Taiwan Election on January 13 

On January 13, Taiwan will hold its presidential and legislative elections, and the outcome will have significant effects on Asian geopolitical issues. While the election is highly likely to pass off peacefully, the CCP is currently attempting massive influence and cyber operations to impact the outcome and make it more favorable. Current polls indicate that the DPP’s (Democratic Progressive Party) presidential candidate Lai Ching-te (William Lai) is ahead narrowly, but the main opposition party Kuomintang (KMT), and their presidential candidate Huo Yu-ih are not out of the running (see here for list of candidates). The most likely scenario is that the DPP will win the presidency and a narrow majority in the legislature, but there is also a moderate likelihood of KMT taking the presidency but not the legislature. KMT is much more pro-Beijing than the DPP and the preferred candidate of the CCP.
 
China is generally unlikely to trigger a crisis through a blockade or invasion in the short term, but the choices by Taipei will likely shift how China engages the island. China’s covert influence operations are intended to undermine the public’s trust in democracy, and there is a high likelihood of cyberattacks by “patriotic hackers” in the days leading up to the election. Targets are more likely to be government or political institutions, but there will be incidental risks to foreign businesses. Should the DPP win, China is most likely to respond with military exercises to demonstrate strength that will likely disrupt some travel in the region, and there is a moderate likelihood of implementing tariffs (though these would be highly limited and just meant to show displeasure). Importantly, the election is only the first step, and there will be risks to Western governments depending on the kind of congratulations and travel by politicians. In the short term, not much is likely to change, but there remain higher risks for the medium term.
 
Contact us if you are interested in more in-depth analysis of the Taiwan-China issue, its impacts on businesses, and geopolitical risks. 

Israel Targets Terrorists in Border Countries 

The United States has attempted to promote an agreement between Israel and Palestine. Secretary of State Antony Blinken told Israeli leaders that Arab countries can likely be brought along if there are serious steps taken for a Palestinian state. However, there are some indicators that the war will move to the north, if only briefly with a few military strikes. For example, Israel is expanding its strikes into Syria, targeting “cargo trucks, infrastructure and people involved in Iran's weapons supplies to its proxies in the region.” In addition, Israel is targeting Hamas and Hezbollah personnel and infrastructure in Lebanon. So far, more than 130 Hezbollah fighters have been killed while the terrorist organization has fired several dozen rockets over the border. Furthermore, Turkey is attempting to disrupt Israeli spying in the country meant to allow Israel to target Hamas there as well. Turkey has reportedly carried out four counterintelligence operations against alleged Israeli spies. A broader conflict remains unlikely, but Israel seems to be moving towards more targeted strikes against Hamas outside of Gaza. This indicates a new phase in the war, particularly as the IDF begins removing troops from Gaza because of the strain on the Israeli economy and international pressure because of the humanitarian crisis in Gaza.  

Update: Ethiopia Deal Creates Regional Issues 

On January 8, Somalia’s president visited Eritrea following the memorandum of understanding on port access between Ethiopia and the unrecognized Somaliland. In addition, on the same day Ethiopia announced that it held military talks with the self-declared republic. Ethiopia became the world’s most populous landlocked country when Eritrea became independent in 1991, and this has consistently harmed Ethiopia’s economic and security interests in the region. Diplomatic recognition of Somaliland by Ethiopia increases the risk of war with Somalia, and Eritrea (which helped armed the terrorist group al-Shabaab) could be drawn into the conflict. The UAE and Kenya also tentatively support Somaliland for their own regional strategic interests. All of this is complicated by Ethiopia and Somalia's cooperation on counter-terrorism operations against al-Shabaab. Any conflict that occurs will be tangled with interconnected alliances opposing Ethiopia. However, Somalia’s armed forces are ill-prepared for a war with Ethiopia, and therefore, they are unlikely to go to war in the short term. Importantly, the current memorandum is not a legally binding agreement, and Ethiopia will need to enter into such an agreement to gain access to the Gulf of Aden. Such an agreement, especially if it includes military access, will likely be a trigger for conflict in the region. Therefore, it will be important to monitor the continued negotiations between Ethiopia and Somaliland that could lead to such a treaty.  

Ecuador Faces Internal Crisis from Cartels 

Ecuador is experiencing significant internal conflict as a series of prison breakouts and violent attacks are taking place, including lootings, kidnappings of law enforcement officers, and murders of prison guards. President Daniel Noboa has attempted to quell violence as cartels are warring in the country, and he implemented a two-month state of emergency on January 8. A key reason for the state of emergency is that one of the country’s most notorious gang leaders was one of those who escaped from prison. Jose Adolfo Macias Villamar (alias Fito) has extensive connections to cartels in Mexico and Colombia. The violence in Ecuador has the possibility of spilling over into Colombia and Peru. Peru has already placed military personnel and police officers along its northern border. Should violence spread between cartels to the region, there will be significant incidental risks to businesses as they are already forced to pay for protection, but there will be increased risks of indirect violence against employees and travelers.  

China’s Population Declines for Second Year 

For the second year in a row, China’s population has declined slightly. The long-term structural issues of gender inequality and the One Child policy appear to be having negative effects and birthrates have been dropping since 2016. However, the decline is also due to other factors including an increase in Covid-related deaths, lockdowns, and a weak economy. Although this does not pose an immediate risk to the country, it continues to highlight the long-term problems within China with which businesses will have to contend. As the population moves from stabilized to declining, the government will face difficulties in employment and maintaining sufficiently high growth rates. In addition, the CCP is likely to become less risk averse on issues like Taiwan if they believe their ability to achieve their interests will be diminished in the long term.