han Duck-soo, a technocrat who had good relationships with members across the aisle in parliament.
Han was charged with not being sufficiently strident in his opposition to his president’s plans. Criminal charges will now be presented at the ROK Supreme Court against both men, and new elections are anticipated in 2025. Pundits claim that these will almost certainly be won by opposition Democratic Party whose foreign policy differs greatly from the pro-American framework supported by impeached President Yoon.
Comment: We asked a leading Korean policy specialist associated with the Asia Society for her views on the situation. She told us that it is still too soon to gauge what the ultimate political fall-out from the dual impeachments will be. The Korean public, and the powerful business and political interests, can be fickle in their allegiances, and this might put a brake on some of the worst tendencies of the opposition Democratic Party’s foreign policy tendencies. The latter include appeasement of Pyongyang, kowtowing to Beijing, hostility towards Tokyo, and mistrust of Washington. In the delicate geopolitical makeup of Northeast Asia today, these changes could prove to be volatile, indeed. “Stay tuned and stay alert,” she opined. End Comment.
TRAVELERS TO RUSSIA BEWARE: THE DKRO IS WATCHING
Any western individual – prominent or not – is currently carefully watched by the Russian Department of Counterintelligence (DKRO). And some of them are likely to wind up arrested on trumped-up charges of espionage or any one of a dozen of other fabricated security violations according to a source at Embassy Moscow. Our source said that this was certainly what happened to WSJ reporter, Evan Gershkovich who was detained in 2023 by this secretive agency which, while on the books for many years, had only recently been energized and appears tightly controlled by President Putin, a KGB operative himself during the Cold War.
American citizens and dual nationals, along with the dwindling number of westerners, who may visit Russia periodically for personal or professional reasons, are all potential targets according to this officer. Russia, China, and Iran have all apparently adopted procedures to detain and then use prisoners to pressure specific foreign governments to exchange these usually innocent victims for their own nationals or agents working on their behalf who have been convicted of serious crimes of espionage and related crimes in various foreign countries.
Comment: Speaking off the record, a senior NSC official, who has been involved in some of these exchanges, voiced concern that — starting with the exchange of Brittney Griner for the infamous “Merchant of Death” arms dealer, Viktor Bout, two years ago – these exchanges have gotten out of hand. For years, real spies were exchanged between adversarial powers, but now it has become open season whereby ordinary tourists may find themselves targets of opportunity as the international political situation deteriorates, along with the long recognized and respected diplomatic codes of conduct among nations and unwritten understandings among major foreign intelligence agencies. End Comment.
OUR NEW TREASURY SECRETARY
Scott Bessent was the surprise pick by President-elect Trump as our next Treasury Secretary, but by most accounts, his appointment looks to be his most intriguing one. The markets responded favorably to his appointment, largely because he is a known and respected financier. For decades he has worked in international financial circles, including a stint with George Soros when the latter made infamy when he crashed the British pound in the 1970s. He is also viewed as a relatively moderate voice for many of Trump’s controversial ideas. He has told observers that the President will neither ask for Jerome Powell’s resignation before the end of his term in 2026, nor will he interfere with the FED’s independence. Bessent agrees with the President-elect that tariffs are a useful tool, but he indicated that they should be layered in gradually, always available but discharged only as a kind of final resort. From initial impressions, the markets – and other observers both in the US and abroad – — relaxed somewhat in anticipation that Trump 2.0 will not be as disruptive to the international trading systems after all.
One Wall Street insider who is close to Bessent and his husband, former New York prosecutor John Freeman, told us that like much of Trump’s new Cabinet, Bessent is a hawk on China. He has described the Chinese government as despotic. He also views China as a military threat and as guilty of milking decades of American conciliation towards Beijing to construct vast economic imbalance that have left the US with a hollowed-out industrial base at home and more dependent than ever on China for a wide range of key inputs. An avowed admirer of the Secretary-designate, our source expressed a bit of concern about how a bookish, cerebral individual, with no government experience, will fare managing a department employing 100,000.
Comment: What makes Bessent such an intriguing pick is his strong loyalty to Trump (whom he has praised as an “orange swan” in reference to so-called “black swan” events which unexpectedly move markets, an appellation which apparently pleases the President-elect enormously). At a public gathering last June, Bessent told an audience that we are headed towards some kind of global economic reordering, whether we like it or not. His goal, he stated, was to be able to ensure that the US is in the lead of shaping what comes next.
