Israel Goes to War With Hamas

Starting on 7 October and in commemoration of the 50th anniversary of the Yom Kippur War, the terrorist organization Hamas engaged in a massive assault on Israel. More than 600 Israeli civilians and soldiers were killed with more than 1,800 injured in the initial attack. In addition, Hamas took hostages at kibbutzim along the border. Israel responded with air strikes in Gaza and expelling the invading Hamas terrorists, killing approximately 1,500 militants. The military response by Israel is likely to move into a ground invasion of Gaza, which will likely last between 1-3 months and involve tens of thousands of soldiers. This will be a complicated and bloody conflict. For corporations, there are likely to be a significant number of negative impacts. First, there will be antisemitic protests in major metropolitan cities in America, Europe, and Australia that will cause disruption and have incidental risks of violence. Second, there are likely to be smaller terrorist attacks and hate crimes in the West in support of Hamas, and it is credible that they will target companies associated with Israel. Third, there will be significant economic disruptions in Israel as workers are mobilized to support the war effort. Sectors like technology will be especially hurt. Fourth, there are extremely likely to be cyberattacks by governments and hacktivists that will credibly impact corporations. Finally, there will be a significant amount of disinformation online that is likely to cause issues with corporations’ reputation.

EU Assesses Trade Issues With China

Trade and security issues are causing tension between the European Union and China. The European Commission established a list of technologies to be assessed for possible risks to the bloc: semiconductors, artificial intelligence, quantum, and biotechnology. If the Commission determines there are risks, then they could start export bans and limits on investment in China. Vice President of the European Commission Věra Jourová stated, “Technology is currently at the heart of geopolitical competition and the EU wants to be a player, not a playground.” Relatedly, China has complained about the EU’s inquiry into subsidies for electric vehicles that distort the market. Claiming the EU only gave China a short time to respond, their primary issue is that the EU’s possible tariffs would allegedly violate World Trade Organization rules. However, the EU wants to protect the domestic market as China's share of electric vehicles sold increased to 8% and is likely to reach 15% in 2025. These trade issues combined strongly indicate further deglobalization and declining free trade. Europe’s problems with China are similar to the issues the United States is facing, and Western countries are increasingly hostile towards China’s market distortions, intellectual property theft, and protectionist policies. While the EU is behind the United States in challenging China on trade, these latest indicators point to a strong response over the medium term.

Turkey Continues to Stall Sweden’s NATO Membership

At a NATO meeting in Brussels on October 12, defence ministers from several countries reiterated the importance of ratifying Sweden’s full membership of the organization. All member countries signed the Accension Protocol for Sweden to join NATO in July 2022. However, its full membership has been delayed by Turkey, which was unhappy with Sweden’s stance on the Kurdish terrorist organization the PKK and more recently angered by several public Quran burning incidents in Sweden. President Recep Erdogan has also been seeking progress in Turkey’s bid to join the EU and wants to complete the purchase of F-16 fighter jets from the U.S. in exchange for approving Sweden’s bid. In response to Turkish demands, Sweden has agreed to closer counterterrorism cooperation and taken measures against individuals supporting the PKK. Notably, a Kurdish individual was convicted in Sweden for financing terrorism in a case involving the PKK.

Turkey’s parliament reconvened from its summer break on 1 October. Before the recess Erdogan said that the country was likely to vote on Sweden’s NATO membership when parliament returned, but no specific timeline has been set. There are several important domestic legislative decisions such as the budget, social media content, and retirement age to be discussed, and Erdogan is likely to continue delaying until he believes he has made further progress with the U.S. and EU. It is worth noting that Hungary is also yet to approve Sweden’s full membership.

Russia Bans VPNs

Roskomnadzor, the Russian communications regulator, has issued a rule that virtual private networks (VPNs) will be banned starting on 1 March 2024. VPNs are tools to help protect communications and internet access, and following Russia’s invasion of Ukraine in February 2022 there was a significant increase of VPNs in the country. The Russian government especially wants to block access to Meta products: Facebook, Instagram, and WhatsApp. This is because Russia considers Meta an “extremist organizations.” Roskomnadzor’s regulation matters because it’s further indication of the balkanization of technology happening globally and gives an example for other authoritarian regimes.

ICRC Issues Hacktivist Guidelines

The International Committee of the Red Cross (ICRC) released ethical guidelines for civilian hackers (hacktivists), which is a novel application of the customary laws of war. ICRC wants hacktivists to adhere to certain humanitarian principles, such as not targeting civilian infrastructure, medical facilities, or water systems. Hacktivists in warfare are of particular concern now because of the Russia-Ukraine war, although they have participated in a number of conflicts before then. These issued guidelines will not have an immediate impact, but it is important indicator for the direction of cyber war in global politics. Since the Tallinn Manual by NATO a decade ago, international organizations have attempted to craft rules of war for cyber operations. Companies like Microsoft have also called for a digital Geneva convention. Though there will not be an immediate impact, this will be a step towards establishing those norms over the long term.

Microsoft Digital Defense Report 2023

Microsoft has issued their Digital Defense Report 2023, which is a useful collection of data and research on cybersecurity for security professionals and corporations. Important data in the report on cyberattacks between June 2022 to June 2023 shows that “nearly half of these attacks targeted NATO member states, and more than 40% were leveled against government or private-sector organizations involved in building and maintaining critical infrastructure.” In addition, the report found that the majority of attacks were motivated by espionage goals, such as stealing information, monitoring communication, and manipulative public opinion. Security professionals should read the report’s breakdown of hacking campaign by Russia, China, Iran, and North Korea to understand how those campaigns have changed over the last year.

U.S. September Jobs Report

The United States increased nonfarm payrolls by 336,000 people in September, and average hourly earnings rose 0.2% (4.2% year-on-year). This is the highest increase in employment in eight months, but the unemployment rate has stayed at 3.8%. Higher employment indicates the economy is still doing well and that the Federal Reserve likely has room to increase interest rates again to further push down inflation if need. However, that remains unlikely because Treasury yields are at a 16-year high. The job numbers are also an indicator that the Fed will keep interest rates higher for the medium term. Therefore, corporations should prepare for a strong dollar and more restricted lending during that time.

Country Garden Can’t Meet Debt Obligations

IF’s PESTLE & MORTAR previously reported on the instability of China’s real estate market on 22 September, and specifically discussed the problem of developer Country Garden. According to the company, they are “not be able to meet all of its offshore payment obligations when due or within the relevant grace periods.” Since 2021 40% of companies dealing with Chinese home sales have defaulted on debt obligations, but Country Garden is significantly more important as China’s largest private property developer. The company has $10.96 in offshore bonds and $5.86 billion of offshore loans that they will not be able to cover. This is an extremely negative indicator for both China’s real estate market and a possible regional financial crisis should the market collapse.

U.S. Seeks More Restrictions on Chips

The United States is considering restricting companies from working on RISC-V, an open-source chip technology popular in China. US lawmakers are pushing for the restrictions on both national security grounds and to help support American semiconductor companies. These possible new restrictions follow updated rules on exports to China of semiconductor and advanced AI chips. Corporations working in China or with companies there should expect stricter regulations, which will make it significantly more difficult to work there. In addition, corporations should expect retaliation by China, though it is unknown what form that will take. China does not always respond punitively in the same sector that is being targeted by the U.S., though it is credible there could be more rare earth bans in response.