Canada-India Relations Deteriorate

Canadian Prime Minister Justin Trudeau accused Indian intelligence agents of neutralizing a Sikh separatist leader Hardeep Singh Nijjar, who was a Canadian citizen, outside a gurdwara in June 2023. Nijjar moved to Canada decades ago, and he became prominent in the Khalistan movement whose goal is to create a separate Sikh homeland in India's Punjab state. India also claims the Nijjar headed the militant Khalistan Tiger Force that they had designated a terrorist organization. In response to the accusations, India suspended new visas for Canadians, which is an unprecedented step for India to do that to a Western country, and it indicates the severity of the problem between the two countries. Both countries also expelled each other’s diplomats. The United States has offered support to Canada and stated they expect India to help in the investigation, but the US has only given statements on the subject and taken no actions because they do not want to harm their own partnership with India. Indian political commentators and politicians have almost unanimously condemned Canada’s accusation, which is an indicator this will be far more problematic than just typical tension in foreign policy disputes.

There are likely to be negative economic impacts of this dispute. Lentil sales from Canada have already declined, and Canada has stopped bilateral trade talks that would have impacted everything from coal to garments to electronics and aircraft equipment. In economically important areas, though, Canadian and Indian companies are prioritizing their needs over political issues, such as maintaining a supply of fertilizer. Besides economics, there are also two major geopolitical implications. First, Canada now has tension with three great powers over its foreign policy: Russia, China, and India. While Canada has good relations with the US currently because of Trudeau and Biden’s shared politics, if Trump returns to power in next year’s election, then Canada will likely also have a more difficult relationship with the US. Second, if India did neutralize Nijjar, then it is a significant indicator that India’s foreign policy is moving in an interventionist direction, and analysts can no longer assume previous foreign policy behaviour will continue.

Kosovo-Serbia Tension

Tensions between Kosovo and Serbia are increasingly problematic, and the possibility of violence would have negative implications for the Balkans. On 25 September, Kosovo demanded that Serbia hand over alleged assailants who attacked the village of Banjska before hiding in an Orthodox monastery. Three of the attackers and one police officer died in the shootout at the monastery. This was only the latest incident in escalating violence between Kosovars and Serbians. Serbia claims Kosovo does not protect the rights of ethnic Serbians who make up 5 percent of Kosovo’s population.

In north Kosovo, there are problems with ethnic Serbs refusing to pay energy bills, erecting roadblocks, and attacking police. The proximate cause of tension was Kosovo’s requirement that all cars have Kosovan license plates, but the ethnic Serbs wanted to keep their Serbian plates. Importantly, Serbia does not recognize Kosovo’s independence and maintains it is still part of Serbian territory, and ethnic Serbs in Kosovo want an autonomous region. As such, Kosovo has accused Serbia of arming the gunmen to create strife and help partition Kosovo. Serbia recognized a national day of mourning for the three gunmen who died in the incident of the monastery, calling them “martyrs.”

The history of Serbian nationalism has historically had dire consequences for Europe, including World War I and the Yugoslav Wars. Although a war between Kosovo and Serbia remains unlikely, the possibility of conflict will impact NATO detrimentally because there are still thousands of peacekeepers stationed in Kosovo. If violence escalates it will detract from NATO’s ability to support Ukraine and complicate efforts to contain Russia. Violence would be unlikely to spread beyond the two countries, but there will be negative second order effects on European stability.

China’s Real Estate Problems

On 25 September, Evergrande subsidiary, Hengda, missed a $547 million bond payment, which caused a drop in their stock price of more than 19 percent. The Chinese real estate and property markets are facing significant problems, and there are indicators that Evergrande is facing liquidation over their inability to handle both domestic and foreign debt. As housing prices continue to drop, both the CCP and local governments are attempting to prevent a collapse. For example, local governments have set pricing floors, though this will significantly disrupt the market. China’s real estate problems pose significant broader risks because debts for the property sector, banks, and local governments are deeply connected, and a steep decline in the real estate market could have spiralling effects both in China and globally. For China, Evergrande is especially important because they control a quarter of the market. In addition, there is highly likely to be political instability should a collapse occur. President Xi has already engaged in multiple purges in his anti-corruption campaign, and developers, bankers, and government officials will all be blamed and likely put in prison. Evergrande’s chairman is already under investigation and police watch. Altogether, these are negative economic indicators for China, which will impact trade and manufacturing across the region.

