Humanitarian Issues Worsen in Gaza
The U.S. and U.N. are currently negotiating with Egypt to allow emergency aid to Palestinians in Gaza as local doctors have stated that hospitals are seeing signs of disease caused by overcrowding and poor sanitation. Currently, about 1.4 million Palestinians have left their homes to go to temporary shelters to deal with Israel’s air campaign against Hamas. Israeli tanks and troops are preparing for a ground invasion that will exacerbate these humanitarian issues. Humanitarian assistance is unlikely to make it through, though, as Egypt will not relent on its security concerns. President of Egypt Abdel Fattah El-Sisi has argued that Egypt cannot allow Palestinian refugees to come through the border because it will make Sinai a “a base for terrorist operations against Israel.” Arab leaders also oppose Palestinians leaving Gaza because they believe that will allow Israel to move into the area and occupy it. These humanitarian issues matter because the worse they become the more reactive Arab countries and more importantly Arab nationals will become. Violent protests, possible terrorism, and cyberattacks by hacktivists are all increasingly likely in this scenario, but so is the use of force by organizations like Hezbollah and spread of the conflict (see below for analysis on Iranian proxies). Essentially, the humanitarian crisis in Gaza will be an important indicator for how likely neighboring countries and threat actors are to attack Israel to aggravate the conflict beyond the borders of Israel.
See here for Insight Forward’s assessment of the tertiary risks to corporations from the Israel-Palestine conflict.
Iranian Proxies Attack U.S. Forces
Iranian foreign policy is proving to exacerbate the Israel-Palestine issue as Shia proxies are attacking U.S. forces in Iraq. On October 23, two rockets landed inside the Ain al-Asad air base near Baghdad, there have been a total of 13 attacks on U.S. forces in the past week. This is likely done because Hezbollah does not want to fully engage Israel as the IDF would use extreme force to neutralize the organization in Lebanon. However, U.S. forces in Iraq and Syria are more vulnerable as the Biden administration is less likely to retaliate. In addition, Iran relies on their concept of “extended deterrence,” which is pushing the frontline of conflict away from its borders through asymmetric means. They do so by funding Shia militias and terrorist organizations (including Hamas), assassinations, and cyberattacks. A broader conflict that involves Iran remains highly unlikely. Yet Iran is highly likely to support violence through proxies and engage in cyberattacks. The worst-case scenario is that should the U.S. or Israel respond to these provocations in Syria, Iraq, or the Gulf, then Iran could shut down the Strait of Hormuz through which 30% of the world’s oil goes, which will be extremely deleterious to global markets.
U.S. House of Representatives Chooses Speaker
On October 25, Representative Mike Johnson became the new Speaker of the House following weeks of turmoil in the lower chamber of the legislature. Johnson is a right-wing Republican and devoted supporter of former President Donald Trump, and he was instrumental in the effort by Republicans to overturn the 2020 election based on false accusations of voter fraud and corrupt machines. Considering the unprecedented removal of Kevin McCarthy as Speaker for passing a continuing resolution to prevent the government from shutting down, Johnson will be extremely unlikely to compromise with Democrats on any major issue, especially funding for Ukraine and the federal government. If the government cannot pass a budget or at least a continuing resolution by November 17, then the U.S. federal government will shut down. There will be some negative economic impacts over the short term should such a shutdown last more than a few days, but this will be a stronger indicator for larger partisan battles in 2024. Longer term issues will be the election next year because as Speaker Johnson is highly likely to claim fraud again should Trump lose a second election. This will raise several political risks for corporations and their ability to operate in the U.S.
China graphite export ban
On October 20, China stated that it will begin requiring export permits for certain graphite products due to “national security” concerns, which is the same justification the U.S. has used for their own export bans. China is the largest producer and exporter of graphite used in electric vehicle batteries. This is most likely a retaliation over U.S. chip and technology export controls to China, and it is an indicator that the CCP will use their domination of rare earths to punish Western countries that oppose them. Importantly, China accounts for 70% of the world’s mine production of rare earths and 85% of the world's processing of rare earths.