At home, Bessent has defined a proposed strategy as based on a Triple 3 policy:
- Trim US deficits to 3 percent of GDP to stabilize US finances.
- Develop business friendly policies to lift US growth to 3 percent to raise US revenue.
- Increase oil output by 3 million daily barrels daily (in support of the foregoing items).
Abroad, Bessent spoke about linking more closely all the tools of American power – including U.S. military and fiscal tools, in addition to market tools – to project a more activist America to the world. This effort would be aimed at fixing (not abandoning) the way the world trades. Some have dubbed Bessent’s policy as one of “escalating in order to deescalate” the potential and on-going strife. A senior analyst who works with a Washington think-tank normally associated with Republican views expressed the hope that Bessent’s position represents a realization that many of the assumptions about China and globalization common in the administrations of the past twenty years were ill-founded. Whether he has what it takes both personally and in terms of support from other Trump stalwarts to carry out such ambitious goals is far from certain, but it should not take long before we find out just how big a deal Bessent’s appointment is. End Comment.
IPO (AND OTHER STATISTICAL) SURPRISES FOR 2024
Last month, Bloomberg dropped an interesting data dump on the global ranking of public offerings (IPOs) which provides an interesting barometer on local sentiment which might have some significance as we move forward into 2025. Aside from some dramatic IPO developments in the Gulf where an influx in foreign and local investment is creating rapidly growing numbers of IPOs in places like Abu Dhabi and Oman, three other countries are especially interesting.
First, London Bridges Falling Down:
To be sure, London’s legendary 300-year-old stock exchange has traditionally been in the top five for global lists. Not last year. In 2024, London barely raised $1B via IPOS – down 96 percent from 2021 and leaving it in 20th place behind Oman, Malaysia, and Poland. Despite some positive changes in the trading rules, the outlook for 2025 looks gloomy, as well.
There are definitive reasons for this poor performance. The political and economic turmoil which followed the Labour Party sweep at the July 4th general election was far greater than anticipated and left local investors rattled. Added to this, the malaise produced depressed values, and foreign funds snapped up local bargains and then removed them from the London Exchange.
One British banker noted placed a slightly more positive spin on this dismal performance. He noted that IPOs generally were somewhat constrained in 2024, as governments everywhere are trying to attract listings and support local talent to cut their reliance on offshore capital. This was certainly a factor in the wealthy states of the Gulf Cooperation Council.
Second, India Rising while China Slow:
Party bosses in China have tightened listing rules, and given continuing questions about China’s trajectory, IPO growth on the Shanghai exchange has slowed, although some of the activity has moved into Hong Kong.
Meanwhile, the rising star has been India which more than doubled its IPO total over 2023 with a total of $17B. This included its biggest single IPO ever – one for Hyundai’s local unit in the amount of $3.3B. The prospects for 2025 also appear golden in the world’s fastest growing, major economy. Electronic giant LG is one of several big names considering listing in Mumbai – perhaps influenced by the political meltdown in the ROK last month.
One word of caution though: A British Embassy economics office, who has been
based in India on three occasions, warns that investors have been pulling cash out of India-linked funds for the last few months, spooked by hints of a slow-down and by accusations that several leading firms have been over-valued.
Third, Spain riding high:
A third, somewhat surprising standout on the Bloomberg listing, is Spain. Indeed, Spain listed a total of $3.17B via IPO, jumping 33 places from last year. Much of this was from one, $2.8B listing for Puig, the Spanish beauty and fashion giant, but the Spanish economy is smoking with a three percent growth in 2024, well above the 0.3 percent EURO and 1.3 percent EU growth respectively. An analyst from Citi told us that while many in Spain expect a repeat of this stellar performance in 2025, much of this growth is attributed to Spain’s recovery from Covid19. It might not be quite as sustainable in 2025 if government spending is not maintained.
Comment: A U.S. Treasury source reports that Asia raised $58.5B in IPOs this year, followed by Europe with $18.6B, and the Middle East and Africa with $12.6B. In contrast, the US alone raised $40.9B. Overall, global IPO activity has fallen in 2024 due to high interest rates, lower risk appetite, and a retreat from two years of “red hot” IPO activity in 2020-21. Our source tossed in one additional statistic noting that U.S. stocks are now accounting for about 62 percent of the global market cap. The second ranking goes to Japan, which trails by a mere six percent. End Comment.