Energy Price Volatility

The price of Brent crude oil hit $97 per barrel on 27 September, its highest since November last year. Although now trading at around the $93 per barrel mark, prices have increased about 30 percent since June on the back of supply cuts by Saudi Arabia and Russia. A big drop in US stockpiles caused the spike earlier this week and has elevated supply concerns. High oil prices are negative for energy security, economic growth, food prices, and inflation. We talk about all of these issues in our Top 10 Geopolitical Risks for 2024 report.

France Removes Troops from Niger

France has decided to pull its 1,500 soldiers out of Niger, the West African country that experienced a coup in July. France was the colonial power in the region and maintained influence there, but the coup leaders demanded they withdraw from the country. The removal of French troops is a negative indicator for political stability and security in the Sahel region. France has been critical over the last decade in counterterrorism and counter-insurgency operations. In addition, it is an indicator for Russia’s expanding influence in Africa. Following the coup pro-Russian demonstrations were held in Niger and Russia extends its influence through mercenaries like Wagner and other mechanisms like weapons sales and information operations.

Italy Deals With Mass Migration

In late September, more than 10,000 migrants arrived on the island of Lampedusa, the southernmost point of Italian sovereign territory, straining resources only capable of handling a few hundred migrants at a time. Many of the migrants are coming via Tunisia, but their origins span much of the Middle East and Africa. Italian Prime Minister Meloni has been a strong critic of immigration to the EU, and while visiting the island she referred to last week’s large arrival as an “invasion” and an “act of war.” Irregular border crossings in the EU are at their highest level since 2016 and the immigration issue is putting strain on EU internal relations. An increase in irregular arrivals is an indicator that right-wing governments will continue to gain or maintain power in southern and eastern Europe and elevated immigration will continue to fuel the rhetoric of extreme-right groups.

Japan’s New Economic Package

Japan’s Prime Minister Kishida released a new economic stimulus package that will be developed over the next month with the primary purpose of dealing with inflation. The legislation is also meant to deal with the most significant economic problems Japan is facing, including wage increases, investment for domestic growth, infrastructure, and ways to handle a shrinking population. In addition, Kishida is focusing on the yen in the currency market, aiming for greater stability. The premier’s new policies show not only the continued negative effects of inflation, but that Japan is acknowledging structural problems in their economy. Former Prime Minister Abe attempted to deal with such problems, but he was unable to overcome technical and cultural issues that prevented radical reform.

Cyber Insurance Sees Higher Ransomware Claims

The cyber insurance company Coalition issued a new report that found ransomware was the “largest driver of the increase in claims frequency,” claims increased by 12 percent in H1 2023. Coalition found that ransomware was connected to one-fifth of cybersecurity incidents involving insurance claims, and May 2023 had “the most ransomware claims in a single month in Coalition history.” Important data in the report found that the average financial loss from ransomware was $365,000 compared to $227,000 in H2 2022, and that the average ransom demand had increased 74 percent over the past twelve months to USD $1.62 million. Larger corporations (those with more than USD $100 million in revenue) had a 20 percent increase in ransomware attacks. This report is a strong negative indicator for cybersecurity because over the previous 18 months ransomware had been in decline, and this new data indicates threat actors are using ransomware because it continues to be profitable. As a result, cyber insurance will increase in costs for corporations, particularly larger ones.

UK-EU Regulatory Forum

In October, the new forum for regulatory cooperation between the UK and EU will have its first meeting, a needed reprieve for both financial markets. Due to Brexit, the UK financial sector was practically barred from the EU, but this will start the negotiations on opening that market back up. Despite Brexit, the UK kept its position as Europe’s most important centre of finance, but the forum is important because the EU accounted for more than a third (37 percent) of the UK financial sector’s exports in 2019. Despite this being a positive indicator for a freer financial market, the forum is only the first step, and it will focus on voluntary regulatory cooperation.

UAW Strike Expansion

The United Auto Workers (UAW) indicated that they will expand the ongoing strike to include more Detroit Three automotive facilities starting at noon (1600hrs GMT) on 29 September. The threat to expand the strike is likely a negotiating tactic to move forward stalled talks between the union and management at Ford, General Motors, and Chrysler. The UAW has already shut down assembly plants from each of the companies, but only about 12% of the UAW is currently on strike. That could significantly increase if the UAW does not like the direction of negotiations. The strike is already having negative impacts on the supply chain, and it is highly likely the strike will continue over the short term, especially because President Biden has overtly given his support to the union.