Federal interest rates
Federal Reserve Bank of Atlanta President Raphael Bostic noted that the central bank will likely begin reducing interest rates in late 2024 because inflation is coming down, though it has not reached the 2% goal. In addition, Bostic noted that the FOMC is likely done raising rates for the year. This is a useful indicator for monetary policy over the medium term. Insight Forward had previously forecasted peak interest rates and an unlikely reduction through 2024, and Bostic’s comments further indicate this is the most likely scenario. Corporations that relied low interest loans over the previous decade are highly likely to be negatively affected by this.
FBI – DPRK posing as IT workers
On October 18, the FBI issued a warning about North Korean theft operations. According to the law enforcement agency, thousands of IT workers had been sending millions of dollars to North Korea because they were actually North Koreans working under false identities to help fund the country’s missile program. These fake workers operate at China-based Yanbian Silverstar Network Technology and Russia-based Volasys Silver Star, and they would be hired for freelance work by U.S. corporations. In response, the U.S. government seized seventeen website domains that the fake workers used as part of their scheme, and they seized $1.5 million in revenue. Corporations must be constantly vigilant against such schemes, and this highlights the fundamental need for strong due diligence programs.
Five Eyes warns of AI-enabled attacks by China
The Five Eye’s made a statement accusing China of intellectual property theft and utilizing AI for cyberattacks. Such joint statements are rare, and this is a strong indicator of greater cyber conflict with China, particularly because the statement came after meetings with U.S. technology companies in Silicon Valley. FBI Director Christopher Wray explicitly stated, "China has long targeted businesses with a web of techniques all at once: cyber intrusions, human intelligence operations, seemingly innocuous corporate investments and transactions.” China steals tens of billions of dollars’ worth of intellectual property every year from Western companies, and in September 2023 China was caught planting an academic in an Australian research institution. Western governments and China are extremely likely to be engaging in a geopolitical tit-for-tat, and major cyber operations will be part of this. So will export bans and other economic tools (see above).
Argentina Election
The next round of Argentina’s presidential elections will take place on November 19 after the Peronist and libertarian candidates came in first and second place respectively in the election on October 22. There are real economic policy risks if either candidate wins the election because Argentina is facing is greatest economic crisis in twenty years as central bank reserves are gone, there is a major drought causing a recession, and problems with the IMF’s $44 billion program in the country. The Peronist Sergio Massa wants to maintain social safety nets and subsidies that the government cannot afford, and the current Peronist government has seen inflation reach 138%. On the other hand, the libertarian Javier Milei wants to dollarize the economy, shut down the central bank, and implement strong austerity measures. Because these are the two available candidates and considering their policy choices, Argentina is extremely likely to face a severe and long recession that has the potential to drag down surrounding countries.
Data Breaches Reach Record Levels
Data breaches in 2023 have already surpassed previous years’ numbers with the total through September being 2,116 data compromises. This is a 17% increase over the total number of data compromises in 2022. This new reporting shows that both governments and corporations are failing to mitigate the consistent ransomware and other cyberattacks on most organizations. Of note, the MOVEit vulnerability was connected to three of the most impactful breaches in Q3 2023. See the chart below for comparison of numbers of data breaches since 2017.
New Research on Cybersecurity and Cyberattacks
New research published by the Center for Strategic and International Studies (CSIS) argued that the Cybersecurity and Infrastructure Security Agency (CISA) currently provides insufficient information on the complex risks civilian agencies face from cyberattacks. The report calls for “additional resources, leveraging and harmonizing authorities, and improving communication and coordination with stakeholders.” Relatedly, Lloyd’s of London and the Cambridge Centre for Risk Studies issued a study of what would happen with a major cyberattack targeting payment systems. Though they determined such an attack only had about a 3.3% chance of happening, the consequences would likely lead to the loss of $3.5 trillion. Both studies highlight the continued risks of cyberattacks on both the government and private sector, and they matter because both the government and private sector are woefully unprepared and underfunded to deal with major cyber incidents.
"The more we value things outside of our control, the less control we have.”
- Marcus Aurelius
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